Early Retirement?

[chet]

I'm in my upper 20's(5yrs of service..4 military 1 civilian)and havn't been able to get good answers elsewhere so I thought this would be the place!

Can somone explain to me in simple terms what happens if I choose to retire early or can I at all and still get benefits? If I do 30 years of service I'd be 52 years old. Can I have other investments to live off of until I turn 591/2 and then take retirement without penality? What about 25 years of service? Or is it better to put everything into TSP and take the extra hit on early take out?

Please help! Thanks!

[Rolo]

Welcome, chet!

Other investments: yes. Like a regular brokerage account.

Also, you can take early distributions from your TSP/IRAs before 59-1/2 without penalty as long as they are calculated using the IRS's Life Expectancy Table.

[chet]

Thanks Rolo,



So if I can take out before 591/2 then would it make sense to max out my input into the TSP before I invest into other investments outside of the TSP?

Where can I find the IRA's Life Expectancy table and how does that affect what I can take out? It looks like I'll loose out on other gov't benefits if I leave before 55 as well?

I'm just not getting very good information from the TSP website.

Thanks!

[Rolo]

TSP is a 403(b), similar to a 401(k) and a traditional IRA. These are all tax laws. Ultimately IRS Pub blah blah blah will have them. (irs.gov is a pretty good site and you can order pubs there)

J.K. Lasser and Ernst & Young are good tax books; the latter is more readable. They explain everything to you and provide real-life examples to apply tax law. You don't have to be an expert on tax law, but everyone should know enough in order to make these decisions. It is not difficult and it does not take a whole lot of time, especially considering how important it is. Don't forget to deduct the cost of tax books on your taxes. :)

Other gov't benefits: I dunno...like what?



No-brainer: max out funds-matching.

Other no-brainer: max out TSP for the tax break, at least starting out.

for planning: search for Roth vs. Traditional IRA, for tax purposes, TSP is equivalent to a traditional IRA.

[pyriel]

Chet,

I'm assuming you are 27 years old, prior service (4 years) andcurrently a FERS employee. Employers matching is 5% with you being able to stashed up to15% of your income (it goes up to 15K next year). Your dillema is that you are too young and most likely be retiring when you are only 52 years old. I agree with ROLO's recommendation. I would go one further by saying that you should max your TSP (15k per year starting next year), max your ROTH (5k by 2008), and start learning about real estate. No one will be giving you any money to invest except for real estate. TSP, IRAs, 401K, 403Bs etc. etc.. requires you to come up with 100% of your money to invest. With real estate, you only need to come up with 20% (could even be less) to get some bank to lend you money. The passive income you get from rental should be more than enough to get you by until you are age 59 1/2. The longer you hold on to your nest egg, the more rewards you will get out of them due to compounding interest.

It is possible (if you know what you are doing) to receive 20-50% cash on cash return on your investment in real estate. Just like learning the ropes with TSP movement, I am sure that you can also learn how to navigate through the realm of real estate.Others will tell you that real estate is high risk.Please do not listen to them. TSP, IRA, 401k, etc. etc. is high risk.I say this because youwill never find any banker to lend you money so that you can invest it in here. However, you will have mortgage lender lining up for you to let you borrow money for real estate.

I am in the samesituation with you. I am set to retire on my 48th bday. I am 37 now. I am currently building my real estate portfolio with plans to buy two houses every year. I started when there was a bust a couple of years ago andI was able to survive it.My strategy is to save 20% downpayment thenbuy adistress house (it is getting harder but they will always be around). Rent them out and save againfor 20% downpayment. My passive income is now totallinga third of my projectedmonetary retirement requirement.My plan is tohave mypassive income replacewhat I am taking home now by the time I retire. This way, I could just keep what I have in TSP and ROTH IRA without having to touch them. Sure, theywill always be there just in case I need them but I do not foresee that happening sinceone of my fallback requirement is to set aside two years worth of emergency money. The emergency moneymust be able to pay for all mortgage for two years with the assumption thatI lose all my tenants (very unlikely).

Pyriel

[Brewnet]

Chet:

I'm trying to figure out if you are asking questions about retirement eligibility or just TSP. If you are asking about retirement, you must meet the minimum retirement age (MRA) in order to draw your annuity. And yes, you will lose your benefits if you retire before age 55 under FERS.

