Million Dollar TSP!

[Scarfinger]

I do think you're probably a bit off.

The way I did it is this (using your above numbers):

Your estimate is definitely more detailed than my simple calculations. For one you are taking into account of retiring before SS.

In my example for me I would be retire at age 65 and 10 months old and taking SS right away. Or maybe waiting and taking SS at 66 years old. I plan on having enough cash in the bank to cover that without increasing TSP withdrawals.

I calculate at most I will have 650,000 by 65yrs and 10 months when I retire. So the 1.2 mil is out of reach for me. No retiring early for me. At worst, I am retiring at full retirement age of 67 and making do.

Would you think my example would work if a person was taking SS right away at retirement?

Your example would be better for someone trying to retire early (age 62 is the average FERS employee retirement age) and calculating the need for more TSP to cover the GAP until SS.

I really appreciate your input. Thanks, Joe

[Aitrus]

Ok, let's run those numbers as well. We won't be taking a WAG (wild-ass-guess), we'll be taking a SWAG.

Side note: a SWAG is a scientific WAG - a phrase we used in my EOD days for something more accurate than a stab in the dark attempt at solving a problem, but not as accurate as somebody with a slide-rule could nail down.

Assuming somebody is 66 when they retire (I'll round up for SWAG's sake) and their age 62 SS is $2,000, then their age 66 SS will be about $2,670, or $33,120 per year (again - rounded numbers for back-of-napkin estimates here).

We'll keep our original final pay of $80,000, and the 85% replacement rate of $68,000.

$68,000 - FERS pension ($18,000) = $50,000, then subtract SS of $33,120 = $16,880 needs to be funded from TSP (assuming no other income streams).

$16,880 / 0.04 = $422,000 in TSP, which would need to earn a steady 4% (plus more for inflation) to stay steady at $422,000 forever.

Since you're retiring at 66, you can reasonably to plan for a 30-year retirement and die around age 96. Today, men alive at 70 have a better than 50% chance of seeing 80, and 25% can expect to see 90. Boomers as a cohort were about 50% retired in 2019, and that number shot upward a lot in 2020 and afterward. They're more than willing to pump retirement money into the healthcare industry for the next couple of decades, so those life expectancy numbers are projected to get better. Since we're going to hedge our bets for worst case (running out of money in our 90's), aiming for around $450,000 would be a nice buffer for things like 2021 - 2023 levels of inflation, unforeseen one-time expenses (need a new appliance), new ongoing expenses (got T-boned by a Gen-Z and the kid's insurance didn't cover the entire cost of a new car so you've got payments for a while), etc. You'd need to run a Monte Carlo simulation with these numbers to get a more solid read on how likely your $450,000 aimpoint would handle variances like this.

If you wanted a 100% replacement, it would look like this:

$80,000 - FERS of $18,000 = $62,000, then subtract SS of $33,120 = $28,880 to be funded from TSP. $28,880 / 0.04 = $722,000 needs to be in TSP.

As you can see, aiming for 100% replacement isn't really in the cards if you can barely reach $650,000 with your most optimistic estimates.

If you want the 100% replacement, here's three solutions:
1 - Work longer (more time for TSP to grow, more years of service for FERS retirement, and you pull SS later).
2 - Another steam of income of some type - work a part-time gig, do some consulting, fix lawn mower engines out of your garage for the neighborhood, write a blog or do a YouRube channel, start a business doing hand-written letters from Santa for little kids at $5 a pop, etc. - in retirement for a little while that doesn't make enough to reduce your SS payments so you can reduce the amount you pull from TSP in the early years.
3 - Pull more than 4% from your TSP and risk exhausting your TSP money.

Or you can opt for being satisfied with less than 100% replacement. It's doable, you just have to really watch your spending and living expenses. You want to push back the date when your fixed income is exceeded by your rising expenses. All it takes is one little hike in the local property tax and somebody living right on the edge will now be in a spending deficit. You want to delay that for yourself - or eliminate the likelihood - as much as possible.

I know I'll be swallowing my ego and asking for every Veteran's and Senior discount I can. I'm planning to travel a bit, but not extravagantly. I've cultivated an interest in hobbies that I can do frugally and allow me to get a whole lot of enjoyment bang for my retirement buck.

