TSP between retirement and 59 1/2?

[John316]

If I retire at 56 which is my MRA in the Postal Service, what are my options regarding the TSP? I am looking for some guidance here. It seems I have these options, and if somebody can steer me right I would appreciate it. Here goes: 1) take an immediate annuity with the TSP and never touch the money, 2) roll it into an IRA with Vanguard, Fidelity, etc, and wait 5 years to touch the money (IRA's have a 5 year waiting period I am told) and pay the taxes outright, or 3) wait until I turn 59 1/2 and then roll it into an IRA.

Any help/advice/guidance would be appreciated.

[Relevant]

The Roth IRA 5 year rule does not apply to TSP rollovers to traditional IRA accounts. That being said, based on the options you are considering, here is my spin:

1) Annuity - If you take an immediate annuity you are purchasing an annuity from an insurance company under contract with TSP. It is essentially their money at that point and they promise to pay you back based on the terms of the annuity. Annuity payments are tied to interest rates. With interest rates at all time historic lows this is not a good time to purchase an annuity.

2) Unless you plan on expanding your investment options staying with TSP until 59 1/2 is sound option.

3) It sounds like you don't need income from from your TSP until at least 59 1/2. If true, let your TSP ride and re-address your choices at age 59.

[John316]

Thanks Relevant, lots of different rules and regulations. I was leaning towards retiring at 56, rolling over my TSP into a Vanguard traditional IRA and receiving dividends from it, but was told that if I transferred to an IRA I couldn't touch it for 5 years or face the 10% penalty. I realize I would pay taxes on the distributions/dividends, but did not know the 5 year rule. If I were to roll it into a taxable account with Vanguard at 56, I believe I would owe the taxes plus the 10% penalty. Is that a fair assessment? Again, thanks for your expertise.

[Relevant]

John316,

It would help me formulate an opinion if I had a better idea of what you are trying to achieve and what the bigger picture looks like.

For example: what is your TSP account balance; if you retire at 56 will you need to draw income from your TSP funds before reaching 59 1/2?

You are correct on several points but there are different rules for traditional IRA's, Roth IRA's, TSP etc.. and I get the sense that you are mixing apples and oranges on how to apply these rules.

If you are not comfortable posting additional details feel free to send me a personal e-mail.

[mkw52]

My understanding is that if you are eligible for retirement at the age of 55, you are not penalized for withdrawing money from your TSP. There are a number of options for withdrawing your TSP. You can take it all and transfer it, no penalty involved (can't speak to subsequent withdrawals), buy an annuity (meh), partially withdraw cash (onetime amount), set up monthly withdrawals....it appears you have many choices. a good place to start investigating them is on the actual tsp.gov site. there are some useful calculators there as well, that allow you to input life expectancy and withdrawal amounts. I've played with it quite a bit and was pleasantly surprised to find that I can approximate my income and still have way more money than I will need when I hit 70....I'm inclined to leave it in the tsp a,nd work with it...my understanding is that you do not have to make that choice at retirement, but have a yearly option to choose...if this is wrong, please, some one let me know, because I, too, am ready to go....(but found the tsp.gov site helpful)

[mkw52]

Again, John, access the tsp .gov website and look at planning and tools. There are a number of options to consider from there. Play around with those choices. It's a real eye-opener. While you are given the choice for a one time withdrawal of cash (taxed as income) I believe you can adjust amounts of monthly or yearly payments annually. I may be woefully ignorant, but it is my understanding that a TSP is the same as an IRA and you can transfer it at any point to another entity, as long as it remains an IRA. If anyone could clarify this, we would both be well informed!

[crondanet5]

John I understand the Postal Service is not the most employee friendly government job. Do you feel you are you being pushed out or can you stay longer to accumulate more money in your financial retirement program?

[John316]

Thanks for all the great answers. Cron, the Postal Service is indeed very unfriendly, especially toward us older guys. Once you can't run the routes as efficiently as I did when I was in my 20's, they badger and harass you. Sad but true.

I want to retire at my MRA to start my next chapter in my life - I would like to help the poor children in this world to have the same opportunities that I have taken for granted, like clean water, freedom from tyranny, exploitation. I have enough in my TSP, Roth IRA's, and my taxable investments to fund a nice retirement. True, I may not have as much as some financial advisors are stressing, but I was never in love with money to begin with. When I remember that 80% of the rest of the world lives on less than 2 dollars per day, I realize I can give back some of my time, talent and treasure.

My desire is to retire, transfer my TSP to Vanguard, then start that next chapter. I probably have enough in my taxable account to not touch the TSP for at least 2 years. I just want the option to start withdrawing from the newly formed IRA if I choose to without paying the penalty for the IRA not being opened for the minimum 5 years.

The advice here has been wonderful, and I appreciate all the wisdom found on this website.

[MSR]

Personally, I am a fan of Vanguard. If you are former military you might want to look at USAA. Of course if you really want to keep costs low the TSP is a great deal.

[crondanet5]

Here's a couple of suggestions you might try before you retire:

1. Figure out how much your anticipated monthly pension will be, subtract taxes and health care cost, and try and live on that amount each month.

