The Retirement Risk That Grows With Every Dollar You Save

You followed the rules. You maxed out your TSP. You lived below your means.

And now you're looking at a retirement balance that many federal employees only dream of.

So why do you feel uneasy?

Because once you’ve built wealth, the challenge changes.

Retirement isn’t just about accumulating assets—it’s about distributing them without triggering silent traps.

Retirement’s “Success Penalty”

Most people assume the more you save, the safer you are.

But past a certain threshold—$500k, $1M, $1.5M—your savings start creating new problems:

1. Forced Withdrawals (RMD Shock)

Once you turn 73, the IRS mandates annual withdrawals from your Traditional TSP—even if you don’t need the income.

And if you’ve saved aggressively in tax-deferred accounts?

That RMD could:

• Push you into a higher tax bracket

• Raise your Medicare premiums (via IRMAA)

• Trigger taxes on up to 85% of your Social Security benefits

Translation: You could end up paying more in retirement taxes than during your working years.

2. Roth TSP Isn’t Always the Hero

Roth contributions can make sense—if your tax rate will be higher in retirement.

But for many federal retirees, especially those with pensions and minimal expenses, income may drop post-retirement.

In that case, Roth contributions may have meant:

• Paying higher taxes up front

• Missing out on the deduction power of Traditional TSP during peak earning years

Counterintuitive, right? This is where strategy trumps convention.

3. Inflation and Drawdown Misalignment

Your assets might grow on paper, but if you:

• Withdraw from the wrong accounts at the wrong time, or

• Use a “set it and forget it” withdrawal plan…

You risk outpacing your money’s buying power or worse—selling at a loss during a market dip just to meet living expenses.

So What Do the Smartest Retirees Do?

They don't just invest. They orchestrate.

Here are a few strategies every high-saving federal retiree should explore:

1. Start Roth Conversions Before RMD Age

• In your early retirement years (often 62–72), your income may be unusually low.

• That’s the window to move funds from Traditional to Roth—at controlled tax rates—before RMDs kick in.

2. Layer Your Income Sources

• Don’t tap all accounts equally.

• Consider: pension first, TSP later, Roth last (or vice versa depending on brackets).

• This keeps you in the optimal tax zone and protects long-term compounding.

3. Use Tax Buckets Strategically

• Taxable (brokerage), tax-deferred (Traditional TSP), and tax-free (Roth) each have pros/cons.

• The right sequence can reduce your lifetime tax bill by six figures or more.

Big Savers Need Bigger Plans

If you're approaching or past $500,000 in your TSP, you're no longer playing the average retirement game.

Bottom line? You don’t need a new fund. You need a new framework — and you can start with the 3 simple levers above.

Best,
Federal Wealth Retirement

P.S. Did You Catch This One? The Lazy Federal Worker’s Guide to Retiring Rich Anyway