Have you made a deposit for you military service? If not, this service will not count towards your retirement.

I suggest you go to the OPM website where there is excellent information on retirement. www.opm.gov/retire/fers (http://www.opm.gov/retire/fers)

Also, the Federal Employees Almanac has information that is easy to understand.

[azanon]

TSP, IRAs, 401K, 403Bs etc. etc.. requires you to come up with 100% of your money to invest.


That'd be incorrect. Borrowing money is easy, and just about anyone's willing to do it. In the example you mentioned above, brokerages call them margin accounts. The interest rate is often half-way reasonable because the loan is backed by cash.

I dont like doing that, but you can certainly borrow money for just about anything.

Anyone jumping into real estate now in this bloated market that's runup for the past 5 years, is just asking for it.

[Mike]

I think buying generic land outside of growing metro areas continues to be a relatively safe investment, real estate bubble or no real estate bubble.

[azanon]

That's probably true. I think you have to be a little adventurous to do that though. I'm boring so I just buy stock, bond, and real estate mutual funds, mostly stock funds though.

Buying land solely for the intent of selling it sounds too much like work to me anyway. The only "job" i want is my federal job. That's enough IMHO.

[Mike]

You have no frontier spirit. :P

I can't do it 'til I have more money, but it's certainly in my long-term plans. If you live in an area for a long enough period of time, you get a good sense as to how it's growing and can capitalize on it.

[pyriel]

Mike wrote:
You have no frontier spirit. :P

I can't do it 'til I have more money, but it's certainly in my long-term plans. If you live in an area for a long enough period of time, you get a good sense as to how it's growing and can capitalize on it.


Mike, let me know when you are ready. I've never done such a deal but i've heard of people making it. It seems like our money is going to be parked for a couple of years and without passive income, I am squirming out of my seat. I'm a passive income kind of guy...

[chet]

Thank you all very much, I'm new hear and it's great to see so many responces.

Yeah, I actually have many questions so sorry it may not have sounded to focused.

So it appears that it should be my intention to retire when I'm 55 to not loose any benefits? The next question has to do with the 591/2 age, because of my age and time in service I would not loose anything by leaving service when I'm 55?

I havn't paid my military time in yet but am aware of it and will be working on it soon, before interest incurs.

So in reality there is really no way to retire earlier than 55 with out incurring many losses on my FERS accounts or can I retire sooner and wait to pull this until I'm 591/2?

Pyriel - Wow two houses a year, that's great. It's hard for me to understand how you can save 20% a year for downpayments, can you elaborate some more?

[pyriel]

azanon wrote:

TSP, IRAs, 401K, 403Bs etc. etc.. requires you to come up with 100% of your money to invest.


That'd be incorrect. Borrowing money is easy, and just about anyone's willing to do it. In the example you mentioned above, brokerages call them margin accounts. The interest rate is often half-way reasonable because the loan is backed by cash.

I dont like doing that, but you can certainly borrow money for just about anything.

Anyone jumping into real estate now in this bloated market that's runup for the past 5 years, is just asking for it.

Azanon, Nice to hear from you again. It's been awhile since i last heard of you. I lost you when you said that "That'd be incorrect." The last time I checked, we are putting in money to TSP with our hard earned, after tax dollar. Unlike real estate (you are right not all of them could be good), banks will actually help you obtain them. Am I missing something?

[azanon]

Azanon, Nice to hear from you again. It's been awhile since i last heard of you. I lost you when you said that "That'd be incorrect." The last time I checked, we are putting in money to TSP with our hard earned, after tax dollar. Unlike real estate (you are right not all of them could be good), banks will actually help you obtain them. Am I missing something?


Yes, I think so. You said the only type of investment you can borrow money for is real estate. You listed several other different types of retirement vehichles then tacked on an etc. as things you cannot borrow money for. And as I responded, that's simply not true. Its easy to borrow money for just about anything, provided your credit is not trashed. I listed a margin account as one common example.

This in response to what you said earlier:


No one will be giving you any money to invest except for real estate. TSP, IRAs, 401K, 403Bs etc. etc.. requires you to come up with 100% of your money to invest. With real estate, you only need to come up with 20% (could even be less) to get some bank to lend you money.


