The Oldest of Generation X Turn Age 59½ in 2024

Gen Xers born in 1965 are the oldest of their cohort with many turning age 59½ in 2024. As you know, this is the age when you can start withdrawing funds from your Thrift Savings Plan (TSP) account without paying the 10% early withdrawal penalty – even if you’re still working for Uncle Sam. Then again, just because you can make in-service TSP withdrawals at 59½ without a penalty, it doesn’t mean it’s a good idea.

Your TSP Was Never Intended To Be A Piggy Bank

Since the minimum in-service withdrawal from your TSP is $1,000, you may be tempted to withdraw the money for a vacation or any other number of reasons. At the end of the day, it’s your money, isn’t it? Why should you wait until retirement to enjoy it? Because the TSP was never intended to be a piggy bank.

One of the biggest advantages of the TSP is compound earnings. In a nutshell, compound earnings means the money in your account accrues earnings and those earnings begin to accrue more earnings over time. When you start tapping into your TSP for anything other than retirement income, you’re losing the money you’d make on compound earnings.

“Tax-wise, in-service TSP withdrawals simply don’t make sense.”

Withdrawals From Your Traditional TSP Are Subject To Income Taxes

As you know, when you make pre-tax contributions to your traditional TSP it lowers your taxable income during your working years. But, if you make an in-service withdrawal from your traditional TSP, 100% of the amount is subject to income taxes at your current tax rate for the year in which you withdrew the money.

Tax-wise, in-service TSP withdrawals simply don’t make sense. Keep in mind, even though withdrawals from your Roth TSP are tax-free, if less than five years have passed since you made your first Roth TSP contribution, you’ll owe taxes on your earnings.

Longevity Is Another Reason To Resist Making In-Service Withdrawals

You may be surprised to learn that the biggest threat to your financial security in retirement is not inflation or stock market volatility. Living longer than you allowed for in your retirement savings plan is the top cause of retirees outliving their money. If you start spending down your TSP before you need to, how will you cover living expenses if your retirement runs 10 or 15 years longer than you had originally planned?

It’s a fact – Generation X is headed into retirement with a unique set of financial challenges. Before you tap into your TSP nest egg unnecessarily, connect with an FRC® trained advisor to help you develop a personalized plan for your retirement.