Does this seem a sensible withdrawal plan?

[celtic]

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 The annual amount of the TSP balance withdrawn begins at 4.2% (equals a more conservative and reasonable 3% of our total retirement assets) and is recomputed annually based on year end balance.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...

[tmj100]

My wife and I are looking at my retirement occurring in Jan 2015. We have spent much time running the numbers and have a condition virtually identical to yours in terms of a small immediate shortfall if not taking SocialSec at 62 and delaying it. We also have reviewed using the Spousal SS benefit while postponing one of us until 66 to 70 and plan to do that. Check it out, it may be an option for you. We have concluded that taking a limited minimal amount ~3% to 4% from TSP that does not impact the principle amount would be an acceptable risk. If your HELOC does not have an annual cost or expire, I would leave it in place as the accessible emergency fund. Just place something small on it periodically just so it does not get closed. If you need to close it then the partial withdrawal mentioned seems very reasonable. Sounds to me that if you maintain your level heads into retirement, as you have in building your stash, you will do great.

[John316]

You have done a fabulous job in managing the wealth. Now you need to take that around the world vacation or month long trip to the south of France while you still are able to get around. That money is going back into the monopoly box when you are gone so don't forget to smell the roses today. You deserve it. God bless you and your family.

[celtic]

Thanks for responding, tmj & john.

TMJ, like you we are looking at the spousal benefit as a piece of the puzzle to tide things over until 70. Wife (lower benefit and older) will draw early at maybe 64, 65. Then I will take spousal of her full at 66. Interesting that I am eligible for half of hers at her 66 even if she goes earlier.

John, I am all about the roses. as we and our family have been through a lot. Thank you for your kind words.

I guess overall, covering the shortfall is part of the issue. But loosening up after all this frugality for so long is also a challenge. We have made it here relatively intact and that is cause for celebration - or at least easing back on the frugality. And to do that, a withdrawal schedule such as the life expectancy based one might help us loosen up.

[crondanet5]

Funny you should bring this topic up. I've been reviewing my own thoughts about what to do with the TSP real account. But first let's talk Social Security. I have done several morbidity studies. And I have looked at the data provided by insurance companies. The straight word is American males live on average to age 75, females 86. If a male dies at 60 that means another male will die at age 90 and the average age of death remains 75. So if a male chooses to listen to the financial advisors who say wait until age 70 to begin receiving Social Security benefits you are (a) lucky to have lived to age 70 and (b) you can anticipate enjoying that benefit for only 5 years. If you live longer, great. But we all face a glass ceiling sooner or later. If you wait until age 70 and die at age 75 you would have received only 60 Social Security benefit checks. If you choose to begin receiving Social Security benefit checks at age 62 you would receive 156 benefit checks. Which sounds better if you die at age 75?

Now for TSP. With your balance you are able to put it all in the G Fund and recover some of the money you begin withdrawing. And if you do not need the money open a brokerage account and buy dividend paying investments. I have seen some that pay 7-9% and you can always sell that investment if you need the cash. This account would be an after-tax account and not a rollover 401k account. The last millionaire who asked the question about what to do with their TSP account I referred to Jill Schlesinger at http://www.jillonmoney.com . They did contact Jill and I believe she gave them very good advice about what to do with their account. She knows the financial business. And you could get a chance to be on radio. She'll think of things about planning your estate and how to make your money last we Fantasy People have not yet thought about. So I highly recommend you contact Jill. Hope this helps.

[skiehawk11]

cron, concerning your morbidity studies. Consider checking this site below:

http://www.washingtonpost.com/wp-srv/sp ... tancy-map/

This gives life expectancy in the U.S. by county for male and female. I think this data will be more accurate than using U.S. national averages.

celtic, the SS spousal route sounds like a solid option. Have you considered reducing expenses and maybe getting a part time job to cover the shortfall until you can collect full SS?

In any case, I'd highly recommend sitting down with a fee based advisor, preferably one with SS experience, and the Federal retirement system. A huge plus would also be an advisor who has their CFA designation.

[crondanet5]

skie I looked at the post. It uses 2007 figures whereas my own studies were 2012/2013. Admittedly my study wasn't clean and did not include every death and sometimes I might have counted the same death twice since it appeared in the newspaper twice. But it was good enough so my cardiologist wanted me to publish it. The post figures for females suggest death at 81. I kind of like my figure of 85 better.

celtic, before the SS conversation moves further away from my post may I suggest you and your spouse make an appointment to discuss your best options with a Social Security counselor? They are some of the finest representatives of government employees you can meet and strive to give you the best advice concerning your options for deciding when to begin receiving your Social Security benefit.