I personally think the real estate market is very bloated now. I'm waiting for the crash myself.



Of all the "junk" mail i get Pyriel, by FAR, the #1 item is somone wanting to loan me their money (in some form or fashion, ie: credit cards, prequalified loans, etc.).

[Mike]

I receive credit card applications / mortgage junk almost every day, not to mention loan consolidation crap. :shock:

I wish that regular mail had a "spam" filter. *sigh*

[Rolo]

Mike wrote:
I wish that regular mail had a "spam" filter. *sigh*

Amen to that!

Anything marked "URGENT!" or "REPLY REQUESTED" or "TIME SENSITIVE" or "USAA" goes straight to the trash.

[blueskys4ever]

Chet, If you are going to buy your military time back, you need to do this before your third year of civil service. All of the interest for the time you have been out of the military is compounded and added to your bill at this time. Why pay this if you dont have to.

Got to civilain personnel and ask for the paperwork. It takes about two months just to get a payoff amount from DFAS- Cleveland.

Your nation thanks you for Serving.

Mike wrote:
I think buying generic land outside of growing metro areas continues to be a relatively safe investment, real estate bubble or no real estate bubble.
Hey, don't take my ideas :X!

Good luck with that. I am looking at some land outside Scottsdale and Phoenix now.

Also you may want to look at the BRAC list. I just sold my land outside of Corpus. YOU DO NOT WANT TO HOLD LAND after a base is closed. I lost a TON on that 12 years ago. Well it was a paper loss, but still it sucked.

But on the flip side. Look for bases that are being combined. YES, YES that would be the place to buy. Supply - demand.

Raw land is by the far the easiest investment to figure out. The city will grow right to you. Then you offload it. If you can figure out where they are building highways, that is like the golden ticket from Willy Wonka and the Choco Factory or was that Wild Wondaon the Choco Highway??? I get my movies confused at times :shock:.

[Artful Dodger]

I've been in federal service for 16.5 years and I just found out about this site today. Sure wish I had know about it before now.

In any case, I'm 58 and going to take early retirement the end of May. I'm a 22 year retired AF veteran. Up until a couple weeks ago I was always told that if you withdrew from your TSP before you turned 59 1/2 along with the 20% taken out for federal tax there was a 10% penalty for early withdrawel. Upon searching the OPM website I found some information that contradicts that and I confirmed the information not once but twice with TSP over the telephone. You can withdraw from your TSP without incurring the 10% penalty if you withdraw your savings during or after the year in which you turn 55. I don't know how many are aware of this but I didn't know it until just a couple weeks ago. Then again maybe I've been living in a cave. In any case, I'm going out at the end of May and will be drawing a monthly check from my TSP to supplement my military retired check and the small federal check I'll receive.

[tonybp]

I feel with you. I have been 17 years and I just learned about this site 2 days ago.:?

[tsptalk]

Welcome Artful and tonybp. Thanks for joining us. We've only been around just over a year so you haven't missed too much. :)

As for the 55 thing, I concur. As long as you take an annuity with "substantially equal payments"you can take money out of TSP penalty free before 59 1/2.

Tom

[Artful Dodger]

tsptalk wrote:
Welcome Artful and tonybp. Thanks for joining us. We've only been around just over a year so you haven't missed too much. :)

As for the 55 thing, I concur. As long as you take an annuity with "substantially equal payments"you can take money out of TSP penalty free before 59 1/2.

TomTks for the welcome Tom. As for the annuity, you can either take equal payments as you said or you can let them use the life expectancy table to come up with a monthly figure. I've decided to select my own amount for a monthly payment.

[azanon]

You can withdraw from your TSP without incurring the 10% penalty if you withdraw your savings during or after the year in which you turn 55.

... Only if one retires. I know you said you're retiring, but you didn't necessarily make that clear for everyone else. If you haven't retired, and you're over 55 but under 59 1/2, you'll be paying a penality. I believe it goes back to 59 1/2 to be penality free if you're still working.

[Wheels]

Artful Dodger wrote:
You can withdraw from your TSP without incurring the 10% penalty if you withdraw your savings during or after the year in which you turn 55.

TSPTom wrote

As for the 55 thing, I concur. As long as you take an annuity with "substantially equal payments"you can take money out of TSP penalty free before 59 1/2.



