TSP: Veterans’ 2026 Retirement Mistakes to Avoid

Misinformation about navigating military retirement plans, particularly the Thrift Savings Plan (TSP), is rampant, costing countless veterans financial security. I’ve seen firsthand how easily veterans can be led astray by outdated advice or outright falsehoods, often leaving substantial money on the table. It’s time to cut through the noise and reveal what truly matters for your financial future.

Myth #1: The G Fund is Always the Safest and Best Option for Your TSP

This is perhaps the most pervasive and damaging myth I encounter. Many service members, especially as they near retirement or even early in their careers, are told—or simply assume—that the Government Securities Investment Fund (G Fund) is the safest bet for their TSP. They hear “guaranteed principal” and “no risk” and think they’re set. While it’s true the G Fund protects your principal from market fluctuations, it also offers notoriously low returns. According to the Federal Retirement Thrift Investment Board (FRTIB), the G Fund’s average annual return over the last 10 years (ending December 2025) has hovered around 2.5% to 3% annually, barely keeping pace with inflation, let alone outperforming it.

The reality is that for anyone with a time horizon of more than a few years, staying exclusively in the G Fund is a recipe for missed growth. I had a client last year, a retired Army Master Sergeant from Fort Stewart, who came to me in his late 50s with nearly all his TSP in the G Fund. He had accumulated a decent sum, but when we projected what it could have been if he’d diversified even moderately into the Common Stock Index Investment Fund (C Fund), the Small Capitalization Stock Index Investment Fund (S Fund), or the International Stock Index Investment Fund (I Fund) over his 20-year career, the difference was staggering—hundreds of thousands of dollars. His face fell when he saw the numbers. The G Fund is excellent for preserving capital you need in the very short term, say, within a year or two of withdrawal. For long-term growth, however, you absolutely must consider the TSP’s other core funds or the Lifecycle (L) Funds, which offer professionally managed diversification based on your projected retirement date. Don’t let fear of market volatility rob you of your retirement potential; smart risk-taking is essential for wealth accumulation.

Myth #2: You Can’t Contribute to Your TSP After You Leave Military Service

This misconception frequently leads veterans to abandon one of their most powerful retirement vehicles prematurely. Many believe that once they separate or retire from the military, their TSP contributions are over. That’s simply not true. You absolutely can continue to contribute to your TSP after leaving active duty, but with some specific conditions. If you transition to federal civilian employment, you can continue contributing directly from your pay through payroll deductions, just as you did in uniform. This is a seamless transition for many.

However, even if you move to the private sector, you have options. While you can’t contribute new money from a private employer’s paycheck directly to your TSP, you can perform rollovers. This means you can transfer funds from a private-sector 401(k), 403(b), or even a traditional IRA into your TSP. This is a powerful advantage because the TSP, with its extremely low administrative fees and access to institutional-class funds, often outperforms many private-sector equivalents. I often advise clients to consolidate their retirement accounts into their TSP via rollovers if their private-sector options are inferior. For instance, I recently helped a veteran who took a job at a major defense contractor in Marietta. Their company’s 401(k) had higher fees and fewer investment options than the TSP. By rolling over his new 401(k) contributions annually into his TSP, he maintained access to the TSP’s benefits while still saving through his new employer. The key is understanding the rules for these rollovers, which are clearly outlined by the FRTIB on their official TSP.gov website. Don’t leave this powerful tool behind just because you’re out of uniform.

Myth #3: All TSP Withdrawals Before Age 59½ Incur a 10% Early Withdrawal Penalty

This is a common worry that causes undue stress and often leads veterans to make less-than-optimal financial decisions. While it’s generally true that distributions from qualified retirement plans before age 59½ are subject to a 10% early withdrawal penalty, the TSP, like other plans, has several important exceptions. Knowing these can be a game-changer for those needing access to their funds earlier.

