Get out of TSP after retirement?

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

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caddisfly
Posts: 3
Joined: Sun Apr 24, 2016 10:09 am

Get out of TSP after retirement?

Post by caddisfly »

I am a FERS employee with 34 years federal service and looking to retire December 31, 2017.
I have a TSP balance of $580,000 in L2020 fund. I had a visit with financial planner who advises transferring TSP balance to IRA that has proven higher returns that TSP. The fees are 1.6 % annually. So he tells me the rate of return net fees would be 5-6 %.

I have always planned on just leaving my money in TSP L Income fund and just paying myself a monthly amount ($2000-$3000 per month) until it is gone (around age 85-88).

I understand the IRA is more flexible in being able to withdraw different amounts when needed but the high fees kind of bother me.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Get out of TSP after retirement?

Post by crondanet5 »

1. I think part of this issue that stays below the radar is how difficult it is to withdraw money from the TSP. We think we have full access to it at all times and for whatever amount we want to withdraw. That is not the case. Talk to one of their counselors about how their program operates. If you roll your TSP Account into a Rollover 401k you have complete access.

2. Was your financial advisor a fee only licensed financial planner?

3. I believe the financial cost of retirement is the same as your present monthly cost of living. So the question is with your FERS retirement and Social Security Benefit do you need to withdraw money from your TSP Account?

4. If you want to save your TSP Rollover 401k Account to pay for a heart/lung transplant at age 87 or to allow you to live in a nice long term health care facility there is another program available called Qualified Longevity Annuity Contracts. With one of these you can defer your minimum annual withdrawal from your Rollover 401k Account if you do not need it.

Thank you for asking your question on this site.

nnylfa
Posts: 24
Joined: Fri Oct 03, 2014 11:09 am

Re: Get out of TSP after retirement?

Post by nnylfa »

There are other options - you are not limited to either TSP or the IRA the financial planner is recommending. For example, part of my retirement plan is to invest in municipal bonds that pay 5% annually and return the principal at the end of the period. That is not for everyone but it will work for me. The more you know about your options (what to do with your TSP money) the better your conversation with your financial planner will go.

Which segues to Crondenet's second point. There are two types of financial planners: fee- based certified financial planners are paid hourly by you or commission-based financial planners. You can find a fee-based FP at The National Association of Financial Personal Advisors (NAFPA)'s website. Their only revenue comes from clients so they are not taking commission on the products they are recommending.

A commission-based financial planner who is getting paid by an insurance company or mutual fund to push their products typically get a % commission on what they sell. Given the annual fees, it sounds like this is the type of FP you spoke to. Most people want to avoid this type of advisor since the commission is paid before you and is paid regardless if the fund made positive gains.

There are so many options for you that you should talk to a professional about your circumstances. It would be well worth your time to invest in educating yourself over the next several months so that you can make decisions that are in your best interest. Since you are at this site, it sounds like you are doing that. Keep it up!

I will PM you the name of the website and person who conducted a 2 day retirement seminar at my Base a couple of years ago. I still reference his book and it sounds like he is a retired civilian who is now a financial planner. You may find his website helpful and want to contact him. (I do not have any affiliation with him, I just enjoyed his seminar).

Good luck!

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evilanne
Posts: 1886
Joined: Thu May 14, 2015 6:52 pm

Re: Get out of TSP after retirement?

Post by evilanne »

caddisfly,

Before making any decision, suggest you first get a retirement estimate from you agency personnel office and attend retirement seminar. You are still contributing and your account will continue to grow. L2020 is currently invested at 49.98% G; 5.52% F; 25.14% C; % 6.71% S; and 13.65% I. Are you comfortable with this breakdown? Would you like to manage your TSP funds yourself or would you prefer to have someone else manage it for you? I think you should be able to do better in TSP than 5-6% if you are willing to put in a little time.

I am leaving my money in TSP. I just retired this year and have not determined when I want to start withdrawing from TSP since I retired with VERA/VSIP. In the back of my mind I would like to let it grow a little more and my options are limited to either an annuity or withdrawals based on age. Once I reach my MRA I will get FERS supplement from age 56 to 62.

There are many options out there. Take advantage of those free dinners to listen to different sales pitches related to retirement. I went to dinner meeting recently where you put your money in some type of insurance vehicle for period of time where you are guaranteed not to lose any principle with earnings are tied to stock market in up years. Some give you 5-10% bonus up front and allow you to withdraw up to 10% annually.

With IRAs, be careful as the laws have changed recently base on DoL regulations. Not sure how this will impact different brokerage companies. My understanding is that existing accounts held with a broker may be grandfathered but new accounts will be fee based meaning that they are not commissioned based, but rather they will charge you an annual fee of X% e.g. a 1% fee on $600-700K would be charged $6-7,000/year. I can't see anyway that this is going to be beneficial for my TSP or my IRAs, it sounds like highway robbery. This fee is in addition to any expenses inherent in a specific security/fund. The only good thing is that there no trading cost to fee based IRA.

