By Mike Miles
May 9th, 2013 | Uncategorized
Q. I will most likely be medically separated from the military next year after 25 years of service. I have bone cancer that is incurable but manageable — 50 percent life expectancy is 10 years. I am 47, so if I live 10 years, I would be 57 and still ineligible to withdrawal my Thrift Savings Plan. Are there exceptions for terminal disease that allow you to withdraw early without penalty?
A. The list of available exemptions appears on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
May 6th, 2013 | Uncategorized
Q. On reading some of Mike Miles’ column, I see him advising to invest in the L Fund most closely matching your life expectancy. So is he saying that at 60, I should invest, say, in L2040? Would he recommend this even if/when I begin withdrawing money regularly for retirement income replacement?
A. That is what I have recommended you consider doing if you’d like to maximize the standard of living your money will likely support over your lifetime. Of course, if you’re managing your money, you’re ultimately responsible for the outcomes.
April 24th, 2013 | Uncategorized
Q. I am retired CSRS. I was born Nov. 15, 1942. Therefore, I’ll be 70½ on May 15.
1. When will I have to start taking payments from my Thrift Savings Plan account?
2. Can I wait until January to March 2014 before I get my first payment?
3. What is the minimum I will have to take?
4. I do not want a total lump-sum payment.
5. Do I have to take a monthly payment, or can I get my minimum payment once a year?
6. What form do I need to submit to get minimal payments each year?
7. Can you provide the form?
A. You are required to take your first withdrawal by April 1, 2014. This will be the required minimum distribution for 2013. You are then required to take the 2014 RMD by end of the day on Dec. 31, 2014. The RMD amount is calculated for each year and will likely be different each year. The amount is calculated using the method described in IRS Publication 590. The TSP will calculate the RMD amount for you and send you monthly payments to meet the requirement. Use Form TSP-70 to request the monthly payments based on your life expectancy. You may take one lump-sum distribution from your TSP account and may only take monthly payments after that.
April 9th, 2013 | Uncategorized
Q. I will have approximately $550,000 in my Thrift Savings Plan when I retire this year at age 60. In addition, I have other investments and will be receiving a federal pension. Using a 4 percent investment withdrawal rate and anticipating future Social Security benefits, my income will exceed expenses by 20 percent, so I may dial back the 4 percent to something less. Considering this and with a willingness to accept a moderate amount of risk, what would be an appropriate TSP fund allocation for a younger retired person?
A. I can’t tell you what is right for you without a lot more analysis and understanding. The exact nature of your financial goals and the timing of cash flows is critical to the decisions you face. It’s kind of like saying your head hurts and asking what you should do. The truth is that you should put the effort into figuring out the right thing to do before you do anything else. Otherwise, you’re just guessing and you’ll pay the price if you guess wrong.
As I have written many times, however, if you don’t KNOW what to do, you should consider choosing the TSP L Fund that most closely corresponds to your life expectancy, or your joint life expectancy if you’re married. This doesn’t guarantee that your goals will be met, however.
April 2nd, 2013 | Uncategorized
Q. I am 57 years old. I have about a year and three months with the Defense Department (FERS). I am in the process of buying back 14.8 years of service, and I plan to retire in about 12 years. Will the buyback help with the Thrift Savings Plan? What is a good TSP investment option for someone in my situation?
A. I’m not sure how the buyback will help your TSP account, since you will not be entitled to any additional contributions as a result. The investment strategy that you choose should be based on more information that you’ve provided here. If you’re not sure what to do, I suggest that you use the L Fund that most closely corresponds to your life expectancy — or joint life expectancy, if you are married. The problem is that it’s impossible to know exactly how much you can safely withdraw — and when — without more analysis, planning and management along the way.
April 2nd, 2013 | Uncategorized
Q. You have suggested that individuals invest their TSP funds in the life cycle fund most closely approximating their life expectancy. Would that still apply to a CSRS employee who does not anticipate accessing funds until age 70½?
A. Yes, but keep in mind that this was my advice to those who are not sure what else to do.
March 11th, 2013 | Uncategorized
Q. At age 65, I’ve taken your advice and have taken a full physical. I’m being very positive and very optimistic when I say I expect to be around for another 15 or 20 years. In retirement, I’ve put all of my money in the L-2030 fund, as suggested. Does it stay in the L-2030 fund when I reach the required minimum distribution age, or does it get put in the L-income fund?
A. The management decisions are up to you, but my default recommendation, if you don’t know what else to do, is to continue to use the L Fund that most closely matches your life expectancy. But that’s kind of like recommending that if you don’t know which way you should turn to get to your destination, keep driving straight. The recommendation is intended to minimize the risk of making a big mistake, but it doesn’t guarantee that you’ll get where you want to go. It takes some careful navigation to make that happen with a high degree of confidence.
February 20th, 2013 | Uncategorized
Q. I am separating from the military in January 2014. From there, I will be pursuing my education. I will be 60 in 2042. My Thrift Savings Plan is 100 percent G Fund. I stopped my TSP contribution and started the Roth TSP because I like the idea of not paying tax when retirement comes. I am aware that the account needs to be in place for five years and can only be withdrawn at age 59½, and that the money is deducted from taxed income. Is this a wise decision?
Since my traditional TSP can’t be transferred to TSP Roth, I decided to just leave it there. Would it be better to leave it entirely to G fund or allocate certain percentages to other funds? And which would be a good one to put them into?
A. It is not generally better to contribute to the TSP or the Roth TSP. Which is better entirely depends upon your tax circumstances now, and what happens in the future. Knowing what we know today, it is likely to be far more important that you save the money than it is where you save the money.
If you have no idea what to do, I suggest that you put your TSP holding into the L Fund that most closely corresponds to your life expectancy and cross your fingers.
February 20th, 2013 | Uncategorized
Q. I’ve been retired a couple of years now and I’ve transferred the money I had sitting in the G Fund to one of the L funds. I chose the L 2020 fund, mainly because I’ll turn 70 in five years and will be forced to start withdrawing the required minimum distribution. I’ve read that you suggested putting money into the L Fund that closely corresponds to one’s life expectancy. Does that mean how long I plan to live, or is that determined by a doctor or some other expert?
A. If you’ve had a full physical exam within the past year, I think you’re the best judge of your life expectancy. If not, you should have an exam, review the results, and then make your prediction.
February 11th, 2013 | Uncategorized
Q. I am 26 years old and have been working in the federal system for three years. I am a GS-9 Step 2 and contribute 7 percent of my income to my Thrift Savings Plan. Since I have a long ways to go before I retire, I would like to know what percentage I should put in each fund, if any?
A. I suggest that you consider investing your money in the L Fund that most closely corresponds to your life expectancy.