How much TSP is enough: measure the gap after tax first

Measure the gap after tax

Your pension covers about half your bills. Half of what, though? Half of your gross pay before taxes, or half of what you actually spend after taxes? These are not the same. Your net retired pay—the amount that lands in your account—is what matters. If you have a VA rating, the tax-free compensation counts as income too. Write down both numbers from your myPay statement, add them for a monthly total, then subtract from your real spending to find the gap.

Most retirees think of their pension as replacing half of their gross salary. In retirement you pay no FICA tax and possibly no federal income tax on some of your pension, so the actual spending covered is often closer to 55% or 60%. Measure against 12 months of your real bank statements, not against what you think you'll spend. You'll find a clearer picture that way.

The 4% quick test gets paraphrased a lot. It does not mean you can withdraw 4% of your total balance every year. It means withdrawing 4% of your starting balance in year one, then raising that dollar amount by inflation, and it was tested over about 30 years of market history. If you retire at 62, you're planning for 40 years or more, so a 3.5% rate is safer. A very high balance can sustain 4.5% or 5%, but only if withdrawals do not spike in a down market.

What happens if the 4% test doesn't fit you?

The test breaks down if you retire in your early 50s, because 40 years of withdrawals is longer than the test assumed. It also breaks down when the whole balance is traditional and taxes take a large slice of each withdrawal. And it breaks down when a large share of your TSP sits in stock funds and the market falls right as you start to spend.

A market drop in the first 2 or 3 years of withdrawals does more harm than the same drop later, because you're selling shares when prices are low. All investing carries risk, and the TSP balance can fall below what you put in. This is why holding 2 to 3 years of spending in cash or bonds, instead of selling stock in a down year, can protect a long retirement.

Where do you stand? At a 3.5% rate a $36,000 gap needs about $1,028,600 if your TSP is traditional at a 20% tax rate. At 4%, it needs $900,000. At 5%, it needs $720,000. The lower the rate you use, the longer your balance will last. A rate of 3.5% suits someone planning to retire before 60 or someone with a balance that's mostly stock funds.

Option A: retire at 62 and draw from the TSP

A hypothetical household shows how this plays out. Maureen is 52, a retired Air Force lieutenant colonel, now a civilian program manager earning $165,000. She spends $6,000 each month in retirement. Her net retired pay and tax-free VA compensation cover $3,000. Her gap is $3,000 each month, or $36,000 each year.

The 4% quick test says $36,000 ÷ 0.04 = $900,000. But her TSP is traditional. Assuming a 20% combined tax rate for illustration, she must withdraw $36,000 ÷ 0.80 = $45,000 gross, and $45,000 ÷ 0.04 = $1,125,000. She has $610,000 in the TSP now. Assuming 5% a year of growth and no new contributions, her $610,000 grows to about $994,000 by age 62. That leaves her about $131,000 short.

Maureen is single, and her niece is her beneficiary. This matters. A non-spouse heir must empty an inherited traditional TSP within 10 years. So if she leaves $500,000 in the account, her niece would have to withdraw and pay taxes on about $50,000 a year for 10 years. That's income her niece will owe tax on, even if she doesn't spend it. Maureen needs to think about that tradeoff.

The Roth share of her TSP changes the picture. Roth money passes to the niece tax-free under the same 10-year rule. A conversion from traditional to Roth would shrink the $36,000 withdrawal she needs each year, because Roth withdrawals are tax-free. Before Savant Wealth Management suggests converting anything, it calculates the tax cost of the conversion and checks whether Maureen's current tax bracket makes it worth doing. The details of that belong on the Roth conversion page.

Option B: work to 65 and keep deferring

Three more years of contributions and growth usually close a gap like Maureen's. The TSP deferral limit for 2026 is $24,500, with an $8,000 catch-up at 50 or older, or a higher $11,250 catch-up at ages 60 to 63. Maureen is 52, so she can contribute $32,500 each year until 59, then $35,750 at 60 to 63. She earns $165,000, which means her catch-up must be Roth; prior-year FICA wages above $150,000 trigger that rule at her income level.

Over 3 extra years she adds new contributions and the balance grows for 3 more years. She also shortens the period she'll be withdrawing from the TSP, because she'll start at 65 instead of 62. Together these usually close a shortfall of about $131,000. The arithmetic is rough and illustrative, but the direction is clear: each extra year of work shrinks the gap.

The trade-off is plain: three more years of a job she might want to leave. Against that, waiting until 65 gives her a larger balance, lower withdrawals, more room for market swings, and more time for any Roth conversions to build a tax-free income stream.

Option C: shrink the gap with part-time pay

Each $1,000 of steady part-time income each month removes $12,000 a year from the gap. At 4%, that is $300,000 less TSP you need ($12,000 ÷ 0.04 = $300,000). A consulting gig or part-time work at 20 hours a week can turn a shortfall into a plan. This option fits someone who would enjoy that kind of work and can find it.

When does married or single change the number?

A married veteran who elects the Survivor Benefit Plan gives up 6.5% of base retired pay while alive. In exchange, the surviving spouse receives 55% of the base after death. The TSP target then has to cover not just your gap, but your spouse's gap after you're gone. That's a much bigger number.

Two hypothetical households in a similar spot should choose differently. Maureen is single with a tax-free VA payment, and she can accept a 4% withdrawal rate with Option B, working to 65. A hypothetical married couple, both 55, retiring now on a similar pension, with a spouse 5 years younger and no pension of her own, should plan at about 3.5% and keep more cash for the first few years. The younger spouse will need the TSP to last much longer.

A larger balance gives you room to change course. Under about $400,000, a shortfall usually means working longer or cutting spending. Above $1,000,000, the bigger question shifts: it's no longer whether you have enough, but how to split traditional and Roth money and when to convert.

Name your heir on Form TSP-3

A will does not control the TSP. Only a beneficiary designation on Form TSP-3 does. Without a current TSP-3 on file, the account goes by the statutory order of precedence—usually spouse, then children, then parents—which may not reach the niece or the charity you intended.

Fixing it is simple while you are alive: file a new TSP-3 and it replaces the old one. You can change it as many times as you want. After death, nothing can fix it. Check the same form on any 401(k) and IRA every few years, especially after a divorce or a change in your family.

How the 10-year rule changed for heirs

Roth TSP money passes to your named heirs tax-free under the same 10-year rule that applies to traditional money. Traditional TSP money passes as taxable income. A non-spouse heir must empty the inherited TSP within 10 years, spreading the withdrawals however they choose, but all traditional withdrawals are taxed as ordinary income. Roth withdrawals are tax-free. Recent laws also moved required minimum distributions to start at 73 (or 75 for people born in 1960 or later), removed RMDs from Roth TSP while you're alive, and ended the lifetime stretch for most non-spouse heirs. If you made a plan based on older rules, check whether your withdrawal schedule and heir assumptions need updating.

What Savant Wealth Management checks first

Savant Wealth Management would first set your net retired pay and tax-free VA compensation against 12 months of actual spending to find the real gap. Then it would split your TSP into its traditional and Roth dollars and read the TSP-3 currently on file. That shows the real gap, who receives what is left, and which option—retire now, work longer, or add part-time income—closes it without running out of money.