TSP Withdrawal Plans

[eukrate]

After retirement, I intend to withdraw funds from the TSP account at a 4% annual rate, plus 100% of the extras (i.e. whatever amount the portfolio has increased in excess of inflation). The allocation will be
G:10% F:15% C:20% S:25% I:30%
30 year survival rate exceeds 95%

These were arrived at by running lots of simulations
with Peter Ponzo's 'sensible withdrawal' program.

http://home.golden.net/~pjponzo/sensible_withdrawals.htm

Anyone else looked at this?

[zbwmy]

I have not, but will look at your link. Thanks, this should be an excellent start for debating allocations in retirement.

Do you care to share your current age, and age when you plan to retire?

[Wheels]

If you take 100% of the extra's as you say then won't that leave you vulnerable if the market turns down for a couple of years. Just curious. I don't know anything about these things. As zbwmy says, this would be a great starting point for some discussions about retirement strategies and withdrawal strategies.

Dave

[Wheels]

I just took a cursory look at the link you provided. It's over my head but it seems he is advocating taking a "fraction" of the extras which doesn't seem quite as dangerous.

Dave

[AllexBancs]

Another good site to check your retirement withdrawal rate data is

http://capn-bill.com/fire/

:cool:

[eukrate]

Actually that's the point of the 4% level. Even if the portfolio decreases in value one year, you can still withdraw the 4% the following year. You can take more than the 4% minimum if the prior year returned more than inflation. The simulation (excel-based) examines decades worth of actual data to show that in the past this would have worked 95% of the time - i.e. there would have been some money left in your portfolio after 30 yrs. Run the simulation yourself and see. If you're interested in only a 20-yr survival, you can increase the minimum withdrawal to 6%. Of course there is always the caveat about the future not necessarily repeating the past-

[Wheels]

Actually, the scenarios are sort of moot for me since I will likely be retiring before I turn 55. To avoid paying the 10% penalty, I will have to withdraw my funds in substantially equal payments based on the IRS life expectancy tables. This strategy will limit me to about 3% a year, at least for thye first few years.

This would be a good place for someone who knows more about this stuff to jump in and tell me a better way.

Dave

[zbwmy]

Inflation, inflation, inflation...if we only knew!

[eukrate]

I've been unclear on this - you don't need to predict inflation to use this drawdown method. Example: in January 2006, you look at the inflation rate for 2005 (you can look at the January federal retiree cost of living increase for this). Let's say inflation was 3% in 2005. In Jan 06, you calculate 1.03 times your January 2005 balance. If your Jan 06 balance exceeds this, you take the excess. Otherwise you limit your withdrawal to 4%.

In answer to an earlier inquiry, I'm 55 and hope to retire in 2 years..

[zbwmy]

I posted the inflation thing without looking closly at the model.

Is there anything wrong taking out all your earnings each year,(minus inflation) and not touching principal? Or is this the same as the 1.03 thing?

[AllexBancs]

How many people plan on leaving the TSP $ in the TSP after retirement? If not, do you plan on doing a rollover IRA to a mutual fund company or broker? Has anyone done this yet? :cool:

[eukrate]

I think you're better off leaving the funds in TSP and arranging periodic withdrawals. The main reason is low cost - I think TSP management fees are less than 0.18% and you'll never do that well outside TSP. Of course with an IRA you have many more investment choices..

[COONDOGCEMETARY]

i am retired , and left the account there. i am retired civil servce, i am waiting when my wife retiresto combine hers and invest in the money tree of georgia. this company garuantees a return of 8 percent if invested for a term of 4 years, which will pay 36 percent and the end of the term. compound interest

[eukrate]

Be careful with this. I did a google search on 'money tree of georgia' and turned up several complaints about them. check it out..

[NatX]

[NatX]

Wheels,

Since you're aiming for early retirement you might what to check out this site: www.retireearlyhomepage.com (http://www.retireearlyhomepage.com)

It has a lot of great info that could possibly help.

