As a federal employee, you’ve dedicated years or even decades of service to your country, and along the way, you’ve built a significant nest egg through your Thrift Savings Plan (TSP), pension, and other benefits. But as many of the federal employees we’ve worked with have learned—often too late—saving for retirement is only half the battle. Preserving that wealth throughout retirement is just as important.
We’ve worked with hundreds of Feds who look back with regret, wishing they had followed a few essential wealth preservation techniques earlier in their careers. Whether you’re preparing for retirement or already enjoying it, understanding and applying the right strategies can mean the difference between financial freedom and running out of money too soon.
1. Avoid Large One-Time Withdrawals
One of the most common mistakes we see federal retirees make is taking massive lump sum withdrawals from their TSP or IRAs. Whether it’s to pay off a mortgage, buy a second home, or fund a dream vacation, these large withdrawals can unintentionally trigger a much higher tax bill.
Here’s why: our tax system is progressive. The more income you show in a given year, the higher your tax bracket. A spike in income—especially from a taxable retirement account—could push you into a 24% or even 32% bracket when you were originally sitting at 12% or 22%.
That’s money lost to the IRS that could’ve been used for you or your family.
Preservation Tip:
Instead of taking large one-time withdrawals, plan ahead. Break up large expenses over multiple years if possible, or use a mix of Roth and taxable savings to keep your tax bracket level. The smoother your income in retirement, the less you’ll pay in taxes overall.
2. Stick to a Safe Withdrawal Rate In Retirement
No matter how well your investments perform, if you’re taking out too much money each year, your savings will eventually run dry. That’s where the 4% rule comes into play.
The 4% rule is a time-tested guideline that suggests withdrawing 4% of your portfolio in your first year of retirement, adjusting annually for inflation. For example, if you retire with $500,000, your first-year withdrawal would be $20,000. Each subsequent year, you increase that amount based on inflation.
Historically, retirees who followed the 4% rule ended up with nearly the same amount—or even more—after 30 years, depending on the market.
Preservation Tip:
Be cautious if you consider withdrawing more than 4–5% per year. Taking out 6%, 7%, or even 8% can dramatically reduce the longevity of your savings.
3. Diversify Your Investments Within the TSP
Far too many federal employees keep their entire TSP in the G Fund thinking it’s “safe.” And while the G Fund does protect your principal, it has historically returned about 2% annually—barely keeping up with inflation.
That low growth might be fine in the early stages of saving, but in retirement, it can become dangerous. If your money isn’t growing faster than inflation, your purchasing power shrinks year after year. On the flip side, being too aggressive with 100% in the C, S, or I Fund can leave you vulnerable during market downturns.
Preservation Tip:
A well-balanced portfolio is critical. Aim for a mix of growth (C, S, I Funds) and stability (G and F Funds) so that you have both the potential for growth and a cushion during market dips. This balance also ensures you aren’t forced to sell stocks when markets are down.
4. Plan Around Required Minimum Distributions (RMDs)
Many federal employees don’t realize the tax bomb waiting for them at age 75 (or earlier, depending on birth year). That’s when Required Minimum Distributions (RMDs) kick in, forcing you to withdraw money from pre-tax retirement accounts like your TSP—even if you don’t need it.
This sudden increase in taxable income can launch you into higher tax brackets, increase Medicare premiums, and reduce your financial flexibility. Unfortunately, many Feds only learn this lesson when they see their tax bill jump significantly in their mid-70s.
Preservation Tip:
Start planning for RMDs well in advance. One strategy is to slowly shift money from your traditional TSP or IRA into a Roth IRA through Roth conversions. Yes, you’ll pay taxes now—but you’ll avoid much larger taxes later. And Roth accounts are not subject to RMDs, allowing your money to grow tax-free for as long as you want.
5. Roth Conversions: A Powerful Tool—If Done Strategically
Many federal retirees overlook the long-term benefits of Roth accounts. By strategically converting a portion of your traditional TSP to Roth in the early years of retirement—before Social Security and RMDs start—you can pay taxes at today’s lower rates and avoid the big RMD-related spikes later.
Preservation Tip:
Use the “tax bracket filling” strategy. Look at where you are in your current tax bracket and convert just enough to fill it without bumping yourself into the next one. This way, you pay taxes at a manageable rate while reducing your future taxable RMDs.
Final Thoughts: Avoid Regret—Plan Proactively
Over the years, we’ve worked with many federal employees who’ve shared a common regret: “I wish I had started this planning sooner.” They didn’t know about the dangers of large withdrawals, RMD pitfalls, or the benefits of Roth conversions until it was too late.
We want you to avoid those regrets. Preserving your wealth isn’t just about protecting your money—it’s about protecting your choices, your freedom, and your legacy.
Start early, plan smart, and work with a professional who understands the nuances of federal benefits and retirement.
Your retirement should be stress-free. With the right strategies, it can be.