Rethinking Your TSP Strategy at Retirement

As retirement nears, federal employees face a big transition — not just in daily life, but in how they manage the Thrift Savings Plan (TSP).

For decades, your TSP likely grew quietly in the background, powered by steady contributions and market gains.

You may have focused on growth funds like the C, S, or I Funds, aiming to maximize long-term returns.

But once you retire, everything changes.

You're no longer building a nest egg, you’re depending on it. That shift from saving to spending requires a different investment approach.

Let’s walk through why your TSP strategy should evolve in retirement and how to do it smartly.

Why "Set It and Forget It" Stops Working

Growth funds offer higher potential returns, but they also come with more volatility.

And while market swings may have been tolerable during your working years, they pose a much bigger threat when you start making withdrawals.

This is where sequence risk comes into play.

If the market dips just as you begin taking money out, you could lock in losses that shrink your TSP faster than expected.

Recovering from that hit becomes much harder without the cushion of ongoing contributions or a long investment horizon.

The "Bucket" Concept: Smoother Sailing in Retirement

One popular strategy for managing volatility is the bucket approach.

It involves dividing your investments based on when you’ll need the money.

Here's how it works:

Bucket 1: Cash + Conservative Funds (0–5 Years)

• Think of this as your short-term spending money.

• Funds like the G Fund and F Fund go here.

• The goal: stability, not growth.

Bucket 2: Growth-Oriented Funds (5+ Years)

• This is money you won’t need for a while.

• Keep it working in C, S, or I Funds, which have more growth potential.

• With time on your side, you can ride out market fluctuations.

By separating short-term needs from long-term growth, you reduce the risk of having to sell stocks during a downturn.

The Catch: TSP's Proportional Withdrawal Rule

Here’s what trips up many retirees:

When you withdraw money from the TSP, it’s taken proportionally from all your investments.

So if your account is split 50/50 between the G Fund and C Fund, a withdrawal pulls 50% from each, no matter what the market is doing.

This undermines the bucket strategy because you can’t simply pull from your safe money when stocks are down.

But here’s a tactical fix:

1. Let’s say you withdraw $8,000 from your TSP.

2. If you’re 50/50 in G and C Funds, $4,000 will come from each.

3. Right after the withdrawal, move $4,000 from the G Fund back into the C Fund.

This rebalances your account so your long-term investments stay intact and your withdrawal effectively comes from your conservative funds.

Yes, it takes an extra step, but it keeps your buckets functioning as intended.

Looking for More Control? Consider an IRA Rollover

TSP is a great tool — but it's not the most flexible in retirement.

That’s why some retirees roll their TSP into an IRA, which allows you to:

• Choose which investments to sell for withdrawals

• Avoid proportional distribution rules

• Access a broader range of investment choices

IRAs offer more control but may come with different fees and fewer protections.

Be sure to consult a fiduciary advisor to see what’s best for your situation.

So... What Should Your Retirement Allocation Look Like?

A common retirement mix might involve 60% in growth-oriented funds and 40% in conservative options.

But the right balance depends on:

• Your comfort with risk

• How much income you need from your TSP

• How long you expect to draw from it

• Other sources of retirement income (FERS, Social Security, annuities)

The key is intentionality. Your TSP allocation shouldn’t stay on autopilot after retirement.

Don’t Let Market Timing Decide Your Future

Retirement brings freedom — but also financial responsibility.

Your TSP is no longer just a savings vehicle. It’s your income engine, your safety net, and your buffer against inflation.

Managing it wisely means being proactive about risk, flexible with strategy, and prepared for uncertainty.

You’ve built this nest egg over decades of federal service. Now it’s time to make it last and that starts by adjusting how you invest.

Best
—FWR