By Mike Miles
September 30th, 2013 | Uncategorized
Q. I’m planning on a FERS retirement at the end of December 2014. At that time, I’ll have already met the minimum retirement age and will have credit for 32 years of service. I’ve read that I can withdraw funds from the Thrift Savings Plan without an early withdrawal penalty upon my retirement, and that approximately 20 percent will be withheld for federal taxes, but what I don’t know and can’t seem to find is the amount of money that will need to be paid to my state of residence, West Virginia. My plan is to use the money in my account to pay off a mortgage and other debts, and leave the remainder in a savings account. Are there any other issues I should be concerned about?
A. I can’t comment on your plan of action, since I don’t know nearly enough about your circumstances and objectives. There is no withholding from your TSP withdrawals required for state income taxes. The amount that you will ultimately owe West Virginia for taxes can only be determined by preparing your tax return for the year. A tax preparer should be able to give you an estimate if you want to make estimated tax payments or request state tax withholding.
August 27th, 2013 | Uncategorized
Q. I know that you say (almost always) not to pay off the mortgage on retirement with Thrift Savings Plan funds. So when it is a good idea to do so? I’m CSRS Offset ending at GS-14, Step 8 with 32 years of service, $300,000 in TSP, $30,000 in cash on hand, will have no credit card or vehicle debt shortly as we are selling an investment property (taking the tax hit instead of identifying a new investment property because I really don’t want to be a landlord anymore), the usual monthly expenses, and will get the law enforcement/firefighter retirement benefit bump (did my 20, then moved to a noncovered position). I am 60 (and, at 62, the offset kicks in, and beyond my way of thinking, will increase my monthly pension).
We owe about $100,000 on the 6 percent rate 15-year mortgage that has 10 remaining years. We plan on selling the house in six years when the last kid leaves for college and downsizing into a condo up the street for about $300,000. The house will sell for around $600,000+ (100+ year old historic neighborhood, prices and sales were barely affected during the recession so these numbers are pretty solid). The caveat is, we are restoring this historic house ourselves (this is the third one that we have done) and put $1,000 to $2,000 a month in parts or subcontractors for the renovation and probably have about 36 months left of work on weekends to finish the house ($36,000 to $50,000).
The calculator says my retirement income after adjusting my life insurance, tax adjustments (I claim zero now cause I am a lousy-saving person and get $10,000 average back every year) will be 87 dollars less a pay period than what I take home now (without touching the TSP). So the reason for paying off the mortgage is my wife, who works in social work at a low wage, can quit working as not having the mortgage (paid off with TSP funds) will make up for about half of what she brings in and then help me swing a hammer and finish the house and party a bit more. On a final note, we have not taken out old-age insurance for care.
A. You’ve identified an objective: To take a lump sum from our TSP account to pay off your mortgage. So the question is whether or not this is a safe — and, if safe, an optimal thing to do, given your current circumstances and future goals. Unfortunately, it’s not possible to answer this question responsibly without analyzing it in the context of your lifetime plans. Visit my website and www.variplan.com and contact me if you’d like to discuss your needs further.
August 7th, 2013 | Uncategorized
Q. I am retiring Aug. 30 and would like to pay my home off at this time. I have $107,000 in my account and the payoff for my home would be roughly $49,000. I plan to let the remaining balance stay there until 62 and receive monthly payments. My retirement is listed under FERS and, at 62, I will get Social Security (I have worked in the private sector for more than 30 years and expect my retirement pay to be nothing less than $1,000 a month, for a total income of at least $2,600 a month. Does this seem like a bad move if I pull out $49,000?
A. The question is how this move will fit into an overall planning and management scheme, and whether there are other options that are likely to produce better results, within the context of that scheme, than the withdrawal and payoff. The terms of your current mortgage are critical to framing the decision for analysis.
November 13th, 2012 | Uncategorized
Q. My husband (retired FERS) turned 70 in March and has more than $200,000 in the Thrift Savings Plan. Our understanding is that he must begin withdrawal by April 2013. We owe $100,000 on our home. Is it better to take out enough to pay off the house or schedule the minimum monthly withdrawal?
