Does this seem a sensible withdrawal plan?

Managing your TSP and alternate investment options after retirement or separation from service.

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celtic
Posts: 8
Joined: Mon Jul 21, 2014 11:09 am

Re: Does this seem a sensible withdrawal plan?

Post by celtic »

More...

Skyhawk, there likely will be some parttime work. Just completed certification for life guarding (along with a class of 16-18 year olds!) with an eye to working a bit at the Y in FL and here for very little pay but free membership. And the wife has a few things going that can generate continued income. Just a bit.

Cron, brothers and I are going on a fishing/camping weekend with our 90 year old father in a couple weeks. He is still pretty active, not too focused on meds or bowel movements.

Hmmm. Maybe 110 for us?

hugehail
Posts: 602
Joined: Mon Mar 12, 2012 10:05 pm

Re: Does this seem a sensible withdrawal plan?

Post by hugehail »

If I was sitting pretty like that, I sure as heck wouldnt work until I was 62. Not given the
fact that we have FERS supplement that plays about 80-90% of what social security
pays between ages 57-61. I plan to retire at my MRA/30 and enjoy life before I get cancer or
have the big one.

celtic wrote:We've been good little squirrels and have $1M+ in TSP and 400k+ in other retirement accounts including 100k+ in a Roth. No debt, and we own our home and a Fl condo. We have minimal assets outside of these retirement accounts & properties; we've kept a HELOC & life insurance cash value available and untapped for emergencies. We've tracked spending to the penny for decades, so our expenses are predictable. Inflation & taxes & markets & health costs are the long range wild cards, as they are for all of us. No pressing legacy needs other than continuing charity and generosity with family.

We are considering retirement in 2 years at 62. Pensions after taxes will cover 72% of our expenses, both essential and nonessential. Taking social security early could cover the rest, but delaying the higher earner to age 70 seems more prudent. And so we face an income gap to fill with withdrawals from retirement accounts.

We need a plan that will 1) replace the HELOC option with accessible emergency funds; 2) cover the income gap age 62-70; and 3) facilitate some fun sooner than later - all while minimizing taxes and preserving assets through our lives.

I am considering at retirement a partial TSP withdrawal, around 50-80k, to increase our liquidity & cash reserves, followed by life expectancy based monthly withdrawals for the remaining TSP $1M. We'll leave the other retirement accounts alone. The annual amount of the TSP balance withdrawn begins at 4.2% (equals a more conservative and reasonable 3% of our total retirement assets) and is recomputed annually based on year end balance. It would likely be more than we need, yet would not trigger a higher tax bracket, and we would invest the excess. Payments then drop sharply at age 70 when the TSP switches to a different actuarial table to compute RMD. I only recently learned about this switch and it seems to play out perfectly for us, as our delayed SS would start at 70 and more than cover the decreased TSP payments.

I know this plan violates the frequent recommendation to delay drawing TSP as long as possible. And I realize a 2002ish event could impact the TSP balance long range, though we'd then likely counteract by scaling back expenses and investing more outside the TSP. We could alternatively pull from other retirement accounts first, but the simplicity of TSP life expectancy based monthly payments is appealing, as is the prospect of having extra cash and accumulating reserves. We have been so frugal & careful for so long, I expect we would otherwise withdraw only exactly what was needed out of habit, only to pay more taxes in a higher bracket later.

It would be nice to shift to a more automatic and relaxed mode in retirement. Though I'm open to cautions and alternative suggestions...

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: Does this seem a sensible withdrawal plan?

Post by crondanet5 »

celtic. Plan for it. Keep your accounts growing in value. And keep your flies dry.

skiehawk11
Posts: 2116
Joined: Wed Jan 05, 2011 2:32 pm

Re: Does this seem a sensible withdrawal plan?

Post by skiehawk11 »

celtic, at first blush of your situation, I would do the following if you decide not to take the SS supplement before

I wouldn't touch your TSP or Roth IRA. I would keep both accruing until mandatory withdrawal age and/or taking some out for trips to Paris. :)

I assume you've most likely determined your shortfall. I would convert the remaining 400k saved up into x amount equal to 2 years of essential costs in a money market/short term bond account which is easily accessible. The remaining amount should be used until SS can be used to make up the shortfall. In combination with a part time job this should alleviate any fears associated with the HELOC.

Again, I think using a CFA fee based adviser would be an excellent move.

hugehail
Posts: 602
Joined: Mon Mar 12, 2012 10:05 pm

Re: Does this seem a sensible withdrawal plan?

Post by hugehail »

The interest you make on your TSP during retirement is going to offset part of the withdrawals.
Assuming 5% return in retirement and age of death of 87, you could start withdrawing 45K when u retire and 85K by the time you are 87 (adjsuted for inflation is 45K in 2016 dollars) and still have 200K in 2016 dollars when u are 87. I don't plan on waiting until i am in a nursing home to spend my money. How much fun can you actually have by that age? Of course its often said that republicans do not want to die poor, so holding on to the money could be a better option for those folks. lol

User avatar
TSPTrader
Posts: 119
Joined: Tue Oct 05, 2010 3:42 pm

Re: Does this seem a sensible withdrawal plan?

