The Best Time to Get Serious About TSP Strategy Is Sooner Than You Think

Key Takeaways

• The earlier you build a TSP strategy, the more flexibility and growth potential you gain by retirement.

• Waiting too long can limit your withdrawal options, expose you to avoidable taxes, and reduce your lifetime income.

Why Timing Matters More Than You Think

If you’re a government employee or public sector worker, the Thrift Savings Plan (TSP) is a vital piece of your retirement. It’s not just a savings account. It is your long-term income engine. And when it comes to planning around your TSP, sooner truly is better.

Many people wait until just a few years before retirement to start strategizing. That delay can cost you more than you realize. In 2025, the retirement landscape is shifting. You now face higher contribution limits, revised withdrawal rules, and increased life expectancy assumptions. These changes all increase the importance of long-term planning.

Whether you’re just a few years into your federal career or already thinking about exiting in the next five years, the decisions you make now can dramatically affect your income stability later.

The Compound Effect of Early Planning

When you build a TSP strategy early, your contributions and investment choices benefit from decades of compounding growth. But it’s not just about growth—it’s about control.

Planning early gives you:

• More time to adjust your risk exposure

• Better awareness of TSP fund behavior

• The ability to align TSP decisions with your FERS or CSRS annuity and Social Security

Early planners are also less likely to panic during downturns. You’re not reacting. You’re managing with a clear purpose.

Contribution Timing: Why Your Pay Periods Matter

For 2025, the elective deferral limit is $23,500. You can also contribute an additional $7,500 if you’re age 50 or older. If you’re 60 to 63, the super catch-up provision allows up to $11,250 more.

Spreading your contributions across all 26 pay periods ensures consistent investment throughout the year and avoids losing out on agency matching contributions. Missing even a few pay periods due to front-loading or inconsistent deposits could mean leaving money on the table.

Even if you’re behind, you can still optimize future contributions by adjusting your payroll deduction to meet the limit without missing employer matches.

Asset Allocation Is Not a Set-It-and-Forget-It

Too many employees pick a fund at the beginning of their career and never revisit it. That’s risky. Your investment mix should evolve as your timeline and goals change.

In your 20s to 40s, aggressive growth may make sense. But as you enter your 50s, you may need to reduce exposure to riskier funds. In 2025, economic volatility and interest rate uncertainty make regular rebalancing even more important.

Reassess your allocation at least annually. Factor in:

• Market conditions

• Retirement date adjustments

• Changes in income needs or health

TSP Withdrawals Aren’t as Flexible as You Think

The TSP offers several withdrawal options, including installment payments, partial withdrawals, and annuities. But they aren’t all created equal.

Once you retire or reach age 59½, you gain access to your TSP without penalty. However, Required Minimum Distributions (RMDs) start at age 73 in 2025. This can create a forced tax liability if you don’t plan ahead.

More importantly, TSP installment payments don’t allow much flexibility mid-year. If you change your mind or need extra cash, your options are limited. Planning your withdrawal strategy 2 to 3 years before retirement helps avoid these rigid scenarios.

Coordination with FERS and Social Security

Your TSP doesn’t operate in isolation. It works alongside your FERS basic annuity and Social Security. But those systems don’t pay out the same way, and their timelines differ.

If you retire under FERS with 30 years of service at your Minimum Retirement Age (MRA), you may receive the FERS annuity and the FERS Special Retirement Supplement (SRS) until age 62. But that supplement ends abruptly once you become eligible for Social Security—even if you delay claiming it.

That gap between age 62 and when you claim Social Security can be financially challenging. Your TSP may need to fill it.

That’s why your TSP strategy should be built around these key questions:

• When do you plan to retire?

• When will you claim Social Security?

• Do you qualify for the FERS SRS?

• Will you need bridge income?

If you wait too long to map this out, you might withdraw more from your TSP than necessary in those early years, reducing long-term sustainability.

RMD Planning Is Not Just for the Wealthy

Required Minimum Distributions apply to most TSP participants starting at age 73. In 2025, this rule still holds, and the penalties for failing to take your RMDs can be steep.

Even if you don’t need the money, you must take it. If you don’t plan ahead, the required withdrawals can push you into a higher tax bracket, trigger higher Medicare premiums, or affect taxation of your Social Security benefits.

Strategizing around RMDs might involve:

• Withdrawing small amounts before 73 to reduce future balances

• Coordinating with other retirement income sources

• Using Roth TSP contributions if eligible, which are not subject to RMDs

Roth TSP Is Underused

Despite being around for years, the Roth TSP remains underused. In 2025, Roth TSP offers significant benefits:

• Contributions are taxed upfront, but qualified withdrawals are tax-free

• No RMDs starting in 2024 and continuing into 2025 and beyond

• Ideal for those expecting higher taxes in retirement

If you’re early in your career, a Roth TSP can be an essential part of tax diversification. Even if you’re late in your career, switching a portion of your contributions to Roth can still benefit your long-term withdrawal plan.

Think in Phases, Not Just the Retirement Date

Retirement is not a one-time event. It unfolds in phases:

1. Early Retirement (MRA to early 60s): Possible SRS income, delayed Social Security, TSP as bridge.

2. Mid Retirement (62 to 73): Social Security starts, FERS continues, RMDs begin planning.

3. Late Retirement (73+): RMDs in full effect, health costs may rise, estate planning becomes a focus.

Each phase has different income needs and tax implications. Your TSP strategy should reflect this. Without phase-based planning, you risk over-withdrawing early or underutilizing your funds later.

TSP Loans and Hardship Withdrawals: Hidden Costs

Loans from your TSP reduce your balance and compound growth. If you leave government service before repaying, the outstanding loan becomes a taxable distribution.

Hardship withdrawals are even worse. They’re permanently removed from your TSP, and you may owe income taxes and penalties if you’re under 59½.

Short-term solutions often have long-term consequences. If you plan early, you reduce your need for emergency withdrawals later.

Estate Planning Should Include Your TSP

Too many employees fail to update their TSP beneficiaries. Or they name outdated people, like ex-spouses.

Your TSP does not follow your will. It follows the most recent beneficiary form on file.

Incorporate TSP into your estate plan by:

• Reviewing beneficiaries annually

• Considering how to pass the TSP to heirs

• Exploring spousal beneficiary options

If your heirs are not financially savvy, it may be worth exploring how to structure distributions or provide guidance through a trust or professional advice.

Why Professional Help Pays Off

The TSP is a powerful tool, but it doesn’t come with built-in planning. You are responsible for:

• Timing contributions and withdrawals

• Managing asset allocation

• Projecting income across retirement

• Navigating tax rules and RMDs

Working with a licensed professional can help tailor your TSP to your overall retirement income plan. It can also help reduce costly mistakes and identify tax-efficient withdrawal strategies.

Secure Your Retirement with Purpose, Not Just Hope

You only retire once. And you can’t afford to guess your way through it. Whether you’re in your 30s or your final year before retirement, now is the right time to take your TSP seriously.

The rules aren’t getting simpler. But with the right strategy, you can:

• Maximize your retirement income

• Reduce your tax burden

• Preserve your legacy for loved ones

Get in touch with a licensed professional listed on this website for one-on-one guidance. Don’t wait until it’s too late to make smart moves.