I echo skie's recommendation to consult a fee based financial advisor. Admittedly your balance is a little low for them to discuss but they will work for a fee. Jill is a CFP and at one time had her own financial advisory firm. She knows the business so I do not hesitate recommending her to you. After that I would find a fee based planner and ask them the questions Jill composed to be sure that advisor is on your side. Again, good luck.

[skiehawk11]

Cron,

Check out this one. This uses 2010 data. As you can see the data does support your age of 85 for females in certain counties. Male data also seems to be in line as well. I will note that some counties have a better life expectancy for males and females than others. It's interesting as it could lead individuals to decide where to retire.

http://www.washingtonpost.com/wp-srv/sp ... ectancies/

[crondanet5]

And how quickly to withdraw money from their TSP account. skie I'm glad you are finding similar results to the results in my study. And I hope all of you grasp the implications of what these average ages of death means for each and every one of us. Now what you do not see when looking at that average age is how many people die in their 40s and 50s. This really skews things as you can have a few live to 100 but many have died so they could and keep the average age of death 75/86. And that is why I began to reassess my idea of holding onto the TSP Account balance in its tax deferred form when it could be moved into after-tax accounts that could be better transferred to the next generation. Hope this stimulates everybody's thinking about the future.

[jp1450]

Congratulations on making it to retirement in such a good financial situation. I hope to be in a similar boat.

Regarding the social security question, I agree with crondanet5's assessment. I would grab those social security funds as soon as you are eligible. God forbid you get hit by a bus before age 70 (or 65 for that matter). Take the funds at 62 and collect those checks for the rest of your life rather than postponing and augmenting with other personal funds. You have paid into the system your entire career, so take what you can while it is still there.

[MSR]

My grandfather will be 93 next week and has outlived all his money. He simply refuses to die.

[RKresearch]

I'm not an actuary but I don't think life expectancy works the way suggested by crondanet5.

At any give age of a living person there is a life expectancy in year from that age. It's important to account for the fact that you did not die already. Social Security has a table for the US.
http://www.ssa.gov/oact/STATS/table4c6.html
The US average for males on their 70th birthday is 14.3 more years. You do not subtract age from the national average to get the life expectancy for the person. Otherwise you get into the problem that my young cousin told her grandfather "Gee Gramps 85? You should be dead already"

[crondanet5]

Yeah. I saw a rash of male deaths about this point. There are some important points with this situation:
1. Be very good to your grandfather. He needs to stay contacted with people and talk beyond medications and bowel movements (sorry if this sounds too gross but hey, this is real, talk with a 93 year old). Have him be a part in making decisions, take him out for ice cream, anything to keep him involved. Be careful about not bruising his ego and putting him down.

2. We need to work hard on growing our TSP and other account values after we retire to stretch our money into bonus later years of life. In addition to dividend producing investments I recommend trading (sell high, buy low in a stock or ETF's trading range and dedicate the monetary gain for buying additional shares of that same stock or ETF).

3. Work on your health to maintain your well being and ability to humanly interact as you age, How do you attract a younger social group and how do you avoid lecturing them?

I hope this helps all focus on their approach to enjoying a successful and healthy long life. Please add your thoughts if something I missed comes to mind.

[crondanet5]

Expectancy, yes. But the average age means some that expected to live those 14 years don't. My studies showed a lot of males passing earlier than age 75. And about 93 it's just about all females from there out. When my cardiologist reviewed my charts he put his finger on a female age 104 and said "She was my patient." And he looked sad. So everybody, how are you going to finance those 14 more expected years? Better start crunching the numbers.

[celtic]

Interesting discussion.

I have some background in statistics and agree with KRresearch. Applying population parameters to individuals can be misguided. If one makes it to 60, and has dodged any chronic health issues (obesity, hypertension, cancer, substance abuse...), better plan for the long haul of 100+ years. Family genealogy also revealed we had very long lived ancestors, even in the 1800s, so I feel a conservative lifespan for us is at least 105. Yikes.

I have used advisors and fee based planners in the past. Probably should revisit for a check up before pulling the trigger.