Retirement Income

The transition from paycheck to retirement income.

For most federal employees, retirement is not a single financial event. It is a transition — from a predictable paycheck to a coordinated set of income sources that need to work together for decades.

Income sources in retirement

For most federal employees, retirement income comes from several places: a FERS pension, TSP withdrawals, Social Security, and potentially other savings or investments. Each source has different rules, timing considerations, and tax treatment. The question is not just how much you have — it is how those sources can be coordinated to create a reliable income stream.

Sequence-of-returns risk

The order in which investment returns occur matters — especially in the early years of retirement. A significant market decline shortly after you retire can have a lasting impact on your portfolio, even if markets eventually recover. This is sometimes called sequence-of-returns risk, and it is one of the reasons that retirement income planning is different from accumulation planning.

Guaranteed vs. variable income

Some retirement income is predictable — your FERS pension and Social Security, for example, provide income you cannot outlive. Other income, like TSP withdrawals, depends on investment performance and withdrawal decisions. Understanding how much of your income is guaranteed versus variable can help you think about how much flexibility and risk your overall plan can absorb.

Liquidity and cash reserves

Having access to liquid assets in retirement matters. Unexpected expenses, healthcare costs, or market downturns may require you to draw on reserves without selling long-term investments at an inopportune time. How much cash or near-cash to maintain is a question worth thinking through before retirement.

Inflation

Inflation erodes purchasing power over time. A retirement that lasts 25 or 30 years may look very different in real terms than it does on paper today. FERS pensions include a cost-of-living adjustment (COLA), but the adjustment formula differs depending on when you retired and the inflation rate. Social Security also includes COLAs. TSP and other investment assets may or may not keep pace with inflation depending on how they are invested.

Longevity

People are living longer. A federal employee who retires at 62 may need their retirement assets to last 25 to 30 years or more. Planning for longevity means thinking carefully about how assets are invested, how withdrawals are structured, and whether any portion of the plan should include income that cannot be outlived.

Tax efficiency

Retirement income is taxed differently depending on its source. Traditional TSP withdrawals are taxed as ordinary income. Roth TSP withdrawals may be tax-free. Social Security may be partially taxable depending on your total income. FERS pension income is generally taxable. The sequence and amount of withdrawals from different accounts can affect your overall tax burden in retirement.

Withdrawal planning

How you withdraw from your TSP and other accounts — how much, in what order, and from which accounts — can have a meaningful impact on how long your assets last and how much you pay in taxes. There is no single withdrawal strategy that is right for every federal employee. The right approach depends on your income needs, tax situation, other income sources, and goals.

Discuss your retirement income picture.

A complimentary TSP Retirement Review can help you think through how your TSP, pension, Social Security, and other assets may fit together in retirement.

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