Retire at age 55?

[CountryBoy]

I don’t mean to butt in here, but I’ve been following this thread since I’m about 8 years from retirement, and the outside insurance isn’t an option for me either, due to my heart bypass a couple of years ago, plus I gotta stay in until I can carry over my current health insurance, that’s my driving factor on when I can retire.

I plan on having survivor benefits for my wife also and will draw approximately 4% of my TSP annually to compliment my SS and high 3 payments.

I’ve read about the SS Supplement also and find conflicting/confusing info like Rusty does also. Would it be to much of a problem to PM me with the info that you PM Rusty? If not no big deal.

Thanks
Rus ( I go by Rusty also, but Rus will keep down the confusion)

 

[Pilgrim]

Thanks Wheels,
Can you pm me it to me... I can share mine as well... Based on your calculation, if you are earning 100k (200k) now, then your retirement at age 49, you'll be receiving 35k (70k).

I'm a little fuzzy on this part. Under FERS, we get 1% times high three times years of service (unless age 62 or over, then 1.1%). To get $35K on a $100K high three, someone has to have 35 years of service. How does this happen for a 49 year old? Is there a better multiplier for some career paths?

 

[Spaf]

Retire at age 55.....Thats a bitxx!
TSP has the information to figure the supplement. It's so small, it's almost meaningless. You can't get social security until a certain age, depending on your birth day. You can retire with SS early, but you take a deduction. The same goes with the Federal annuity under FERS. You have to figure out all the deductions. And then compare with what is left with how much your going to need.
Withdrawing 4% or less from TSP annually, will generally protect your principal. Thus in a bear market, in the G-fund. You will be living off the interest. You get to change the deduction withdrawl amount in early December. Watch a rollover carefully. TSP has good funds at some very low expense rates. You can still at any time make a IFT.
Watch carefully what you pay off! Generally with a small home mortgage you will get to itemize at tax time.
Medical bills and prescriptions will be a retirement factor in years ahead. Make sure you have a good health insurance program in place.
Also consider everything that has a COLA (cost of living allowance).

 

[Wheels]

Would it be to much of a problem to PM me with the info

I'll try to answer some of these questions here rather than sending out a bunch of PM's. I've discussed much of this stuff here before but it will probably be easier for me to re-post than to go find it.

Yes. Some careers have a different multiplier. I am ATC. I get 1.7% for the 1st twenty years and then 1% a year after that. This is because we are forced to retire at age 56. Federal Law Enforcement and Federal Fire Fighters receive similar provisions.

Another difference is that we collect the social security supplement whatever age we retire. Everyone else has to wait until reach their MRA which is 56 for most. My SS supplement will not be means tested until I reach my MRA but this is moot for me since I don't really intend to work once I retire.

The biggest mistake that I have heard many feds make is that they look at their social security statement that is mailed to you once a year, and they assume that when they turn 62 they will be getting the amount that it says on the line accross from "at age 62". But this is only true if you work until you are 62. Since nobody in ATC will work that long, we have to come up with a new number. The best way is to go to the SS website and use their calculators. I can walk you through it if you are interested. THEN to come up with the supplement amount, you have to multiply that number by the number of years of FERS service over 40. I will have 25 years divided by 40 is 62.5%. So my supplement will be 62.5% of my age 62 benefit which I have estimated to be a little over $1300 so I expecting between $800 and $900 a month from my SS supplement.

Spaf it sounds like you may be underestimating what your SS supplement benefit is. Even a few hundred dollars a month is significant by my standards. And I will be withdrawing funds based on the IRS life expectancy tables to avoid penalty so I cannot change the withdrawal amount. TSP will re-calculate it for me each year. And yes I will get a cola every year but the FERS cola is less than the CSRS cola so that is something to consider, if you really want to get into the minutia.

Does that muddy it up for everyone. Any questions let me know.

 

[SkyPilot]

Another thing to note, though it may have already been mentioned.

To insure a spouse with health benefits into retirement, you must carry at least the minimum survivor benefit (basic benefit annuity) as any health insurance premiums for a survivor spouse are deducted from this account.

That's what I learned in a retirement seminar, anyway...

 

[CountryBoy]

Dave,

Thanks for taking the time to reply. I work for the Corps of Engineers and being under FERS, I get the 1% times high three times X years of service and as Pilgrim said 1.1% at 62.