2. See your doctor, demand full bloodwork and find if there are any tweaks you can make in your pharmaceutical regimen to retire in the best possible health you can have. You want to enter retirement feeling healthy and being healthy. The methodology behind Obamacare is that your doctor strives to improve your health status and gets paid more for doing it. Use him.

3. Plan your retirement days. Without a place to go and grumble about home and sports and lousy politicians your world gets kind of small. How will you fill your day? Do you have any idea the number of people who have retired to play golf only to find partners unavailable, links full of players, and their game deteriorated?

4. If you can stand it, I urge you to try and stay longer. See how many days it would take to move up to the next retirement bracket. Save those sick days to add on to your longevity calculation towards your retirement amount. You ca talk to the retirement center and initiate the paperwork, but you can hold on the actual date of retirement before you join the last punch crowd.

It's a shame a supervisor is rated based on the number of letters of warning and removals issued and how many of their ancestors were managers in the postal service. What they need is a retired military general to run it and straighten it out. IMHO.

3.

[MSR]

Personally, I think routine is good for most people. My Grandfather retired at 62, got a job and had to quit work at 86 to care for my grandmother. He's 92 and tells me he hates old people. You know people in there 100's....

[Drjetski]

I just left the USPS on Nov. 29th at age 63. It's like working in a war zone. Leave when you can, the stress will kill you. The 5 year thing might be if you take a Roth conversion when you withdraw? You can take a monthly withdrawal and change it each year if you wish. I have a Vanguard account and was considering transfer and in the end decided to stay TSP for now. Good luck in your retirement. I love it!! Eric

[rf53]

My understanding is that if you are eligible for retirement at the age of 55, you are not penalized for withdrawing money from your TSP. There are a number of options for withdrawing your TSP.

In response to the first part of your statement, if you are eligible to retire and you retire on, or after any day of the year that you turn 55, these are the withdrawal and other options for the TSP:

1. Leave it alone and keep it invested until 59 1/2 or beyond. You do not have to take any payments from the TSP until you turn 70 1/2. Note, if you do not chose to in some way access your TSP immediately upon retirement, you lose access to it until 59 1/2 unless you take the 10% penalty.

2. Roll it over into another tax deferred retirement account.

3. Purchase an annuity... (don't!)

4. Take a full lump sum payment, or a portion of the balance in lump sum.

5. Set up equal monthly distributions until the money is depleted in a monthly amount you select. The minimum monthly withdrawal amount is $25 per month. You may change this monthly amount once each year before Dec. 15 by filing a form TSP-73.

Did I leave any options out?

I believe that the best way to handle things for most people who retire on, or after the first day of the year they turn 55, but well before they turn 59 1/2, is to set up monthly equal distributions. In that way they can keep control of the balance of their TSP, they can keep it invested, and they can change the monthly distribution amount each year to adjust for their income needs. If they do not need the monthly income, they can simply set up the minimum payment ($25/mo.) and in that way they can ensure that if things change they can gain access to the money in a larger monthly amount the following calendar rather than being forced to decide between taking the 10% penalty, or waiting to turn 59 1/2.

[John316]

My understanding is that if you are eligible for retirement at the age of 55, you are not penalized for withdrawing money from your TSP. There are a number of options for withdrawing your TSP.

In response to the first part of your statement, if you are eligible to retire and you retire on, or after any day of the year that you turn 55, these are the withdrawal and other options for the TSP:

1. Leave it alone and keep it invested until 59 1/2 or beyond. You do not have to take any payments from the TSP until you turn 70 1/2. Note, if you do not chose to in some way access your TSP immediately upon retirement, you lose access to it until 59 1/2 unless you take the 10% penalty.

2. Roll it over into another tax deferred retirement account.

3. Purchase an annuity... (don't!)

4. Take a full lump sum payment, or a portion of the balance in lump sum.

5. Set up equal monthly distributions until the money is depleted in a monthly amount you select. The minimum monthly withdrawal amount is $25 per month. You may change this monthly amount once each year before Dec. 15 by filing a form TSP-73.

Did I leave any options out?

I believe that the best way to handle things for most people who retire on, or after the first day of the year they turn 55, but well before they turn 59 1/2, is to set up monthly equal distributions. In that way they can keep control of the balance of their TSP, they can keep it invested, and they can change the monthly distribution amount each year to adjust for their income needs. If they do not need the monthly income, they can simply set up the minimum payment ($25/mo.) and in that way they can ensure that if things change they can gain access to the money in a larger monthly amount the following calendar rather than being forced to decide between taking the 10% penalty, or waiting to turn 59 1/2.

Thanks for the information. I am torn between 2 possibilities. One is to leave it in the TSP and set up a monthly income stream, and adjust it once a year. I like the low fees charged by TSP, but dislike the small amount of options for the money.

The other is to roll it into a Vanguard traditional IRA. I like their low fees also, and they give me way more options for investing the money. I also want the ability to not touch it if I don't want to. I have enough to last a few years in a taxable account, but I want the ability to access it if I need to.

I was told that if I transferred it to a traditional IRA I would have to wait the minimum 5 years from the date of transfer to access the cash. That I didn't want to do. I don't believe I have to wait because it was set up to have people retire at a MRA that was less than 59 1/2.

[crondanet5]

Contact Vanguard and TSP for the straight word on this.