I think you guys are talking about two different things. Dodger, I believe the rule you are refering to states that you can take your balance without penalty if you RETIRE at or after the year you turn 55. If you retire before the year you turn 55 you can do a couple of things (Tom may be refering to both of them at once). You can buy an annuity from TSP but with this option you forfeit your account balance for a lifetime of payments. Virtually every financial advisor would advise against this. OR, as has been mentioned by a few others, you can take sunstantially equal payments according to the IRS life expectancy tables. (Tom, this may have been what you were refering to). The downside here is that you would be limited to about 3% of your account balance annually initially (actually, this might be a plus since you would have some penalty free income and your account would still be growing). Keep in mind also that if you terminate this method for any reason you can not return to it ever.

That was mouthful. Hope this helps.

Dave

[Artful Dodger]

Wheels wrote:
Artful Dodger wrote:
You can withdraw from your TSP without incurring the 10% penalty if you withdraw your savings during or after the year in which you turn 55.


TSPTom wrote

As for the 55 thing, I concur. As long as you take an annuity with "substantially equal payments"you can take money out of TSP penalty free before 59 1/2.



I think you guys are talking about two different things. Dodger, I believe the rule you are refering to states that you can take your balance without penalty if you RETIRE at or after the year you turn 55. If you retire before the year you turn 55 you can do a couple of things (Tom may be refering to both of them at once). You can buy an annuity from TSP but with this option you forfeit your account balance for a lifetime of payments. Virtually every financial advisor would advise against this. OR, as has been mentioned by a few others, you can take sunstantially equal payments according to the IRS life expectancy tables. (Tom, this may have been what you were refering to). The downside here is that you would be limited to about 3% of your account balance annually initially (actually, this might be a plus since you would have some penalty free income and your account would still be growing). Keep in mind also that if you terminate this method for any reason you can not return to it ever.

That was mouthful. Hope this helps.

Dave

I think you pretty much hit the nail on the head Dave. I thought I was clear when I talked about retiring on or after the year in which you turn 55 but I guess I could have made it a bit clearer. My apologies for any confusion on the matter. As I said earlier I am 58 and taking the MRA this May and will be setting up to receive a monthly check from the TSP and the only "penalty" will be the tax that the Feds take out of it before it reaches my checking account

[azanon]

I thought I was clear when I talked about retiring on or after the year in which you turn 55 but I guess I could have made it a bit clearer.

Again,I presumed you were speaking only for those that retired, but the one sentence i quoted from you was a blanket statement that suggested if you're over 55 in TSP, you can withdraw your TSP penality free. That's just not true. I just wanted to ensure that everyone was clear.

[Artful Dodger]

azanon wrote:

I thought I was clear when I talked about retiring on or after the year in which you turn 55 but I guess I could have made it a bit clearer.

Again,I presumed you were speaking only for those that retired, but the one sentence i quoted from you was a blanket statement that suggested if you're over 55 in TSP, you can withdraw your TSP penality free. That's just not true. I just wanted to ensure that everyone was clear.
Yes, you are correct. I should have made it clearer that if your over 55 and you are RETIRED OR RETIRINGthere is no penalty. Again I apologize for any confusion.

[Wheels]

Man this is getting confusing. Apparently we all need to word things as carefully as possible. Artful,you state "if your over 55 and you are RETIRED OR RETIRINGthere is no penalty." That is not correct. Even if you are over 55, if you retired before the year youturned 55 you may not withdraw your money without penalty. In an earlier post you stated, "You can withdraw from your TSP without incurring the 10% penalty if you withdraw your savings during or after the year in which you turn 55." Azanon is trying to point out that you cannot withdraw your funds if you are still employed. I think we all mean the same thing but again the wording is tricky and needs to be exact. Now to confuse it a little further, notice the requirement states the year in which you turn 55. But you don't actually have to be 55. In other words, if your 55th birthday is Dec 15th 2007, then you can retire in Jan of 2007, shortly after your 54th birthday, and still withdraw your funds without penalty. Just food for thought.

Dave

[Artful Dodger]

Yes, you are right. I didn't do a very good job of explaining myself so I think it's best I let it go right where it is......your explanation is what I tried to say but failed.