You spent decades building your TSP. Maybe 20 years in uniform, maybe 30 in federal service.

But here's the uncomfortable truth. The TSP is one of the best retirement plans in America while you're working — and one of the easiest to mismanage once you retire, especially if you never build a real withdrawal strategy. Here in Hawaii, where high taxes and the cost of living can turn a small mistake into an expensive one, the stakes are even higher.

I've watched careful, disciplined retirees lose hundreds of thousands of dollars. Not from a market crash, but from four avoidable mistakes inside their TSP.

In this article, we'll cover each one of those 4 mistakes in detail.

Make sure to stick around for number four, because it's probably the most expensive mistake you can make that is easily avoidable.

Mistake #1: Misusing or Ignoring the G Fund

Let's start with the G Fund, because almost everyone gets this one wrong in one of two directions.

The G Fund is the TSP's safest option. Government securities, no risk of losing principal, steady interest. For a lot of retirees, that safety feels like a warm blanket. So they do something that seems perfectly reasonable: they move almost everything into it.

I understand the instinct. You worked hard for this money. The last thing you want is to watch it drop. But here's what those people miss.

Safety from market swings is not the same as safety from the erosion of wealth.

Picture a retiree — call her Linda — who retires at 60 with $700,000 in her TSP. Spooked by a rough year in the markets, she shifts nearly all of it into the G Fund. She feels good about it, at least for now.

But Linda might live to 90. That's a 30-year retirement. Over three decades, the cost of groceries, healthcare, and electricity here in Hawaii — where we already pay some of the highest prices in the country — keeps climbing. If her money is only earning a minimal amount of interest, it slowly loses purchasing power every single year.

She didn't lose money on her statement. She lost it at the checkout line. That's the quiet erosion almost nobody sees coming.

Now, the opposite mistake is just as common. Some retirees ignore the G Fund completely. They stay fully invested in stock funds, because that's what worked for 30 years. But they don't realize they are now spenders, not savers — and they panic and sell at the worst possible moment when a downturn hits early in retirement.

So what's the right approach? The G Fund is a tool, not a strategy. Used well, it's the stable, cash-like bucket of a broader retirement income strategy — the part of your portfolio you draw from during down markets so you're not forced to sell stocks at a loss. It's there to give your growth investments time to recover.

The mistake isn't using the G Fund. It's making it your whole plan, or forgetting that it exists.

Mistake #2: Sitting in an L Fund That's Too Conservative

Now let's talk about the Lifecycle funds — the L Funds.

On paper, these are a great idea. You pick the fund closest to your target date, and it automatically gets more conservative as you age. Set it and forget it. For a lot of working people who aren't interested or knowledgeable about investing, that's genuinely the best choice.

But here's where it gets tricky in retirement.

The L Income fund and the near-dated L Funds can get very conservative. They're built to protect money for someone who's going to start spending it soon. And that's the problem — they assume a shorter runway than many retirees actually have.

If you retire at 62 and you're in good health, you might be planning for 25, 30, even 35 more years. You might have a pension that allows you to keep this money growing for longer. A fund designed to play heavy defense may leave a lot of long-term growth on the table over that kind of timeline.

Let me show you what I mean. Two retirees, same $500,000, same age. One sits in a very conservative allocation. The other holds a thoughtful mix with real growth exposure for the money she won't touch for 20 years. Over a long retirement, the gap between those two outcomes isn't small. It can be the difference between leaving a legacy and running uncomfortably tight in your 80s.

I want to be clear — I'm not anti-L Fund. They're convenient and they keep people from making emotional mistakes. But convenience isn't a withdrawal strategy.

Set-and-forget got you to retirement. It won't necessarily get you through it. The real question isn't "Which fund is easiest?" It's "Which allocation matches your timeline, your withdrawal rate, and how long this money is actually expected to last?"

Mistake #3: Not Coordinating Your Withdrawal Strategy With Taxes — Especially Roth

This is the big one. The mistake that quietly costs retirees the most.

Most TSP money is traditional, which means it's never been taxed. Every dollar you pull out in retirement counts as ordinary income. And this is what catches people off guard: eventually, you don't get to choose whether to take it out.

Required Minimum Distributions now begin at age 73. Once they kick in, the government forces you to withdraw a growing percentage of your balance every year, whether you need the money or not.

For a disciplined saver, that's a ticking tax bomb. A large traditional balance can generate RMDs big enough to push you into a higher tax bracket. And it doesn't stop there.

Higher income in retirement can also raise your Medicare premiums through something called IRMAA. It can affect how much of your Social Security gets taxed. One forced withdrawal can set off a chain reaction across your entire tax picture. (I walk through how these pieces interact in my guide to mastering taxes in retirement.)

So what's the fix? Look at the window between the day you retire and the year RMDs begin. For a lot of people, that's a stretch of low-income years — and it's the single best opportunity you'll get for Roth conversions.

Here's the idea. In those lower-income years, you deliberately move money from your traditional account into a Roth, and you pay the tax now, on purpose, at today's rates. That money then grows tax-free, comes out tax-free, and — this matters — Roth accounts have no RMDs during your lifetime.

