Funding The Gap: “I Need Money From My TSP!”

A reader writes:

“Hey there, I’m reading your book and got a little frustrated, so I thought I’d send you an email. I’m on page 35 (and haven’t read further). Just so you know, I’m on track to financial independence and I’ve read all the typical blogs,, Bogleheads Forum, etc… Well, you quote the Trinity Study, 25x net blah blah blah…. So here’s my issue…. Yeah, the Trinity Study is informative, but you’re going down the road of traditional retirement advice here in this section. You don’t even talk about being able to withdraw your Thrift Savings Plan funds, which will help significantly, and depending on your TSP balance, can significantly reduce what the Trinity Study would recommend.

This section isn’t totally wasted, but I’m really hoping for more of a military-centric focus that considers your TSP account. I was hoping to read something that talked about how much money do I need to “fill the gap”. The gap being from military retirement to age 59½. I can’t touch my TSP for nearly 20 more years; so it does me no good during my gap period. So, I need to fund taxable accounts to carry me for about 15 years. What’s a good formula for this? Can you recommend one? I don’t need more than 15 years because I know my TSP account will kick in and be plenty after that.

Perhaps in future editions you can have chapters that are split with the normal retirement information, and then have the military part follow after. I don’t know, just a thought. All I really want out of this book is the military-specific stuff, and filling that gap is the key (for me). I’ve not seen any formulas that help someone figure that out, because it seems to be rare/unique. The Trinity Study just give a total number for “retirement” and I need a number for a fixed number of years. Also, what about asset allocation for those gap funds? Perhaps I should just use FIRECalc to run numbers, but that doesn’t seem like the best way either… Also, my apologies if you cover this later in the book. Just tell me to be patient and it’ll come. I think I’ll be able to live fine off my retirement with a paid for house, but it’s always nice to have that buffer.

Trinity Study is good to leave in though, but the gap, I need to figure out how much I need in the gap between age 45ish and 59½, and I’m sure I’m not the only one. It seems like that would be the key for the military folks at retirement. If we can save a bunch of money in a taxable account, how much do we need to get us to 59½.”

Thanks for buying the book, and thanks again for the feedback! I have your suggestions on file for the next edition. They’re also good topics for shorter eBooks in a format like William Bernstein’s recent work.

Image of Thrift Savings Plan logo |

Tap the cash?

“The Military Guide” is written for a very diverse audience, and frankly I keep it relatively short so that more people will read it. Your level of financial knowledge seems to be a couple of standard deviations above a servicemember who’s just starting to invest, so when you’re reading the book you may feel as though you’re plowing through the basics. Yet as you may know, fewer than half of today’s servicemembers even have a TSP account— let alone contribute “too much” the annual maximum to it.

You mention that a TSP balance can significantly reduce the Trinity Study’s recommendation of “save at least 25x your retirement expenses”, but that study only analyzes overall portfolio size. A TSP account is part of the Trinity Study’s total, not a separate fund to be spent later. The study doesn’t discuss which asset classes should be spent first or the order of account withdrawals. It doesn’t even include Social Security, yet deliberately discounting SS benefits can lead workers (and military retirees) to save more money than they need (and maybe stay in their careers longer than necessary).

The book’s chapters start with the “simplest” path to financial independence: active-duty retirement. Later chapters move through more complicated situations for Reserve/National Guard retirement (the age-60 pension) and for veterans of just one enlistment (no pension at all). I include plenty of personal stories and sidebars so that readers can identify with the successes of people like them. William Bernstein once said that every chart in his books drives away half of his readers, so I moved most of the numbers (and a few charts) to the appendices. I write a bit more about the TSP on pages 98-102 and 128-9. In Appendix C (page 155) I write quite a bit about the order of withdrawing multiple streams of income– including from the TSP. I agree that another appendix on “funding the gap years” would help a lot.

There’s no simple formula on how to split your savings between tax-deferred and taxable accounts. I’ll suggest some answers near the end of this post, but first, let me point out that servicemembers have to contribute to their TSP (and IRA) every year– or the opportunity is lost. I advise readers to push hard to maximize their TSP & IRA contributions first (while the opportunity is still there) and then save more in taxable accounts. Only ~17% of servicemembers stay in uniform for the pension (including Reserve/Guard), so most of the military has a very limited opportunity (maybe just one enlistment) to contribute to the TSP.

The vast majority of servicemembers who reach financial independence in their 40s have saved at least 40% of their income for 10-20 years. A military pension can offset some of that percentage (or the number of years), but not all of it. Nobody should join the military just for the pension! It’s unrealistic to expect that newer servicemembers can count on their pension and thus contribute less to their TSP and IRA. The amount that they’ll have to save for financial independence will exceed the $23K/year limits of today’s TSP and IRA contributions, so there would be taxable investments beyond those two accounts. Retirees with “just” a pension, a TSP account, and an IRA (without more funds in taxable accounts) may be undercapitalized or else living on very low expenses. Others will work a bridge career for a few years to build up their taxable accounts (and their IRAs).

Let’s talk about filling your gap. (We’re doing the same in my family, and at the end of this post I’ll include links to blog posts with much more detail.) You say that you can’t tap your TSP for nearly 20 years and that you need to fund 15 years of the gap between age 45 and 59½, so let’s assume that you’re four years away from military retirement.

