By Mike Miles
Take Social Security or TSP?
April 22nd, 2013 | Uncategorized
Q. I’m retiring June 1. I’m 62 and will be 63 in September. I’m in CSRS Offset with 36 years and five months. Accrued sick leave will give me 37 years and six months. I’d like to hold off on taking Social Security. I might work when the dust settles in retirement. I have 35 years of covered Social Security earnings, so no windfall elimination provision reduction, just the CSRS Offset.
Would it be wiser to take an annual 4 percent draw from the Thrift Savings Plan, wait until I’m 66 and then take Social Security? I have $205,000 in TSP. Interest rates might increase as well, and then decide on an annuity.
I receive a survivor annuity from my wife’s CSRS record. I’m getting married two weeks before I retire. My spouse will have a nonfederal pension and Social Security when she retires. She will also be the recipient of my survivor benefit in CSRS.
A. You’re asking for individual financial planning, which can’t be provided responsibly through a forum like this. The answer to your question depends upon your goals, resources and constraints, and will require some analysis to determine.
Tags: CSRS, retirement, sick leave, Social Security, survivor benefit, TSP, windfall elimination provision
Avoiding early withdrawal penalty
April 22nd, 2013 | Uncategorized
Q. I retired at age 52 from the Postal Service. When can I fully withdraw my money without a penalty? If I decide to receive monthly checks, when can I begin receiving them without any penalties?
A. Unless you qualify for one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf, you’ll have to wait until you reach age 59½ to avoid the early withdrawal penalty.
Tags: age, early withdrawal penalty, Postal Service, retirement
TSP fund allocation
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.
Tags: allocation, investment, L Fund, life expectancy, retirement, Social Security, TSP
Disability retirement
April 3rd, 2013 | Uncategorized
Q. I am being considered for disability retirement in the coming months. My application is pending consideration from the Office of Personnel Management. I am a GS-14 FERS employee, 54 years old, with about 32 years of service. I have approximately $250,000 in the Thrift Savings Plan, and my allocations are as follows: 15 percent C, 15 percent S and 70 percent I. I realize that is somewhat aggressive, but it has been like that for about seven years or so, and I have been hopeful of the international home run. Regrettably, this hasn’t necessarily come to fruition. I will likely shelter some of my remaining funds in G or F when I find out if my retirement is approved.
If I should retire, I plan to withdraw approximately $150,000 to pay off my mortgage. Therefore, should something happen to me or if the market fails, at least my home is paid for. I will have a reasonable annuity, and my wife draws $1,800 monthly as a service-connected disabled veteran. Combined, I feel we will have adequate income, especially when our mortgage of $1,000 per month is satisfied. Not rich, but with no real debt ($15,000 vehicle loan) consistent income and no mortgage. Sounds OK to me. Or am I off-base?
A. I think that what’s off-base is that, like too many investors, you are willing to gamble — without knowing the odds — with your life savings. If you’re not willing or able to prudently manage the money, then it’s probably your safest bet to use it to pay off your mortgage. At least you won’t lose it overnight. This might mean that later on, however, if you need the money to pay your bills, it won’t be available. There is no easy answer. That’s why I’m in business. If you’d like to discuss your options, you can contact me through www.variplan.com.
Tags: allocation, C Fund, Disability, F Fund, FERS, G fund, I Fund, loan, mortgage, OPM, retirement, S Fund, spouse benefits, TSP
Military buyback and TSP fund transfer
April 3rd, 2013 | Uncategorized
Q. I am making payments to buy back my military deposit and I will also be making a redeposit of FERS funds. Can I transfer funds from the Thrift Savings Plan to military buyback and FERS? After all, these are both accounts for retirement and not money I’d be using now.
A. No.
Tags: FERS, military buyback, retirement, transfer, TSP
Survivor benefits vs. life insurance
April 2nd, 2013 | Uncategorized
Q. My husband is putting in papers to retire after 40 years in civil service. He wants me to sign a paper saying that I agree not to accept his retirement if he dies before me. He said it would be less costly to get a good life insurance policy. We are both 61 years old and in good health. I have asthma and take medication for cholesterol. I have 21 years with the public school system. I hope to retire in the next year or two. Is it a good idea for me to sign this paper? He doesn’t want to discuss it.
A. Here is a link to a column I wrote for Federal Times a few years ago on the topic: www.variplan.com/uploadedDocuments/1213969385How_pension_max_compares_to_survivor_annuity.pdf.
This is, potentially, a critical question, and the correct answer depends entirely upon your circumstances — your goals, resources and constraints. Unfortunately, the analysis required to answer it correctly is usually complex. The only universal recommendation I can make is that, if you’re in doubt, the safest bet is to elect the maximum CSRS or FERS survivor benefit.
Tags: CSRS, FERS, life insurance, retirement, survivor benefits
Combat pay, TSP and 401(k)
April 2nd, 2013 | Uncategorized
Q. I am retiring from active duty in about six months. Almost one-third of my Thrift Savings Plan balance is from combat-zone tax-exempt contributions. I am looking to possibly roll my TSP into my next employer’s 401(k). What happens to the CZTE amount? How do I keep this amount tax exempt, and what are my options for this amount at retirement?
A. Given that the TSP is the best retirement investment environment you will find, I urge you to consider maintaining your TSP account and maximizing its use for as long as possible. Unless there are some extraordinary circumstances, you will probably be better off maintaining your TSP account and then transferring your 401(k) balance into it later, after you’ve left your private-sector job.
Tags: 401(k), retirement, rollover, tax-exempt status, TSP
MetLife annuity and RMD
April 2nd, 2013 | Uncategorized
Q. I am 70½ years old and about to retire under CSRS. If I use my Thrift Savings Plan account to purchase a MetLife annuity, how are the required minimum distributions handled?
A. Life annuity payments satisfy the RMD for the amount of money used to buy the annuity.
Tags: 70 1/2, CSRS, MetLife annuity, Required Minimum Distribution, retirement
Roth and TSP
April 1st, 2013 | Uncategorized
Q. Does section 902 in HR 8 (American Taxpayer Relief Act of 2012), which states that “Amounts in applicable retirement plans may be transferred to designated Roth accounts without distribution,” apply to the Thrift Savings Plan?
A. You may transfer amounts from other employer-sponsored Roth retirement plans into the TSP. This does not apply to Roth IRAs, however.
Tags: retirement, Roth IRA, transfer, TSP
TSP matching funds
March 26th, 2013 | Uncategorized
Q. I am a federal law enforcement officer covered by FERS and, by Sept. 30, I will have more than 29 years of service plus more than a year of sick leave. To obtain my annuity beginning Oct. 1, I would like to retire on Sept. 30, but it is in the middle of a pay period. I plan on front-loading my Thrift Savings Plan and TSP catch-up contributions starting in April for the rest of this year to reach the maximum for both. Would there be any TSP match in my last, partial pay period, or should I just aim to reach my TSP limits in the previous complete pay period?
A. There will be matching on every pay period.
Tags: annuity, catch-up contributions, FERS, law enforcement, matching funds, retirement, sick leave, TSP