Done right over several years, this can actually save you hundreds of thousands in taxes over your lifetime. Lower RMDs. Lower Medicare premiums. Less of your Social Security exposed to tax.

This window doesn't stay open forever. Once you hit 73 — or 75 if you're born after 1960 — the easy years are behind you. I've seen too many people miss it simply because no one told them it existed. (If RMDs are already on your doorstep, here's how to think about drawing down retirement savings at 72.)

One more thing worth knowing. The TSP's withdrawal rules are more rigid than an IRA's. The TSP gives you fewer options for taking partial or targeted withdrawals, and that lack of flexibility is one real reason many retirees consider rolling their TSP into an IRA — where Roth conversions and custom withdrawals are simpler to manage.

Which brings us to the last mistake. Because if you do decide to move that money, the way you move it matters enormously.

Mistake #4: Botching the Rollover Mechanics

Let's say you've decided to roll your TSP into an IRA to do Roth conversions. This is where a single wrong step can cost you thousands in one afternoon.

There are two ways to move retirement money. And in my experience, financial institutions don't do a very good job of explaining how different the implications are.

The safe way is a direct rollover — a trustee-to-trustee transfer. The money goes straight from the TSP to your new IRA custodian without ever touching your bank account. No taxes triggered, no withholding, no ticking clock.

The other way is the indirect rollover, where the TSP sends the money to you first and you re-deposit it into your IRA. This sounds harmless. But it comes with two rules that trip people up constantly.

Rule 1: The 60-Day Deadline

Once that check is in your hands, you have just 60 days to get the full amount into an IRA. Miss it — even by a day — and the entire distribution becomes taxable income. If you're under 59½, add an early withdrawal penalty on top.

Rule 2: The Once-Per-Year Limit

You're only allowed one indirect rollover across all your IRAs in any 365-day period. Not one per calendar year — one per rolling 365 days. People with multiple accounts violate this without ever realizing it, and the penalty is steep.

Here's the takeaway: there's almost never a good reason to do an indirect rollover. Request a direct transfer. Confirm the money is moving institution to institution. Never let it touch your bank account in between.

The Traditional-to-Roth Trap

Now, there's one more rollover mistake that's pure tax — and it surprises people who think they're being smart.

Rolling your traditional TSP directly into a Roth IRA.

A Roth is a wonderful thing. But remember — your traditional TSP has never been taxed, and a Roth holds after-tax money. So the moment you move traditional dollars into a Roth, the entire amount becomes taxable income in that single year.

Picture someone moving a $300,000 traditional TSP straight into a Roth IRA in one shot. That's $300,000 of income piled onto their tax return all at once. It can rocket them into the top brackets, spike their Medicare premiums, and trigger a massive tax bill — and because it's coming out of the TSP directly to Roth, they will withhold 20% for taxes right off the top. That's 20% not going into your retirement account.

This is exactly why Roth conversions should be done deliberately, over several years, in measured amounts — the strategy we talked about in Mistake #3. Not dumped into a Roth all at once in a single taxable event.

So the cleanest path for most people is simple: direct rollover from the TSP into a traditional IRA first, with no tax triggered. Then convert to Roth gradually, on your own timeline, in the amounts that keep you in a sensible bracket.

A Bonus Mistake: Beneficiary Designations

Here's a bonus mistake that is even quieter, and somehow even more common.

Your TSP beneficiary form overrides your will. Read that again. It doesn't matter what your will says — whoever is named on that form gets the money. Period.

I've seen the painful version of this many times. An ex-spouse still listed years after a divorce. A form that was never updated after a remarriage. A parent named decades ago who has since passed away, sending the account into probate.

After any major life event — a marriage, a divorce, the birth of a child, a death in the family — check your beneficiary designations. It takes 5 minutes. Skipping it can send your life's savings to exactly the wrong person.

These errors have something in common. They're completely avoidable.

The Skill Nobody Hands You a Manual For

So let's step back.

Your TSP quietly built real wealth over a long career of service. But a retirement account isn't finished when you stop working — that's actually when the most important decisions begin.

The G Fund, your L Fund, your tax strategy, your rollover, your beneficiaries. None of these are complex. None of them require perfect market timing. They just require attention at the right moment.

Here's the thing: the TSP rewards you for being a great saver. Retirement asks you to become a great spender and money manager. Those are different skills, and nobody hands you a manual for the second one.

Get these four right, and the money you spent your career building actually does what you meant it to do — support the life you earned, here in the most beautiful place on Earth.

When you're ready to map out your own Roth conversion window or coordinate a rollover the right way, I'd love to talk. Schedule a free consultation — I work with clients in Honolulu and virtually across the country. And if you'd like a quick read on where you stand first, take the free Retirement Readiness Assessment.

— Daniel Masuda Lehrman, CFP®, Founder of Masuda Lehrman Wealth. Mahalo for reading.

This article is for educational purposes only and is not personalized financial, tax, or legal advice.