TSP Payout

[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?

[SkyPilot]

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...

[walli1]

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!

[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?

[Gilligan]

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")

[Wheels]

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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[MohammadXX]

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."

[ocean]

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

[Wheels]

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.

[ocean]

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

[Wheels]

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.

[ocean]

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

Ocean

[Wheels]

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

Ocean

I'll PM you some info, hopefully tonight. It gets a little lengthy.

Dave
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[Wheels]

Actually, you get the supplement whatever age you retire.


Correction. Your are right Ocean. You need 30 years of service and you have to be at your MRA which for most is 56. I am ATC so I get it as soon as I retire regardless of my age.

I will PM you some specifics as to the actual formula.

Sorry,

Dave
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[Rick]

Annuity Option

Your estimated monthly annuity payments are: $2196 based on an annuity interest rate index (http://www.tsp.gov/curinfo/data.html#annuityrate) of: 5.500%
Based on your election of a 100% survivor annuity, when either you or your joint annuitant dies, the monthly payments to the survivor would be the same as payments you are receiving at the time of death.


Monthly Payment Results
Based on a Specific Dollar Amount



With a beginning account balance of:


$400,000

At an assumed annual rate of return of:


5.50
%

Paid in monthly installments of:


$2,200


You can expect to receive the following number of payments:


392


Which will deplete your account in:


32 Years, 8 Months








Monthly Payment Results
Based on Life Expectancy


With a beginning account balance of:


$400,000

At age:


50


At an assumed annual earnings rate of:


5.50
%





Therefore, assuming your payments began in January of the year you are age 50, your estimated monthly payment amounts for that year and each following year would be:


Age 50:
$ 974.66
Age 55:
$ 1,270.98
Age 51:
$ 1,027.31
Age 56:
$ 1,339.15
Age 52:
$ 1,086.09
Age 57:
$ 1,405.80
Age 53:
$ 1,144.60
Age 58:
$ 1,480.96
Age 54:
$ 1,206.18
Age 59:
$ 1,559.98



in summary it appears life Expectancy is the last option for me.
The annuity will give me $2195
the same equal payments will last till age 82 and I have control over the money. If I take out $2500 it looks like this.
With a beginning account balance of:$400,000 At an assumed annual rate of return of:5.50% Paid in monthly installments of:$2,500 You can expect to receive the following number of payments:289 Which will deplete your account in
24 Years, 1 Month

[Wheels]

You do realize that with the annuity option you are forfeiting your entire balance to BUY the annuity.

If you still think the annuity is the better option, consider this:

The TSP uses only the required minimum distribution method to calculate the life expectancy payment. However the IRS allows for other options. If you were to roll your TSP balance into an IRA, you could then take advantage of one of those other methods. One of them is an ammortization method that allows you to multiply your account by a "reasonable interest rate". Here is a calculator that will help you decide if this method ids for you.

http://www.finance.cch.com/sohoApplets/Retire72T.asp

In my case, using the maximum allowable "reasonable" interest rate (which is a little less than 6%), my payments roughly doubled. Of course the obvious downside is that your account won't last as long.

Hope you find this helpful.

Dave
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Annuity Option

Your estimated monthly annuity payments are: $2196 based on an annuity interest rate index (http://www.tsp.gov/curinfo/data.html#annuityrate) of: 5.500%
Based on your election of a 100% survivor annuity, when either you or your joint annuitant dies, the monthly payments to the survivor would be the same as payments you are receiving at the time of death.


Monthly Payment Results
Based on a Specific Dollar Amount



With a beginning account balance of:


$400,000

At an assumed annual rate of return of:


5.50
%

Paid in monthly installments of:


$2,200


You can expect to receive the following number of payments:


392


Which will deplete your account in:


32 Years, 8 Months








Monthly Payment Results
Based on Life Expectancy


With a beginning account balance of:


$400,000

At age:


50


At an assumed annual earnings rate of:


5.50
%





Therefore, assuming your payments began in January of the year you are age 50, your estimated monthly payment amounts for that year and each following year would be:


Age 50:
$ 974.66
Age 55:
$ 1,270.98
Age 51:
$ 1,027.31
Age 56:
$ 1,339.15
Age 52:
$ 1,086.09
Age 57:
$ 1,405.80
Age 53:
$ 1,144.60
Age 58:
$ 1,480.96
Age 54:
$ 1,206.18
Age 59:
$ 1,559.98



in summary it appears life Expectancy is the last option for me.
The annuity will give me $2195
the same equal payments will last till age 82 and I have control over the money. If I take out $2500 it looks like this.
With a beginning account balance of:$400,000 At an assumed annual rate of return of:5.50% Paid in monthly installments of:$2,500 You can expect to receive the following number of payments:289 Which will deplete your account in
24 Years, 1 Month

[Rick]

Thanks for the info.
This look like what I have been searching for.

[draggen3]

Hello Im ATC also , thinking about irs 72t rule , instead of tying up money in IRA, Im still a 7yrs years away but still a thought.
http://www.moneymanagment.info/72T.htm

calculator
http://www.cbiz.com/page.asp?pid=4726
If i can just make it through BLAKEY!!!
chow draggen3

[dell]

Wheels or anyone: I am 52 yrs old. I retired this past January. I need to withdraw about $2000.00 per month from my FERS. At present, I am not withdrawing anything. Can I do this without paying a penalty? Can I do this somehow under the life expectancy method? I really need some help on this.

Thanks - Dell

[Spaf]

Dell,
Go to www.tsp.gov
Go TSP Features, Civilian.
Go to Getting Your Money Out After You Seperate (7 pages).

Also Go to Forms and Publications
Go Publications
Go to Tax Notices, scroll down to Important Tax Information..........

While you are at Forms, download a Form TSP-70 Request for Full Withdrawl (it has other options too).

[Wheels]

Wheels or anyone: I am 52 yrs old. I retired this past January. I need to withdraw about $2000.00 per month from my FERS. At present, I am not withdrawing anything. Can I do this without paying a penalty? Can I do this somehow under the life expectancy method? I really need some help on this.

Thanks - Dell
I'm not sure if we can get you to $2,000 a month but yes we can get some revenue from your TSP without paying a penalty.

You said you are 52. If you start taking money out via Life Expectancy then you have to continue to do it until you are 59 1/2. If you stop, or suddenly take a lump sum, you will pay a penalty retroactively on everything that you have taken out.

As far as how much you will get. The TSP only uses one method of Life Expectancy calculations. At age 52 your IRS life expectancy is about 83 or 84 which means you have 32 years of life expectancy. The first year you would get 1/32 of your account, divided by 12, each month. If you had an account balance of 300,000 that would amount to about $780 a month. Then they would re-calculate each year with your new balance and your new LI.

There is another method that allows you to apply a reasonable interest rate to your balance. The TSP does not use this method so you would have to roll your money out of TSP and into an IRA. I'm sure if you did some homework, you could find a company that does all the calculations the way TSP does for us. Draggen3 posted a link a few posts back to a good calculator for estimating what you would get using this method. I find that if I apply the largest allowable interest rate (which changes each month and is currently somewhere around 5.7%) that it about doubles the amount I can withdraw. Now your 300,000 is getting you about $1500 or $1600 a month. Keep in mind you are still paying taxes on this money. You are avoiding only the penalty. Of course the down side to this method, other than having to move your money, is that drawing more will cause your account to deplete faster.

Here's a good question for someone who knows more about this stuff than me. Are you allowed to trade your account the way we do here while you are drawing this via this method, or are you forced into the G fund so that you will return something close to the allowable interest rate?

Man this is a wordy post. Somebody cut me off next time.

Dave
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