Investor Alert
Think Twice Before Cashing Out of Your Thrift Savings Plan
If you are thinking about cashing out your Thrift Savings Plan (TSP) when you leave the uniformed service, think twice. Or maybe three times. You might be about to forsake a financially secure retirement. NASD is using this Alert to educate servicemembers to the potentially devastating impact cashing even a modest amount of TSP assets can have on retirement savings.
When you switch jobs before retirement, you usually can choose among several things to do with your TSP nest egg:
It may be tempting to choose the last option and use the money to buy a new television, take a cruise or even to pay off a debt—but cashing out before you are 59 ½ can cost you dearly. When all is said and done, you could end up with a little more than half of your original TSP savings! In addition, you will owe tax annually on any future earnings your lump sum generates.
The High Cost of Cashing Out
The repercussions of cashing out of your TSP could be enormous. For example, let's assume you are 30 years old, and have a TSP balance of $20,000. If you leave that money in your TSP account or put it in a traditional IRA, and your account averages a 6% rate of return over the next 32 years, your balance at retirement will be $129,068, even if you do not make any additional contributions during that time. Even if you have a shorter time horizon, you will forgo significant savings opportunities by cashing out your TSP. For example, if you are 45, your $20,000 will grow to $53,855 in 17 years. Keep in mind that even if you really need the money, you may be better off borrowing from your TSP account. You may be able to borrow at a lower rate from your account than you could from a bank or other lender, especially if you have a low credit score. You must be in pay status to obtain a loan, because your regular monthly loan payments are made through payroll deductions. To learn more about TSP loans, click on the TSP Features/Uniformed Services button of the Thrift Savings Plan Web site.
When you leave military service, carefully examine the short and long-term consequences before cashing out of your TSP account. After all, when talking about tax-deferred savings plans, time is money.
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Investor Education
Military Investor Forums Held in Hawaii, Japan and Persian Gulf
Recognizing the importance of bringing unbiased financial education directly to members of the military and their families, the NASD Investor Education Foundation conducted a series of investor forums that took them to duty stations and bases around the world.
The free financial education forums took place in Honolulu, Hawaii; Okinawa and Yokosuka, Japan; and aboard the San Diego-based aircraft carrier, USS RONALD REAGAN, on a tour of duty in the Persian Gulf. Addressing nearly 500 attendees in Honolulu, Rear Admiral Michael C. Vitale, Commander Navy Region Hawaii and Naval Surface Group Middle Pacific, stressed the importance of saving for the future and avoiding predatory loans and other money drains that can derail financial security. "The information presented in these forums and the resources available online at SaveAndInvest.org—from tips on avoiding predatory lenders to planning for retirement with the Thrift Savings Plan—are a great benefit to the military community, giving military families the resources they need to help them reach their financial goals," said Admiral Vitale.
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For questions related to the theft and recent recovery of a Department of Veterans Affairs computer, a toll free number and Web page have been established. That toll-free number is 1-800-FED INFO (333-4636). Veterans can also go to http://www.va.gov/opa to receive the most recent information related to this issue.
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