I won’t have 30 years in at my MRA (56) just 26, I’ll have my 30 in at 60, so the SS sup doesn’t come into play for me. I don’t meet the eligibility requirements. I was hoping that I may have missed something on the SS sup, but after checking again, I don’t think so. I’ve planned on the reduction on SS bennies, when I retire (at 60), so that’ll not be a surprise and am basing my high 3 on what I’m making now, and using these to numbers to determine my final TSP retirement funds. I’ve read several places that you should have 6x’s your high 3 in your TSP when you retire.

These conservative figures, keeps me from being too passive on my allocations and hey, I get to hang with all you guys.

There’s always hope for an early out.

Thanks again,
Rus

 

[Spaf]

Spaf it sounds like you may be underestimating what your SS supplement benefit is.

You are leaving early....right, not your full career figure under SS.

http://www.opm.gov/retire/html/library/fers.asp

Information for FERS Annuitants

 

[pyriel]

I've calculated Wheels projected retirement and I have to say that it seems very solid at age 49. Aside from his retirement check from his work and SS supplemental, I like the fact that he incorporated his retirements account using the drawdown from the IRS life expectancy table of 34 years. Provided he will have a million dollars by the time of his retirement, this drawdown significantly increases and supplements his retirement checks. Funny, he only talks about TSP account here but i'm sure he also has ROTH for him and his wife on the side...

Wheels, i've done a hypothetical retirement drawdown using the life expectany (34) that you mentioned. Assuming there is a million bucks in the account and it makes 10% per year and you start drawing down at age 50 and to completely wipe the retirement account by age 83 the following is what you will be getting every year. One good thing about using life expectancy drawdown, the amount of checks you receive increases as you get closer to age 83. The final drawdown at age 84 is about 751k while the first year drawdown at age 50 is 32k.

 

[Wheels]

You are leaving early....right, not your full career figure under SS.

http://www.opm.gov/retire/html/library/fers.asp

Information for FERS Annuitants

Yes. As I explained above I'll be leaving at 49 with 25 years of service. So my supplement will be 25/40ths of the full age 62 benefit. About $800/$900 amonth. Not exactly chump change. I am very well versed on the supplement.

 

[Wheels]

Assuming there is a million bucks in the account and it makes 10% per year

The million bucks I think I can do. The 10% a year, every year, after retirement might be a stretch.

 

[colonialmike]

Hey Wheels, like you, I am in one of the special calculation/early-retirement job series (law enforcement) and my figures are similar to yours. I have 9 years and 1 1/2 months till the magic retirement age of 50, but who is counting!!!! At that time I will have 27 years of Fed Service, 23 in Law Enforcement.

As Pyriel knows, I have started some real estate investing and seem to be doing well. This will help down the road.

In my 18 year Fed career, I have seen or heard of too many people who work till the end; past retirement eligibility and pass away while working and never experiece retirement, or pass away shortly after retiring.

To retire at 50, I will use a combination of my FERS annuity, SS Sup, some TSP payments, various accounts, and real estate sales/holdings, to fund my retirement and college tuition for my kids. I will sell my house, move to a lower cost of living area (it is now anyway), play golf, and get a part time job to kep busy and sharp. Then as they say, live happily ever after.

Also, I have been looking into life insurance now, at age 41. I will probably get a $1 million policy for appx. $165/mo and drop most of my FEGLI. It is more expensive now, but after age 50, FEGLI coverage will diminish and life insurance will be much more expensive than it is now. So in the long run, it makes sense.

A trusted insurance/financial planner advised to take a minimal survivor annuity for my wife's health benefit coverage if I pre-decease her. About the insurance policy, he said "If you die the day after retirement, she can take the $1 million, put it in a 5% CD and live off the interest. Your kids will then be set".

Look forward to any comments, criticism, or analysis.

 

[rokid]

Colonialmike,

Considering inflation, e.g. 3% per year, I'd be concerned about a CD strategy providing adequate real income for 30-40 years.

 

[Wheels]

A trusted insurance/financial planner advised to take a minimal survivor annuity for my wife's health benefit coverage if I pre-decease her.

Yes but under FERS there is no "minimal" survivor benefit like there is in CSRS. You have to choose either a 25% survivor benefit which will cost you 5% of your pension or a 50% survivor benefit which will cost you 10% of your pension. I think CSRS can take a survivor benefit as low as 1% costing virtually nothing and still retain access to health insurance.

 

[Griffin]

Also, I have been looking into life insurance now, at age 41. I will probably get a $1 million policy for appx. $165/mo and drop most of my FEGLI. It is more expensive now, but after age 50, FEGLI coverage will diminish and life insurance will be much more expensive than it is now. So in the long run, it makes sense.