[jimcasada]

There's a lot of little things you should take into account too. For me, not having to drive to work every day was actually a not-so-little thing. My fuel and vehicle expenses are now a way down. And, if you value your time, not having to drive to work is saving me at least 1 1/2 hours every day (sometimes a lot more, depending on traffic), plus l'm not stopping now for 7-11 coffee & stuff, and not hitting those overpriced vending machines at work.

[12squared]

Right now, there are nearly 100,000 so-called Thrift Savings Plan millionaires. That is about a 23% jump since the end of fiscal 2022. This time last year, just about 65,000 TSP participants had accounts totaling more than a million dollars. But it is still a downtick since two years ago, when there were about 113,000 TSP millionaires.

from https://federalnewsnetwork.com/federal- ... ring-100k/

According to the latest figures from the Federal Retirement Thrift Investment Board (FRTIB), the agency that oversees the Thrift Savings Plan (TSP), there are now 94,873 TSP millionaires as of the end of September 30, 2023. This is a 23.4% increase since December 31, 2022 when there were 76,889 TSP millionaires. This also represents an 8.5% increase since the end of the first quarter of 2023 when there were 88,265 TSP millionaires at the end of March.

from https://www.fedsmith.com/2023/11/03/23- ... s-in-2023/

[IRQVET]

GPIN hit the nail on the head IMHO. My way of thinking, if I cannot reach a number in my account that makes me feel comfortable, then I better make sure my other finances are in line (paid off house, paid off cars, etc). When I hit 62 and decide to pull the pin, I’ll have three retirement accounts; one fed, one “partial/ 5 yr minimum vest” with the state, and my military retirement.

The plan is to have the house paid off at age 52, and use those next 10 years of freed up funds to absolutely murder my TSP. I figure its a solid plan so long as I don’t rack up a ton of debt like Dave Ramsey warns about.

[12squared]

The plan is to have the house paid off at age 52, and use those next 10 years of freed up funds to absolutely murder my TSP.

Is your mortgage rate higher than annual rate of return you've been getting from the TSP? If not it would be better to invest your excess cash into retirement savings to allow more time for compounded growth.

I contributed 10% of my salary to TSP from day one. For the first 10 years, the growth of my savings from my contributions far exceeded the market gains. As I approach the 30-year mark, what I earn when 100% in the G fund is 3-4 times what Uncle Sam contributes during the same time period.

The market value of my house has barely doubled during the time I've been contributing to TSP. After deducting the costs of home improvements and maintenance, the return on investment is closer to 50%.

It is still not paid off.

[bloobs]

If not it would be better to invest your excess cash into retirement savings to allow more time for compounded growth.
...[house] is still not paid off.

Generally agree. There is a (mis?)perception that real estate trumps all other investment classes in terms of risk and return. While this may be true in certain cases, it does not apply to one's home as the investment vehicle.

Let me present a best-case scenario.

Like many here, I hold a bargain basement 3.5% interest on its mortgage. Unlike others however, I also live in a historically very stable and prosperous county (by US standards) where the median home price went from $450k to $750k in a 12 year period. In any given year since the 1980's, the prices of these homes have never dropped double digit percentages except back in 2010, and unlike places like Las Vegas and Miami there is little fluctuation in this rate of price appreciation (no big booms followed by bigger busts).

Off-hand those stats sounds fantastic and infers that real estate for me is a great investment (plus a home to live in). Then I did a little basic math:

The CAGR of that 12 year period is ~4%.

The average interest rate of a zero-risk/no maintenance savings account going back to the last century is about the same.

Remember unlike a savings account, you also pay in terms of stress, $ and time for:
- property taxes,
- maintenance and repair,
- years when its value drops,
- loan interest payments,
which substantially knocks down any value from that home's net price appreciation.

And this is a best case scenario. Most of the rest of US doesn't get it this good.

So I don't mind paying that low interest rate mortgage payment well into my retirement as long as the money i free up gets invested in someplace more lucrative.