References:
DoL Fact Sheet
http://www.dol.gov/ebsa/newsroom/fs-con ... erest.html
DoL Final Rule w/background & links
http://www.dol.gov/ebsa/regs/conflictsofinterest.html
Proposed and Granted Class Exemptions
http://www.dol.gov/ebsa/regs/classexemptions/main.html

Any mother's broker wants to talk to me about annuity options. I will listen and gain what information I can, but not planning to move my TSP anywhere. I am considering moving my other IRAs to somewhere else that allows me to more actively manage my account with lower transaction costs; however I'm not sure what the impact of the DoL rulings will have on no fee IRA accounts at places like Fidelity or Schwab--I need to do more research. It seem like if you manage your accounts without an advisor, there should be no change. Maybe someone else has more information or knowledge on this issue.

RangerDave
Posts: 375
Joined: Mon Sep 22, 2008 3:20 pm

Re: Get out of TSP after retirement?

Post by RangerDave »

From your explanation above, it sounds like the TSP will be a good, low cost place to leave your money. Low costs will be important to you. Yes the options are restrictive in the TSP but it seems the TSP realizes that and is moving towards making the changes that have been discussed above. Possibly by your retirement date, those changes will be in affect which will allow you more flexibility. Most importantly, a lump sum can be withdrawn but must be done so before you begin your monthly withdrawal program. Once you begin your withdrawals you are locked into it. You can change the amount or decide to take it all, but that can only be done during the "open season" period between Oct.1 and Dec. 15 each year. No more lump sums! I believe the TSP will change those archaic rules to better compete with the outside "real" world. Contact the TSP help line, they were very helpful for me. Good Luck!

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ArrieS
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Joined: Sun Aug 05, 2012 10:56 am

Re: Get out of TSP after retirement?

Post by ArrieS »

caddisfly wrote:
I have always planned on just leaving my money in TSP L Income fund and just paying myself a monthly amount ($2000-$3000 per month) until it is gone (around age 85-88).

I understand the IRA is more flexible in being able to withdraw different amounts when needed but the high fees kind of bother me.


Do you need the money? If you don't need it I would recommend you do not withdraw it. Leave it to compound tax free.

As for the high fees, they should bother you. I would seriously reconsider ever going back to whomever it was you spoke to. 1.6% is absurd and clearly highway robbery. If you speak to him again, ask him if he receives compensation.

You can open any number of self-directed IRAs and pay no trading commissions and exceptionally low fees. First I would check with your bank, depending on who you invest with they could offer commission fee trading such as BoA and other perks for people with high deposits.

After that go directly to the fund managers themselves. Vanguard has special funds called admiral shares for people who have $50,000 or more invested. Plus you can buy and sell their funds commission free. Vanguards total bond market fund has an expense ratio of 0.07%. A long way off of 1.6%.

Also his statement of 5-6% of a return after a fee of 1.6% is extremely unlikely. You would have to be invested in stocks more than someone who is using their money for retirement should be.
OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. - Pudd'nhead Wilson's Calendar

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rcozby
Posts: 341
Joined: Mon Aug 11, 2014 12:14 pm

Re: Get out of TSP after retirement?

Post by rcozby »

With 34 years of service and retirement in 2017, I'm guessing, caddisfly, that you're younger than 59.5. If you roll your TSP into an IRA, any withdrawal you make from the IRA prior to age 59.5 will be charged a 10% early withdrawal penalty in addition to normal income taxes. There is no penalty for early withdrawal from the TSP as long as you are at least 55 and have separated/retired from federal service. Thus, if you want to access your TSP funds before age 59.5, best to keep them in the TSP and set up your monthly withdrawals from there. If you're advisor did not fully explain this to you, bid him adieu!

caddisfly
Posts: 3
Joined: Sun Apr 24, 2016 10:09 am

Re: Get out of TSP after retirement?

Post by caddisfly »

Yes, he did mention that I had to wait until I was 59.5 until I roll my TSP into an IRA. Thanks for all the comments, I am glad I join here today.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Get out of TSP after retirement?

Post by crondanet5 »

when the Agency Match ends, leave. Never leave your money in the clutches of a former employer. I'm certain you can roll you TSP Account into a rollover 401k account with no tax penalty. And you should talk to Tractor about what he did. Brilliant move. Best I've seen on this web site.

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evilanne
Posts: 1886
Joined: Thu May 14, 2015 6:52 pm

Re: Get out of TSP after retirement?

