If You’re Under FERS, This One Retirement Decision Could Have a Bigger Impact Than Your Annuity

Key Takeaways

• Choosing when to begin withdrawing from the Thrift Savings Plan (tsp) can influence your long-term retirement security even more than your monthly FERS annuity.

• Coordinating your TSP withdrawals, Social Security benefits, and annuity timing can help reduce tax burdens and prevent running out of funds later in life.

Understanding the Bigger Picture Beyond the FERS Annuity

If you’re under the Federal Employees Retirement System (FERS), you already know that your retirement package isn’t based solely on a pension. It includes three pillars:

• A basic annuity calculated from your high-3 average salary and years of service

• Social Security benefits

• Your Thrift Savings Plan (TSP), which you contribute to and invest in during your working years

While many public sector employees focus heavily on the annuity itself, your decisions around the TSP often end up having a more significant impact over the course of retirement. Why? Because the annuity is fixed, but how you use your TSP involves strategy, timing, market risk, and tax consequences.

Why TSP Withdrawal Strategy Matters More Than You Think

The FERS annuity gives you a reliable income stream, but it’s limited. In 2025, the average monthly FERS annuity is around $1,810. For many retirees, that alone isn’t enough to sustain the lifestyle they expect.

TSP, on the other hand, is the only flexible portion of your retirement package. It can:

• Provide inflation-adjusted income if invested wisely

• Serve as a buffer before Social Security kicks in

• Be used to delay Social Security for a higher benefit

• Be depleted too quickly if withdrawals aren’t planned properly

The choices you make here could spell the difference between having enough at age 80 or facing a shortfall despite receiving an annuity.

1. The Timing of Your TSP Withdrawals

The minimum age to begin TSP withdrawals without penalty is 59½. However, you can access funds earlier if you retire during or after the year you turn 55 (or age 50 for special category employees like law enforcement).

Even if you’re eligible, withdrawing too early or too heavily can erode your savings faster than expected. On the other hand, delaying withdrawals can:

• Allow your investments to grow longer

• Help reduce taxable income in early retirement

• Coordinate more effectively with Medicare, which begins at age 65

The timing should match your projected retirement expenses and health status, as well as your goals for passing assets to heirs.

2. Required Minimum Distributions (RMDs) Begin at 73

As of 2025, RMDs from the TSP begin at age 73. If you fail to take the minimum amount, the IRS imposes significant penalties. This means that even if you don’t need the money, you must withdraw a portion each year starting at 73.

This can cause unexpected spikes in your taxable income, especially if you’re also receiving your annuity and Social Security. A well-timed withdrawal strategy before age 73 can smooth out your income curve and minimize tax shocks.

3. Coordinating with Social Security Timing

The earliest you can claim Social Security is 62, but waiting until full retirement age (67 for those born in 1963) or even age 70 significantly increases your benefit.

Strategically using your TSP to bridge the gap between retirement and claiming Social Security can:

• Maximize your eventual Social Security income

• Reduce longevity risk

• Keep your tax brackets lower in the early years

For example, if you retire at 60 and delay Social Security until 67, you’ll need to fund those 7 years. Your TSP is likely the best vehicle to do that.

4. Choosing the Right Withdrawal Method

TSP offers multiple withdrawal options, including:

• Monthly payments (fixed or based on life expectancy)

• Partial or full lump-sum withdrawals

• Rollover to an IRA with potentially more withdrawal flexibility

Your choice affects:

• Taxation

• Investment risk

• Flexibility in changing income as your needs shift

Monthly payments offer simplicity, but once set, changes are limited. A rollover to an IRA may give more control, but removes you from TSP’s low-fee structure. Every option has trade-offs that must align with your financial plan.

5. Understanding the Tax Landscape

TSP distributions are fully taxable unless you’ve made Roth contributions. Retirees often underestimate how multiple income streams compound their tax liability.

In 2025, the standard deduction for married couples filing jointly is projected to be $30,000. If your annuity is $21,720 annually and you begin Social Security and TSP withdrawals, your income could easily exceed the standard deduction, pushing you into higher brackets.

Strategies to reduce tax burden include:

• Withdrawing smaller amounts earlier to spread out tax liability

• Converting some TSP funds to a Roth IRA before RMD age

• Carefully coordinating TSP, annuity, and Social Security income

6. Planning for Inflation and Longevity

A FERS annuity provides a cost-of-living adjustment (COLA), but it’s often not enough to fully offset inflation, especially in years with large spikes in living costs.

The TSP, if invested wisely, has the potential to grow with inflation. Choosing appropriate funds (such as the Lifecycle or stock-heavy funds) during early retirement may give your balance a better chance to keep up with costs in your 70s and beyond.

Additionally, the average life expectancy for a 65-year-old in 2025 is over 84. You need a 20–30 year income plan. Your TSP can stretch across those decades if withdrawals are managed with sustainability in mind.

7. Impact of Survivor Planning

Unlike the annuity, which may continue partially for a surviving spouse if you’ve elected a survivor benefit, the TSP offers complete flexibility. Your named beneficiary receives the remaining balance, which can be rolled over into an IRA or inherited TSP account.

This makes TSP an important estate planning tool. But if it’s depleted too early in retirement, there’s less to pass on. Thoughtful withdrawals balance today’s needs with future goals.

8. Role of the FERS Annuity Supplement

If you retire before age 62 and meet certain service requirements, you may receive the FERS Annuity Supplement. It’s designed to bridge the gap until Social Security starts.

But the supplement ends at 62, whether or not you’ve started Social Security. That can create a sudden income gap. If you haven’t planned your TSP withdrawals to cover that loss, your finances may feel tighter unexpectedly.

9. Spousal Considerations and Taxes

Married retirees often miss how their spouse’s income or benefits affect the overall plan. Coordinating:

• When both spouses begin TSP withdrawals

• Timing Social Security for each

• Planning for survivor income and taxes

can greatly reduce tax inefficiencies and preserve more wealth.

Additionally, if one spouse passes away, the survivor may end up in a higher tax bracket due to single filer rates despite having similar income needs.

10. Healthcare Coverage and Income Levels

Income affects Medicare premiums through Income-Related Monthly Adjustment Amounts (IRMAA). In 2025, single retirees with income above $106,000 and couples above $212,000 will pay higher Medicare Part B premiums.

Large TSP withdrawals can push you over those thresholds. Careful income planning ensures you don’t face unexpected premium increases for Medicare.

Getting the Most Out of Your TSP in Retirement

The TSP is more than just an account you tap into. It’s a powerful income engine, a tax planning tool, and a safety valve. But it requires thoughtful, proactive decision-making.

Many FERS employees underestimate the long-term impact of their TSP withdrawal strategy. Waiting too long, withdrawing too much too soon, or ignoring how it interacts with Social Security and Medicare can shrink your nest egg faster than expected.

You can’t afford to treat the TSP as an afterthought. It deserves just as much planning, if not more, than your annuity.

Plan Now to Stay in Control Later

You have more control over your TSP than you do over your FERS annuity or even Social Security. Use that to your advantage. With the right withdrawal timing, tax awareness, and coordination with other income streams, you can:

• Stretch your savings further

• Avoid large tax bills

• Protect your spouse

• Leave a legacy if desired

For many FERS retirees, how and when you use your TSP ends up being the single biggest determinant of long-term retirement comfort. Talk to a licensed professional listed on this website to help build your withdrawal strategy and secure your retirement with confidence.