When you retire, the size of that gap may shrink during the first year or two. After retiring from active duty, almost everyone sees their long-term spending drop. Your commuting expenses end and you have more time to thoroughly scrub your budget. During the first year of retirement, you’ll review your insurance coverage (including retiree discounts) and your utilities and housing expenses. You’ll have the time to shop for bargains on both consumables and discretionary spending. You’ll have more time to do your own cooking, maintenance, & repairs (and you might not have the patience to wait on restaurants or plumbers). You’ll enjoy your hobbies & other entertainment at off-peak (cheaper) times just to avoid the crowds. You can exercise when & where you want (instead of at a gym) or find cheaper community classes (instead of the commercial fitness center). Your travel will even cost less because you’ll be able to stay longer, live like a local, and scoop the cheap fares.

Your taxable accounts only have to cover the gap until age 59½, but you can also tap your IRA and your TSP before that age– legally and without penalty. Roth IRA contributions can be withdrawn at any time for any reason with no tax or penalty. (You paid the taxes on those contributions before you put them in the Roth IRA.) When you convert a tax-deferred account (like a TSP) to a Roth IRA, then after five tax years the principal of the conversion can be withdrawn free of tax or penalty. And finally, you can tap your TSP early through a 72(t) withdrawal or by starting a TSP annuity. (Those last two are perhaps the least desirable methods.) Of course, most of these tactics take considerable advance planning, but the Roth IRA contributions are easily withdrawn with little notice.

The best approach to filling the gap would be to forecast your retirement spending (with a few lump-sum expenses like a replacement vehicle or a new roof or a fantasy vacation) and determine how much you’d need above your pension. Then you could forecast how much you’d need to save in a taxable account to cover that 15 years. As you save those gap funds you’d invest them in a stock fund for a few years. About five years before you need them, move them to an intermediate-duration bond fund. A few years before you plan to spend each year of funds, ladder them in CDs. Since you’re confident that you’re going to have an active-duty pension in four years, it may be time to stop contributing to your TSP now and put your next four years of savings in taxable accounts. (You could still contribute to a Roth IRA since you could pull those contributions out at any time.) You could plan to withdraw Roth IRA contributions for the first five years of your retirement while you’re starting your TSP –> Roth IRA conversion ladder, and then the conversion ladder could fund your gap for the next 10 years.

Click on the links in these paragraphs for the details or see the direct links at the end of this post.

Related articles:
How Many Years Does It Take To Reach Financial Independence?
How Many Years Does It Take To Become Financially Independent?
When Do You Stop Contributing to Tax-deferred Accounts?
How Much Will Military Veterans Leave On The Table?
Military Retirement With Low Savings
Ask Your Dad If You Should Contribute To The Roth TSP
Early Withdrawals From Your TSP And IRA After The Military
Handling Your Cashflow After The Military

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

  1. Doug – I echo the previous commenter’s angst and praise for your patience. Interestingly, I do understand the reader’s email from the perspective of someone who has a lot of knowledge already and is looking for the answer to their question as a knowledgeable reader – you skim the book looking for an answer to your question.

    There is a simple answer and you gave it – track your spending for the last few years, look at the tweaks that will occur and then see if the pension income will cover it. If it won’t, then, you can look at other options, namely, tapping after tax accounts, getting a part-time job, reducing your spending to meet the pension, etc. These are actions that don’t affect your tax deferred savings. Your point about the Rothification is valid, too. Lastly, as a Reservist, I’ve found the chapter on the Reserve idea of ‘streams of income’ and gaps to be a possible answer to his question as well.

    If he is as knowledgeable as his email leads us to believe, it seems as though his question/feedback to you is one of ‘whining,’. Maybe, he could be the one that writes the book that details how to cover that gap as he has identified a need :-)

    • Thanks, Deserat, that Reserve chapter is one of the best parts of the book!

      As we know, the books don’t write themselves. I’ll take contributions from everyone who wants to share their advice & stories on having funds to bridge the gap between retirement and age 59.5.

  2. I don’t want to pay someone to help me figure out what I can’t figure out on my own. So I bought your book. And I only read 35 pages. And you haven’t answered my detailed intricate question in those 35 pages. WHAT’S WRONG WITH YOU, AUTHOR!!!

    :) Just kidding.

    You’re more patient than I am.

    I would have responded, “buy a financial calculator!” :)

    Hope you don’t mind, I like your answer but I’m going to steal his question and use it in my Q&A show tomorrow. I’ll run the example calculations and show how easy they are. Hopefully, he’ll be inspired to learn to use a financial calculator.

    • I expected this post to generate a few comments!

      I saw this situation as having the guts to ask the questions that many more readers are reluctant to ask. It’s a very good review of the book, and he had the consideration to e-mail me directly instead of anonymously posting it to

      I also think bloggers should be willing to share the criticism of their works as well as the glowing reviews. You’d rather read it here first than on Amazon…

      My submarine shipmates will appreciate that I’ve grown a very thick skin courtesy of the Navy’s Nuclear Propulsion Examining Board, which personally inspects every aspect of the Engineering Department’s training & operations. (I mean “personally” as in “the manner with which a proctologist performs a colonoscopy”.) In this case, my submarine experience also translates well to blogging and posting on Internet forums…

      As for doing our own financial calculations, it’s always good to have someone check that work (in addition to a skeptical spouse) before making a life-impacting decision.

      Let me know how the Q&A goes so that we can post the link!

    Comment? Question? What's on your mind?