[IRQVET]

So I’m currently in year 4 of a 20 year home loan locked in 2.3%, as of today I currently owe $140K. My home value has almost doubled in the last 4 years, as I’m in an area of Florida that is becoming very popular for young families, with safe neighborhoods and A+ rated public schools.

I’m 7.5 years into my career with the FED, I contribute 15% without the agency match. My real TSP currently has about $160K in there.

So thats where I’m currently sitting. I got a late start with the FED as I was a state employee for 5 years and spent 15 years in the private sector.

[12squared]

So I’m currently in year 4 of a 20 year home loan locked in 2.3%, as of today I currently owe $140K. My home value has almost doubled in the last 4 years, as I’m in an area of Florida that is becoming very popular for young families, with safe neighborhoods and A+ rated public schools.

I’m 7.5 years into my career with the FED, I contribute 15% without the agency match. My real TSP currently has about $160K in there.

So thats where I’m currently sitting. I got a late start with the FED as I was a state employee for 5 years and spent 15 years in the private sector.

That mortgage is a steal. Pay it down only if you can't beat 2.3% annually, e.g. if the market is tanking and the Fed has dropped their rate to prop up the economy.
Are you over 50? If so, you might be able to increase your TSP contribution to almost $30k.

[IRQVET]

So I’m currently in year 4 of a 20 year home loan locked in 2.3%, as of today I currently owe $140K. My home value has almost doubled in the last 4 years, as I’m in an area of Florida that is becoming very popular for young families, with safe neighborhoods and A+ rated public schools.

I’m 7.5 years into my career with the FED, I contribute 15% without the agency match. My real TSP currently has about $160K in there.

So thats where I’m currently sitting. I got a late start with the FED as I was a state employee for 5 years and spent 15 years in the private sector.

Are you over 50? If so, you might be able to increase your TSP contribution to almost $30k.

43

[jimcasada]

A couple of interesting articles I read this morning:

https://www.fedsmith.com/2024/01/26/num ... h-in-2023/

https://www.businessinsider.com/economy ... 2024-1?amp

[bamafamily]

Very interesting.....unfortunately, I am not one of them....yet....
Also, I like reading Ed Yardeni.. His book, "Predicting the Markets" is supposedly a very good book....but I am having trouble staying engaged with it....Now that I am retired..(3 weeks), I might try picking it up again

A couple of interesting articles I read this morning:

https://www.fedsmith.com/2024/01/26/num ... h-in-2023/

https://www.businessinsider.com/economy ... 2024-1?amp

[Suzanne]

My goal was to retire at 56 yrs old with 36 years of Federal service. I also tried to maximize my contributions most of my career and when I reached 50 I maxed out my make up contributions. I lived a pretty comfortable life at 56 and figured out what I would need to bring home every month in retirement in order to maintain that lifestyle. When I calculated my Federal annuity, the Supplement, and a modest TSP monthly withdrawal I knew I would be ok. I used a Retirement calculator to figure out what I could afford to withdrawal and not run out of money before 90 yrs old. I retired 4 years ago and am doing ok. My plan worked out. The only thing I wasn’t expecting was the rate of inflation and not getting a COLA increase until I’m 62 yrs old. So I lost a few increases. One more year to go before I get a raise! So in answer to the question, I considered age and a number.

[jimcasada]

My goal was to retire from my Fed job with at least 1/2 million in TSP, but I also have my military retirement, full Social Security, and VA Disability (plus a dependant boost to my SS & VA). I made my goal (and then some) when I retired last June, but my TSP has gone up another $100k just since then. Now, I'm beginning to wonder how am I going to get my TSP money out without putting me in a higher tax bracket then what I was counting on?

[mjedlin66]

My goal was to retire from my Fed job with at least 1/2 million in TSP, but I also have my military retirement, full Social Security, and VA Disability (plus a dependant boost to my SS & VA). I made my goal (and then some) when I retired last June, but my TSP has gone up another $100k just since then. Now, I'm beginning to wonder how am I going to get my TSP money out without putting me in a higher tax bracket then what I was counting on?

Just withdraw what you need. Only the portion above that threshold will be taxed at the higher rate. So it won't have much effect on your effective tax rate.