A. The smart move will depend upon your mortgage terms and how you manage the TSP money. If I were responsible for the outcome, I’d prefer to see you continue the mortgage, if it’s at a market fixed rate, and take the required minimum distribution from the TSP account.
November 12th, 2012 | Uncategorized
Q. I am a CSRS employee with 38 years of government service. So far, I have my funds spread over all of the funds: 45 percent in G and 30 percent in F. Is this wise considering I intend to retire in fiscal year 2013? Also, is it wise to take funds from my Thrift Savings Plan and just pay off one of my two mortgages? The mortgage rates are 4.5 percent and 5 percent. I’d like to pay off the 5 percent mortgage, which is about $150,000. Is this wise? If not, why not?
A. Your asset allocation makes no sense. It only lists two of the five funds and the percentages don’t add up to 100 percent, so I can’t help you there. I suggest that if you don’t know what to do, consider using the L Fund that most closely corresponds to your life expectancy.
As for the mortgage, if I were managing your financial plan, I would lean against paying off the mortgage since it will impair your portfolio’s liquidity and may tie up money you’ll need later for expenses. You’ll have to decide what makes sense to you. There is no universally “wise” choice.
November 5th, 2012 | Uncategorized
Q. I’m a 45-year-old reservist who has been recalled to active duty. I’m also an E-6 with more than 18 years of service.
I can afford to invest my entire pay, including incentive pays, and wondered if it would be better to pay off an existing mortgage, approximately $60,000, just refinanced last month at 3.5 percent and a 15-year term? Or would it be better to max out the Roth TSP and set up another deferred account or IRA of some sort?
My wife makes about $55,000 per year.
A. It’s impossible to say what’s best for you without the proper analysis and understanding of your particular goals, resources and constraints. In general, however, I prefer to see you retain the mortgage and invest the money prudently instead of using it to pay off the mortgage.
September 18th, 2012 | Uncategorized
Q. Can a TSP residential loan be taken out to pay off a mortgage on a primary residence?
May 22nd, 2012 | Uncategorized
Q. Do you happen to have any articles about the pros and cons of paying off the mortgage in retirement? We had paid off ours. But we moved to downsize before selling the bigger house. So we took on a VA mortgage at a relatively low interest rate last November.
When we sell the big house, we have two options: Keep the mortgage and invest all the money, or pay off the mortgage and invest the balance. I retire in January 2013, and our pension income will be half our current income. Is there a “calculator” to evaluate the choices?
A. You will find a column I wrote on the subject here: http://www.variplan.com/uploadedDocuments/1277733522Carrying_mortgage_into_retirement_can_pay_off.pdf.
There are calculators for everything, but they’ll give you whatever answer you want depending upon the assumptions put into them, so don’t rely too heavily on them in making your decisions.
May 9th, 2012 | Uncategorized
Q. You made the following statement in a recent column on common mistakes regarding retirement: “Think paying off your mortgage in retirement is important in achieving the highest standard of living possible? It’s probably not.”
Why? I’ve always thought the opposite — that you should have your mortgage paid before you retire. Can you share your thoughts on this subject?
A. You’ll find a transcript of a column I wrote on the subject here: http://www.variplan.com/uploadedDocuments/1277733522Carrying_mortgage_into_retirement_can_pay_off.pdf.
Basically, the reason is that paying off your mortgage can tie up funds that you may need later to pay your bills — the bills for your lifestyle. Particularly, when you can lock in historically low interest rates for 30 years, your money can do more good in supporting your standard of living if it is invested properly in a more liquid portfolio.
December 16th, 2010 | Uncategorized
Q: I wanted to have my house paid off by the time I retire in 2025. I am over 50, and the yearly payment needed to pay off my house would equal my Thrift Savings Plan catch-up contribution; I can’t do both. Would you recommend paying off the house or paying more into the TSP account?
A: It depends upon your assumptions about the future and your circumstances. With what little I know about you (virtually nothing), I can only recommend that you carefully consider keeping the mortgage and making the TSP contributions.