Post by TSPTrader »

You are all assuming the system & regualtions will still exists as is. Have you considered the reset of monetery system in the USA. The loss of the $USD (thus the push for endless wars) as a reserve currency which I predict to be by 2018. How will that affect the TSP's, 401K's, IRA, etc..??

celtic
Posts: 8
Joined: Mon Jul 21, 2014 11:09 am

Re: Does this seem a sensible withdrawal plan?

Post by celtic »

Feels like a game show: "Take the money!" "Delay SS!!" "Leave the TSP alone!!"....

and TSPTrader's more ominous point is well taken. EVERYTHING can change, but there is no way to plan for all that could happen. I will rely on faith, flexibilty and common sense.

Back to the withdrawal question, Many ways to do this apparently, and I appreciate all the perspectives. Studying the historical fund performances, I think as long as we stay well balanced we can take what we need and then some over the 8 years and there is a good chance our capital will stay largely intact. Annual withdrawal would be 3-4%, less when funds do poorly and more when funds do well. And if we do revisit 2002 or 2008 type drops, we'll adapt. A crash would hurt regardless of our withdrawal plan. We'd still likely be OK in the long run.

skiehawk, the non Roth & non TSP funds (essentially wife's retirement accounts) would just cover the shortfall over the 8 years if one of us draws SS & the other takes an interim spousal benefit. Leaving the Roth and the TSP to grow. But then come age 70, the TSP RMD and delayed SS would suddenly and significantly increase our income - and our tax bracket. Kind of bothers me to pay more in taxes after 70 on dollars I could have pulled out a couple years earlier. Deferring taxes so near the finish line isn't so appealing when the higher bracket looms.

I dunno. I also think I'd rather grapple with setting up investments outside the TSP during my 60s than during my 70s. Explore munis and dividend producing assets, etc. Up until 2011 when we liquidated non retirement assets to buy the distressed FL condo, we kept cash and managed investments outside retirement accounts. I miss that security and flexibility. Regaining that via a 3-4% draw feels like the right move.

Still leaning toward the life expectancy based withdrawals which would give us 10-20k over our basic expenses age 62-70. I like that it is a very simple process, with withdrawal amounts tied to fund performance and a built in decrease right when SS kicks in. Precisely what I would craft for us but without the annual work.

natohog
Posts: 12
Joined: Wed Nov 03, 2010 11:13 pm

Re: Does this seem a sensible withdrawal plan?

Post by natohog »

Celtic,
Congratulations!

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: Does this seem a sensible withdrawal plan?

Post by crondanet5 »

I recently visited South Florida. Home values were up. Keep tabs on condo sales and you may find that condo gives you a better rate of return than the TSP or non-401k accounts.
As for the TSP withdrawals I believe you are correct in commencing annual (or monthly) withdrawals when you retire. 3-4%, I remind our viewers, for celtic is $30,000 - $40,000. That is replaceable so next year you might want to withdraw more, and replace it again. At this point I'm going to hold out the http://www.jillonmoney.com flag one more time. She can talk to you at your level of TSP balance and give you the best advice how to manage and withdraw it.

tmj100
Posts: 45
Joined: Tue Jul 02, 2013 2:16 pm

Re: Does this seem a sensible withdrawal plan?

Post by tmj100 »

this articles seems to speak directly to this topic. Using exsiting savings / 401 / tsp / working - while delaying SocSec.

http://www.govexec.com/pay-benefits/ret ... oref=river

http://crr.bc.edu/wp-content/uploads/20 ... 10-508.pdf

celtic
Posts: 8
Joined: Mon Jul 21, 2014 11:09 am

Re: Does this seem a sensible withdrawal plan?

Post by celtic »

Thank you tmj. Good links, and persuasive as we may be long lived.

Cron, I did send something to Jill. We'll see what I hear back. And yes, the condo has been a good investment with an increase in value of about 15% a year as well as a bit of rental income (another 2-3%) after expenses. (Market rate for rent could net us another 4% but we like our very stable tenant). We're happy with an investment that goes up 15% a year and throws a 2-3% dividend.

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: Does this seem a sensible withdrawal plan?

Post by crondanet5 »

celtic, can you find another condo?

celtic
Posts: 8
Joined: Mon Jul 21, 2014 11:09 am

Re: Does this seem a sensible withdrawal plan?

Post by celtic »

I wish! This one was a 2011 foreclosure at the very bottom of the market, and that ship has sailed.

Then again, the upcoming escalation in flood insurance combined with the expiration of mortgage assistance could greatly affect Florida's housing recovery. It could get dicey.

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