If you have a TSP retirement plan as a federal government employee, you might wonder how to maximize it for retirement. A thrift savings plan financial advisor can help you prepare for the future to give you a comfortable lifestyle during retirement.
Before you work with a thrift savings plan financial advisor, you must know how thrift savings plans work.
How Does a Thrift Savings Plan Work?
A thrift savings plan is a retirement account for government employees, similar to a 401k. The difference between a 401k vs a thrift savings plan is that a 401k is for private-sector employees. With a thrift savings plan, civilian employees and uniformed forces members can reap the benefits of a defined contribution plan.
Why Do You Need a Thrift Saving Plan Financial Advisor
Thrift savings plans are different from other retirement plans, and it's always best to seek advice from experts with experience. Specialized knowledge can make all the difference in keeping your retirement accounts on track. You need to work with someone who has the following:
1. Knowledge of TSP Specific Funding Options
The thrift savings plan offers a range of investment options. A thrift savings plan allows you to invest in individual funds, lifecycle (L) funds, and mutual funds. They provide unique opportunities for investors to diversify their portfolios. Thrift savings plan financial advisors can set a strategy that aligns with your goals so you can invest accordingly.
For example, L Funds are target-date funds that might seem simple for inexperienced investors. It's a tempting option for those without a thrift savings plan advisor because you pick a date and let them be. However, they aren't standardized, and they have high maintenance fees. They are essentially funds of funds (a fund used to fund other funds) which makes them inflexible.
2. Thorough Understanding of Federal Employee Benefits
With a deep understanding of the nuances involved, financial advisors can help you through each stage of your federal career. They must understand government benefits like the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). Without this background, financial advisors won't be of much help to ensure you can get the most out of your benefits.
3. Clarity on Your Financial Goals and Needs
Your thrift savings plan financial advisor must know your financial situation. Your financial goals will help guide a financial advisor's necessary strategies.
You can use numerous strategies to increase your retirement income with a TSP. For consistent monthly income, you can purchase a thrift savings plan annuity with your TSP balance. Or, you can rollover your retirement savings into an IRA or a 401(k) based on your unique circumstances. A financial advisor will guide you on when to withdraw and what strategies you should take.
These options depend on your current life stage, financial needs, and goals for the future. Many advisors look at the past to see how funds perform or take actions based on what happened in the past. Your present circumstances shape your future. You need a financial advisor who isn't looking in the rearview mirror to plan for what's ahead of you.
4. Access to Certified Tax Professionals
A thrift savings plan financial advisor must have a tax background, specifically understanding TSP funds' tax treatments and implications. Do you know the difference between a traditional TSP and a Roth TSP?
A traditional TSP is a tax-deferred plan for federal employees. However, you fund a Roth TSP with after-tax dollars and get tax-free withdrawals. Both plans have their tax benefits and drawbacks.
A thorough understanding of your other retirement accounts can help them to determine which applies to you. You don't want to move into a higher tax bracket during retirement when you may be more conservative with your money.
5. Have a Fiduciary Responsibility
Your thrift savings plan financial advisor should be a fiduciary. Fiduciaries must act in your best interest. Having an objective person review your financial interests will remove bad investor behavior.
Sometimes, when you manage your finances, it’s easy to act and react to the market emotionally. A constant fear of missing out on opportunities can cause irrational decisions that don’t make sense. When it comes to smacking sound investments, it’s not about timing the market, it's about time in the market.
Prepare for the Future
At Asset Preservation Wealth and Tax, we offer comprehensive financial management services that set us apart from the competition. Managing your finances can be overwhelming, so we provide a one-stop shop for all your financial needs.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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