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Leverage your TSP to maximize your Social Security benefit

Updated: Mar 7, 2023

First, let me define what we are talking about, TSP typically stands for Thrift Savings Plan, which is a retirement savings plan for federal employees that acts much like a 401(k). Social Security is a government program that provides financial assistance to eligible individuals. Social Security acts like an annuity that will pay you a monthly check. Federal Employees Retirement System (FERS) acts like a pension. Understanding these three different systems and how to utilize those benefits can make a massive difference in the quality of your retirement.

If we ask how to maximize your Social Security benefits using TSP savings, the answer depends on your circumstances. Generally speaking, maximizing your Social Security benefits requires careful planning and a solid understanding of the program's rules and regulations.

One strategy to consider is delaying your Social Security benefits until you reach full retirement age or even later. This can result in a higher monthly benefit amount, which can be especially beneficial if you expect to live a long time in retirement. You can use your TSP savings to help fund your living expenses during the years you delay claiming Social Security benefits. For example, in 2022 the maximum benefit was $4,194 if you wait to claim until you were 70. If you were to claim at age 62 the maximum benefit amount in 2022 would be $2,364. That is a difference of $1,830 per month for the rest of your life. Remember that the 2023 Social Security cost-of-living adjustment increased by 8.7%. Good sense tells you that an increase based on a larger number means more money in your bank account.

The second strategy is coordinating your Social Security claiming strategy with your spouse if you're married. This can involve coordinating the timing of your benefit claims to maximize your overall household benefits or to use spousal or survivor benefits to increase your income.

While SECURE Act 2.0, passed late in 2022, has changed the rules again, utilizing your TSP during those "Gap years" between retirement and taking Social Security has the major benefit of reducing your Required Minimum Distributions (RMDs). Proper planning can have multiple benefits. One it may reduce future taxes owed on your Traditional TSP, increase your Social Security benefits, and reduce your Income-Related Monthly Adjustment Amount (IRMAA) of premiums of Medicare Part B.

In conclusion, there are a lot of issues that you need to consider as a Federal Employee that are more complicated than most people have to deal with, and giving yourself the flexibility to pivot as you retire with dignity and stay retired with dignity can have last effects.

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