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  • Pat Schultz

Yes, you should roll over your TSP after retirement. Here are 5 reasons why.

Steve and Jenny love their house. It’s on a quiet street, has a big backyard with a swing set and barbecue, and they have great neighbors.


For 20 years they’ve raised a family, had cookouts and bonfires, and hosted sleepovers for their kids and their friends. The house is full to the brim with memories of Christmas mornings, birthday parties, and gathering around the Thanksgiving table.


In other words, it’s a home.


But life has changed for Steve and Jenny.


Their kids have both graduated from college and moved into homes of their own. Now the house they love seems too big. There are lots of families with kids nearby, but Steve and Jenny are closer to the ages of those kids’ grandparents than the age of their parents.


The house takes a lot of time. There are constant to-do lists, and cleaning takes longer than they’d like. They’re starting to wonder, is it time to downsize? For so long their house was the embodiment of a dream. A haven for their family. Is it really time to give that up?


Let’s face it. Things change when you retire. What you need or want in the years leading up to retirement can be very different from what you need or want in retirement.


That’s the way we view the TSP. It’s a great vehicle for accumulation, but it’s not a good vehicle once you retire.


Why is the TSP a great vehicle for accumulation?


There are a few reasons why the TSP is good for accumulation.


First of all, underlying costs for investment funds in the plan have been driven down due to the size and scale of the federal government.


Second, you get big, broad exposures to the entire market. You can access the US Stock market, some international funds, bond funds, etc.


Third, the TSP eliminates analysis paralysis. Studies show the more investment options people have, the less likely they are to make a decision and the more likely they are to not invest at all. The TSP has simplified the decision making process by giving only a few options. They also allow you to eliminate all decision making with the autopilot target date funds.


Why is the TSP a terrible vehicle after retirement?


First of all, you need to avoid the big drawdowns. The last thing you want to do is run out of money due to poor investment performance.


Think of what happened to people who retired shortly before the drawdowns that happened in 2008. While it looked like they would have enough for retirement, many of them have or will run out of money because it took the market years to recover.


With your money in a TSP you have limited options if there is a drawdown in the market. By rolling over your TSP to an IRA you have access to many more investment options that can help you ride out a market drawdown so you don’t run out of money.


Second, you need income. Once you’ve transitioned into retirement you’ll have gone through the exercise of determining what retirement will cost you on a monthly basis.


Let’s say you have a nice base income between Social Security and your pension. But after your calculations you determine you’re going to need a few thousand more a month from your TSP. After all, you’ve accumulated a nice, 7 figure TSP. Shouldn’t you be able to tap into it?


When you look at your options you realize you can put it all into the G and F funds. With interest rates at historic lows, you might not be able to get enough income from these 2 options.


Maybe that’s enough, but what if it’s not? Also, how do you get the money out of your TSP? Let’s face it, when you’re dealing with the federal government there are always hoops to jump through, and getting the money you earned out of your TSP is no different. There is no easy way to get that money from your TSP into your checking account so you can spend it.


Instead of struggling to get money out of your TSP, we think you should have easy access to the money you’ve earned.


That’s why we recommend that you roll over your TSP to an IRA and apply our Proprietary investment Framework. This Framework enables you to have the most efficient and comprehensive way to fund your retirement.


Together we develop your Intelligent Retirement plan and get clear on what you want out of your retirement. Then we figure out how much you’ll need from your TSP to supplement your monthly income.


Once your Intelligent Retirement plan is developed we apply our Proprietary Investment Framework to fund it. The framework has access to thousands of investment vehicles that can be customized to meet your income needs.


We can tailor a mix of income producing investments and growth oriented investments to help you achieve the income you need for the retirement you want. We can also set up biweekly transfers from your IRA to your checking account, similar to the paycheck you’ve been used to receiving.


Think of how much easier it is to plan your budget if you know how much is coming in each week or month. That’s what you can do with an IRA that you simply can’t do if you leave your money in your TSP.


Back to Steve and Jenny. Just like you’ve grown your investment in your TSP, they’ve invested in the home where they raised their family. Moving on can be hard, but sometimes it’s best.


Steve and Jenny decided to sell their home. They sold it to a couple who are just starting their family and who will be able to use that swing set and backyard barbecue. The new family will love the neighborhood full of families similar to their own.


Meanwhile Steve and Jenny found a beautiful, small home in town. It’s close enough that they can walk to the coffee shop in the morning, and there are lots of retired couples in the area. They love seeing their neighbors and new friends while they’re walking around town and are enjoying the free time they’ve found by having a smaller space to clean and maintain.


Their family home served them well for years, but with the changes retirement brings it was time for a transition.