One significant exception applies if you separate from service in the year you turn age 55 or later. In this scenario, any withdrawals from your TSP are generally exempt from the 10% penalty, even if you’re not yet 59½. This is incredibly beneficial for early military retirees. Another powerful, though more complex, strategy is the Substantially Equal Periodic Payments (SEPP) rule, also known as the 72(t) rule. This allows you to take a series of equal payments from your TSP (calculated based on your life expectancy) without incurring the 10% penalty, regardless of your age, provided you continue these payments for at least five years or until you reach age 59½, whichever is later. This isn’t a strategy for the faint of heart; once you start, you’re locked into the payment schedule, and any deviation can trigger all the past penalties. We often work with financial planners to set this up correctly. Furthermore, if you become totally and permanently disabled, withdrawals due to that disability are also exempt from the penalty, as are distributions to beneficiaries after your death. The FRTIB provides detailed information on all withdrawal options and exceptions on their official website, www.tsp.gov. Always consult their publications and consider professional advice before making withdrawal decisions.

Myth #4: Your Military Pension and TSP are Enough to Cover All Your Retirement Needs

This is a dangerous assumption, especially in an era of rising costs. While a military pension and a well-funded TSP are excellent foundations, they rarely cover all the bases for a comfortable and secure retirement. I’ve seen too many veterans retire, breathe a sigh of relief, and then get hit with unexpected expenses that quickly erode their financial stability.

Consider healthcare, for example. While TRICARE is a fantastic benefit, it’s not free, and it doesn’t cover everything. Premiums, co-pays, and prescriptions can add up, especially as you age. A 2024 study by Fidelity Investments estimated that a healthy 65-year-old couple retiring today could need approximately $315,000 for healthcare expenses throughout retirement, even with Medicare. That’s a significant sum that needs to be factored into your planning. Beyond healthcare, there’s housing. Will your pension cover your mortgage, property taxes, and maintenance if you stay in your home? Or if you downsize, will you have enough capital to purchase a new home outright or cover rent? Travel, hobbies, and supporting family members are other areas where costs can quickly escalate. We ran into this exact issue at my previous firm with a retired Air Force Colonel who moved to Peachtree City. His pension was substantial, but he hadn’t fully accounted for the cost of maintaining his large home, his passion for international travel, and the rising cost of TRICARE Select premiums. We had to adjust his TSP withdrawal strategy to make up the difference, which meant less flexibility than he had initially hoped for. My advice? Treat your military benefits as a strong starting point, but build additional layers of financial security. This might include a Roth IRA, a brokerage account, or even part-time employment in retirement. Don’t rely solely on what the military provides; take an active role in building your supplemental wealth. For more guidance, consider reading about how veterans can master their retirement plan.

Myth #5: You Must Convert Your TSP to an IRA Upon Retirement

Many financial advisors, particularly those who are not well-versed in military benefits, will immediately recommend rolling your TSP into an Individual Retirement Account (IRA) once you retire or separate. While an IRA offers more investment choices, blindly following this advice can be a costly mistake. For many veterans, keeping their funds in the TSP is the superior option, at least initially.

The primary reason to keep your money in the TSP is its incredibly low fees. The TSP’s administrative expenses are among the lowest in the industry, often significantly lower than even the most competitive IRAs. This is because the FRTIB manages trillions of dollars and operates on a non-profit basis for federal employees and service members. Over decades, those tiny fee differences can translate into hundreds of thousands of dollars more in your pocket. The FRTIB reports that the average annual expense ratio for TSP funds is often less than 0.05% per year, which is almost impossible to beat in the private sector. Furthermore, the TSP offers access to the G Fund, which provides a unique principal guarantee not available in an IRA. While I generally advocate for growth, for a small portion of your funds that you want absolutely no risk, it’s a valuable tool. An editorial aside: I see so many advisors push IRA rollovers because it makes their job easier and often generates them higher fees. Be skeptical. Always ask for a detailed comparison of fees and investment options between your TSP and any proposed IRA. There are valid reasons to roll over a TSP to an IRA—such as needing a wider array of investment options (like individual stocks or sector-specific ETFs) or consolidating many accounts—but it should be a deliberate decision, not a default. If you don’t need the expanded options, stick with the TSP’s low-cost structure. For further insights, explore how VA Loans and Roth TSP can lead to finance wins.

Understanding these critical distinctions is vital for veterans planning their financial future. Take control of your retirement by actively managing your TSP and understanding all your benefit options.