Thread: TSP Payout

MohammadXX,

As-Salaam-Alaikum,

I plan to tap my account for 10% at first, then bump it up once (only one change allowed by TSP) later on, then eventually roll it over into a Roth to finish out. I am hoping (foolishly) to maintain a 10% annual rate of growth in retirement, thus avoiding drawing down the principle the first few years. I have a mandatory retirement age of 57, so by 65, there should be plenty left to live comfortably with lots available to help the kids, etc.

Just went to a retirement seminar, and they helped my put together this scenario...

Actually, if you take it out in a specific dollar amount you can change the amount every year if you want to. There is a catch to that though. If you choose the ten year or more payout you must divide your balance by 120 and your monthly w/d can't be more than the answer. In other words if your balance is $120,000 you divide that by 120 which equals $1000. Thats the most you can w/d per mo. You can figure your payout at less than ten years but there are tax consequences. You have to do that every time you change it (and TSP sends you the form to do it once a year). The problem is, if you didn't make a bunch of money throughout the year, you may not have a balance high enough to increase your withrawl rate because at the end of the year you would still have to divide your balance by 120 just to see how much the max would be that you could withraw in the new year. It depends on what you want to do with your money. If you want it to last until you're 85 then you might as well get an annuity. You'll get less money every month but when you're in the "Home" in "Depends" and some nurses aide is wiping the drool dripping from your mouth you'll have a few extra bucks to order a liquid pizza or something. I prefer to take out the max and spend it while we can enjoy it. See "Getting Your Money Out After Separation" in "TSP Features For Civilians" assuming you're civilian. I retired at 55 took the "monthly payment option" at the max withrawl rate, have been withrawing for over two years and my bal. is only $2K less than when I started. If I had taken an annuity I'd be getting half the money I get now. If I quit moving money around and just left it in the G Fund it would still last about 5 or 6 years longeer than I ever planned for it to last. Hope this helps. Read the pages I said earlier on the TSP website. It's pretty clear. One thing to remember though, once you make your decision you can't say "oops" I made a mistake. What ever you decide you have to live with it. You actually have three options. I took a lump sum and monthly payments to last a min. of ten years. Good luck!

If I take a withdrawl based on life expectancy, in my case is 82 and I live to 90 do I recieve payments from 82 to 90?

Originally Posted by Rick

If I take a withdrawl based on life expectancy, in my case is 82 and I live to 90 do I recieve payments from 82 to 90?

According to tsp.gov you have to start taking money out April 1st the year after you turn 70 and a half OR if you are still employed at 70.5 then you have to start taking money out April 1st after you retire.

If you plan on working for the government untill you are 82 then yes you can wait that long to draw your money out.

(Pages 2 and 3 of "WITHDRAWING YOUR TSP ACCOUNT AFTER LEAVING FEDERAL SERVICE")

Originally Posted by MohammadXX

Is it better to choose monthly TSP payments in retirement based on a specific dollar amount or based on life expectancy ?? If you're not sick or desperate, what factors go into that decision?

Your age is an important factor. If you retire before you turn 55, then you would want to choose the life expectancy method to avoid paying the 10% penalty. If you are 55 or older when you retire, then you would not pay the penalty anyway.

And to answer Rick's question. Yes you continue to withdraw funds until age 90. Your life expectancy is re-calculated every year. So when you turn 80 your LI might be 85. When you turn 86, it might be 89 etc etc. However the pot of money probably will have gotten pretty small by then.

That's why at 59 1/2, you bail on the life expectancy method and just take your money any way you want it. Perhaps changing over to a fixed dollar amount per month.

One last thing to keep in mind. when choose the LI method you must stick with that method for 5 years or until you turn 59 1/2, whichever is longer.

Hope this helps,

Dave
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According to the TSP: (based on specific $ amount calculation)

1) If you start withdrawing at age 60 with $300,000 in your TSP account &

2) you assume a 5.15% rate of return

You will receive $2,000.00 per month for 241 months (20 years + 1 month) before your savings are depleted.

Using the life expectancy method (starting at age 60, for example), you will receive a smaller $ amount each month but for a longer period of time. Also the $ amount changes each January "based on your actual balance and your age as of the end of the previous year."

Originally Posted by Wheels

Your age is an important factor. If you retire before you turn 55, then you would want to choose the life expectancy method to avoid paying the 10% penalty. If you are 55 or older when you retire, then you would not pay the penalty anyway.

Dave
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Wheels,

I've been looking for the age 55 rule as FERS with no 10% penalty and I can't find any written statement in the TSP site. Can you point me to the right direction.

Thanks,
Ocean

Originally Posted by ocean

Wheels,

I've been looking for the age 55 rule as FERS with no 10% penalty and I can't find any written statement in the TSP site. Can you point me to the right direction.

Thanks,
Ocean

It's not really a FERS rule, it's an IRS rule.

From the TSP home page, click on TSP features for civilians. Then click on How will my TSP benefits be taxed. Then at the bottom of that paragraph click on Important Tax Information about Payments from your TSP account. A few pages down there will be a paragraph about the penalty that states some exceptions. One of them says payments that are paid after you separate from service during or after the year you reach age 55. Note the exact wording. You don't actually have to turn 55. In other words you can retire in January of the year you turn 55, even if your birthday is later in the year.

Hope this helps

Dave
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BTW, I ran into some really good information on the Life Expectancy option the other day if anyone is thinking of going that route. Let me know.

Super! Wheels, I found it. Thanks for the info. I hope I will build my power account into super power account in 4 to 5 years then I can take this option either at 55 or 56. At 56 I can also take the supplement too, this is what I plan at the moment.

Ocean

Originally Posted by ocean

At 56 I can also take the supplement too,

Ocean

Actually, you get the supplement whatever age you retire.

Dave

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BTW - the supplement is misunderstood by almost everyone I know. Let me know if you'd like some help figuring it out.

I thought I understood the supplement rule at 56 and apparently I am wrong. Please help.

Ocean