TL;DR: A TSP financial advisor can help federal employees make the most of their retirement savings.
Main points:
- Deep knowledge of TSP funding options, including L, G, and mutual funds
- Understanding of federal benefits (FERS, CSRS)
- Clear grasp of your financial goals and retirement strategies
- Tax expertise for TSP withdrawals and contributions
- Fiduciary duty to act in your best interest
- Tailored allocation and withdrawal planning based on your career stage
Do you have a TSP retirement plan as a federal employee? You might ask how to maximize it for retirement. A thrift savings plan financial advisor can help you plan ahead so you can enjoy a comfortable retirement.
Before you work with a thrift savings plan (TSP) 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. A thrift savings plan lets civilian employees and uniformed forces members reap the benefits of a defined contribution plan.
Why Do You Need a Thrift Saving Plan Financial Advisor
Thrift savings plans work differently than other retirement plans. It's smart to get advice from TSP financial advisors who know how they work. 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
TSP investment options have a wide range. 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
TSP financial advisors understand the details of federal careers and can guide you at every stage. 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 TSP withdrawal options depend on your current life stage, financial needs, and goals for the future. Many TSP financial 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 TSP financial advisors 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.
TSP Allocation Strategy and Withdrawal Planning
If you have a thrift savings plan, investment advice should adhere to your goals. This requires full customization to you can grow and protect your retirement savings. For example, younger workers can take on more risk, investing heavily into stock funds. The offer growth potential over time.
Mid-career workers might shift toward a balanced mix, blending stocks and bond funds to reduce risk while still growing savings. Are you nearer to retirement? Many shift to more conservative options like the G Fund or L Income Fund to protect their savings.
When you learn your TSP withdrawal options you can avoid unwanted surprises. You’d be able to:
- Take partial withdrawals as needed
- Set up monthly payments, either fixed or based on life expectancy
- Roll over funds to an IRA or another retirement plan for more flexibility
- Buy a TSP annuity for guaranteed income
A TSP financial advisor will consider these aspects when preparing your withdrawal plan:
- When you retire and when you start needing the money
- Traditional TSP withdrawals face taxes, while Roth withdrawals aren’t
- You must start withdrawing by age 73 (or 75 if born in 1960 or later)
Frequently Asked Questions about TSP Financial Advisors
Can a Financial Advisor Help with TSP?
Yes. A TSP financial advisor can help you choose the right investment mix, plan for withdrawals, and avoid tax mistakes. They understand the unique rules of federal retirement plans and can help you make the most of your savings.
At What Income Level Do You Need a Financial Advisor?
There’s no set income level. If you’re earning enough to save and want guidance on growing or protecting your money, a financial advisor may be worth it.
Can You Manage Your Own TSP?
Yes, you can. Many federal employees manage it on their own. But if you want help with allocation, tax planning, or withdrawals, a financial advisor can add value and reduce stress.
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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.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