Post by evilanne »

I disagree with crondanet5, technically the TSP would roll over to an IRA. I love my TSP and plan to keep it.

It is possible to roll over to IRA and make take withdrawals based on life expectancy without any penalty. IRS rules apply the same to IRA, 401k or TSP regarding early withdrawal. http://www.forbes.com/sites/ashleaebeli ... 3e37184974
If you want to start taking money out before 55, one way to do so penalty-free is by taking “substantially equal payments.” You annuitize your 401(k) or IRA taking out an actuarial amount that applies to your age. Be careful here too: you have to keep taking the equal payments until the later of five years from when you start or age 59.5.


Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits
https://www.irs.gov/pub/irs-pdf/p721.pdf
Tax on early distributions. Any money paid to you from your TSP account before you reach age 59 1/2 may be subject to an additional 10% tax on early distributions. However, this additional tax doesn't apply in certain situations, including any of the following.
—You receive the distribution and separate from government service during or after the calendar year in which you reach age 55.
You choose to receive your account balance in monthly payments based on your life expectancy.
—You are totally and permanently disabled.
—You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). The earnings may be subject to the 10% tax depending on whether you met certain conditions. See Roth TSP balance, earlier.
For more information, see Tax on Early Distributions in Publication 575.


Publication 575 Pension and Annuity Income https://www.irs.gov/pub/irs-pdf/p575.pdf

Topic 558 - Additional Tax on Early Distributions from Retirement Plans Other Than IRAs
https://www.irs.gov/taxtopics/tc558.html
Same rules applies to IRAs, see Topic 557 - Additional Tax on Early Distributions from Traditional and Roth IRAs: https://www.irs.gov/taxtopics/tc557.html

Withdrawing Your TSP Account After Leaving Federal Service: https://www.tsp.gov/PDF/formspubs/tspbk02.pdf
Withdrawing based on life expectancy would be a full withdrawal (page 4) & would not incur penalty per IRS rules. Another option is purchasing an annuity. “Your annuity payments are not subject to the IRS early withdrawal penalty, even if you are under age 55 when they begin” (page 11).

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Get out of TSP after retirement?

Post by crondanet5 »

You have the right to disagree. And you have the right to change your mind when you look beyond the publications and realize how badly the 2 monthly IFT rule affects your ability to grow the value of your account. I hope you come to this realization soon.

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: Get out of TSP after retirement?

Post by Scorpio70 »

If you just want the lowest fee possible, and a monthly check. The TSP is just fine.

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maxbobcat
Posts: 86
Joined: Wed Sep 22, 2010 1:51 pm

Re: Get out of TSP after retirement?

Post by maxbobcat »

1.6% in fees is crazy high. And he cant guarantee 5 or 6 % returns at all. Roll your tsp over to vanguard or Schwab and stick it in some retirement income index funds. Their fees will be like 0.20% or something.

At the bare minimum, compare what I just outlined to what the financial advisor recommended, over the last 20 years.

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

Re: Get out of TSP after retirement?

Post by hugehail »

If you trust the guuubmint not to confiscate your money to pay for the freeloaders and you don't want risk, then leave it in the TSP, especially if the G fund is pulling 3 to 4% by that time. If you think you can do better than the 3-4% the G fund can provide and you don't need the money right away then roll it over.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Get out of TSP after retirement?

Post by crondanet5 »

Let's relate the fee argument to sports. Football. All you Denver fans hung your hat on a Manning quarterback. The best ever you would say to anyone in the bar who would listen to you. And you Patriots fans would say the same about Brady. Can't get enough of them. Well now they are both gone, one retired, one suspended. So what do the fans say now?

And so it is with the cheapness of the TSP Program. You got a half a million bucks in there and you complain about a higher fee? What if the nonTSP investment paid double for a few pennies more? Talk to Tractor. He is my hero.

Post Reply

Fund Prices2021-04-16

FundPriceDayYTD
G $16.56 0.00% 0.34%
F $20.66 -0.21% -2.53%
C $62.57 0.36% 11.92%
S $83.28 -0.04% 12.24%
I $38.19 0.63% 7.92%
L2065 $13.71 0.39% 10.49%
L2060 $13.71 0.39% 10.49%
L2055 $13.71 0.39% 10.49%
L2050 $27.99 0.31% 8.45%
L2045 $12.79 0.29% 7.92%
L2040 $46.72 0.27% 7.42%
L2035 $12.36 0.25% 6.82%
L2030 $41.20 0.23% 6.25%
L2025 $11.71 0.18% 4.93%
Linc $22.82 0.08% 2.45%

Pending Allocations

Under development. For now, you may view Pending Allocations by going to "fantasy TSP" and selecting "Leaderboard sort" of "Pending Allocations".

What else

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