Would you mind sharing your age and current allocation? I would also like to retire early! :D

[COONDOGCEMETARY]

i have checked out the money tree of georgia, i have been invested with them for several years, they have been in business for 17 years, also if ur not a resident u can not invest with them.

[Wheels]

Hi NaTX. - I'm 41. I'll be eligible when I'm 49 but I anticipate working until 51 or 52 so I'm planning for 10 more years. My allocations have changed a lot lately but within a day or two I will be all stocks (probably C and S). April is historically a very good month. Employment seems to be ramping up. This earnings season is setting up to be fantastic. We've just had a small correction. A lot of good reasons to think stocks are going to have a nice run. I am a little worried about valuations but great earnings can help with that. I am also a little worried about an indicator that Tom uses, overbought vs. oversold, but again, there are a lot of reasons to be bullish right now.

Thoughts?

Dave

[NatX]

Wheels,

Looks like were in the same boat ... I'm also 41 and would like to retire in 10-15 years. A lot depends on how I do in the market of course. I missed that big run up we just had unfortunately. That five day drop spooked me and I bailed the day before it started back up! For 13 years I never made a move in my TSP and the minute I did I got royally burned. :(

Now I'm afraid to get back in,in fear of another down turn. But also afraid the market will keep going up without me.UGH!

Anyone watch The Nightly Business Report? The Market Monitor they had on is week Michael Metz, Chief Market Analyst for Oppenheimer & Co. said he though it was time to sell. I've pasted a bit of what he had to say below:

KANGAS: Did today`s strong job creation report convince you that the economy has finally come alive, and give us your opinion to the stock markets reaction to that news?
METZ: I was not impressed. I think the market really is at the high end of its range. And unfortunately I think we have new problems here. Remember, a great source of strength in the economy has been the refinancing boom. That is probably over. If that`s true, I think housing prices weaken or go flat here. That would have a negative wealth effect on the consumer.
KANGAS: Both those groups were down today, the mortgage lenders and home builders.
METZ: But there`s another problem there. I think the so-called carry trade, that is, you have an enormous amount of speculation on interest rates, that is, people borrowing money on the short term to buy medium-term bonds. This has to be unwound. Unfortunately, I think it`s going to be a little bit disorderly in the process.
KANGAS: And you think the stock market is going to get caught in a downdraft because of these reasons?
METZ: Yes. In my judgment, it`s an opportunity to sell here, not to buy.

[tsptalk]

Hi -
I replied to this but decided it was getting off the TSP Withdrawal Plans topic so I moved it here ---> Day to Day Market Talk (http://www.tsptalk.com/mb/forum22/115.html)

Thanks,
Tom

[Rolo]

Wheels wrote:
Actually, the scenarios are sort of moot for me since I will likely be retiring before I turn 55. To avoid paying the 10% penalty, I will have to withdraw my funds in substantially equal payments based on the IRS life expectancy tables. This strategy will limit me to about 3% a year, at least for thye first few years.

This would be a good place for someone who knows more about this stuff to jump in and tell me a better way.

Dave

If you did not already know, you have to recalculate every year. You do not just calculate it once and keep that figure indefinitely. That is the best way that I know to make withdrawals before 59-1/2.

[reg]

I plan on doing just that. Have also rolled IRA's to the TSP where performance of the TSP exceeded the IRA.

Would be interested in comments about the reverse roll over strategy as to how it worked for others. The low TSP expense ratios are helpful. The financial journals are not sensitive to the TSP opportunities so little research available. Anyone found good references on this strategy as to pros and cons?

[reg]

Currently studying this area you mention.. As of right now I am leaning to using the 401k as the primary retirement. 401k offers very low expenses and the G Fund has few peers. Also am evaluating moving any brokerage accouts to the 401k prior to retirement. Assume going back to an IRA is always an option after retirement.