A trusted insurance/financial planner advised to take a minimal survivor annuity for my wife's health benefit coverage if I pre-decease her. About the insurance policy, he said "If you die the day after retirement, she can take the $1 million, put it in a 5% CD and live off the interest. Your kids will then be set".

Look forward to any comments, criticism, or analysis.

colonialmike,

I don't want to knock life insurance, or your approach, but it triggered a gut reaction. I have both a SGLI and FEGLI accounts set to the maximum benefit so I recognize that life insurance is a good thing. However, as a rule of thumb it is not the best tool for post retirement financial planning. It really is intended to be a back up, in case you pass while working.

That $1Mil policy is going to be extremely expensive, as you get older. Also, the politics may change concerning tax free death benefits. I really hate to sound cynical, but as the baby boomer's age, the incentive to tax death benefits, is going to increase, as well as drive up the premium's for older life insurance participants.

Calculate what your monthly expenses will be and if you will be able to afford that policy. Also, would your money be better spent paying off your mortgage or invested? Your approach is a trap, while it is comparatively cheap now, as you get older your dependancy on that policy will increase and so will the premium. In general, you want to fix your expenses since your income will be fixed. Finally, look at the alternatives and calculate how much you will be leaving, if you do live into your mid-seventies/eighties.

 

[ocean]

And I will be withdrawing funds based on the IRS life expectancy tables to avoid penalty so I cannot change the withdrawal amount. TSP will re-calculate it for me each year. And yes I will get a cola every year but the FERS cola is less than the CSRS cola so that is something to consider, if you really want to get into the minutia.

Does that muddy it up for everyone. Any questions let me know.

Wheels,

Good to see you here again. I have a question on your method of withdrawing your TSP payment. I understood that you would take the annuity based on your life expectancy. But I believe the number they use for annual returns from the carrier (Met Life?) is very small. (much less 8%). Base on your life expectancy, say 35 years, the monthly payment would be small even if you have $1M to begin with. And at the end of 35 years, the $1M will be gone.

As for my plan, say if I start with $1M also, I will choose an annual withdrawal option based on my own predefined amount. For example, I would take $1M and divide it into 15 years. So the first year I would have taken out only 6.7% of the $1M and it is equal to $67K. At the end of each year, I will re-adjust my next year payout using the same method. (Total balance divided by 15).

I still have my control of TSP allocation on all the funds and I expect a moderate returns each year, say 10%. So my net gain each year would be 10% - 6.7% = 3.3%.
Hopefully the 3.3% will offset the inflation. If it doesn’t, it is not that far apart. But the most important thing is to preserve the $1M for my heirs. Your thought?

Ocean

 

[pyriel]

Ocean,
I took the liberty of creating an excel worksheet to show what you are trying to accomplish. Since you didn't tell us when will you be retiring, I went ahead and did it using Wheels expected retirement at age 49. Your plan is interesting, for at the end of 15 years, you were still left of 1.6 million. You are getting hit with penalty (10%) + high tax bracket (36%) which lowers down your expected distribution considerably.

I didn't do a 36% tax bracket and 10% penalty for Wheels excel worksheet, so those who downloaded it, just remember that tax follows these withdrawals. Dang IRS;-(

Ocean, It seems like your point of view is to leave the rest of 1.6 million to your heir. This is really a good thought. However, if you do croak after year 15 (I really hope not), having your retirement account in TSP is not the best place to have your heir keep this retirement account. Why? Because according to the IRS rules, your heir must drawdown everything within 5 years. However, if your retirement account is in IRA, they get to used their own life expectancy to do a drawdown. Hence they are able to keep the retirement for the rest of their life and possibly pass it on to their heir as well...

Gents and Gals, if you like additioanl reading concerning drawdown and how to maximize it please read my other posts in the IRA thread. There are also excel worksheet there that shows examples on how to keep your retirement account for the next generation or two.

P

 

[pogo]

Yes but under FERS there is no "minimal" survivor benefit like there is in CSRS. You have to choose either a 25% survivor benefit which will cost you 5% of your pension or a 50% survivor benefit which will cost you 10% of your pension. I think CSRS can take a survivor benefit as low as 1% costing virtually nothing and still retain access to health insurance.

that is correct i look into it because i'm under fers---i don't like it but that's the rule

 

[ocean]

Ocean,
I took the liberty of creating an excel worksheet to show what you are trying to accomplish. Since you didn't tell us when will you be retiring, I went ahead and did it using Wheels expected retirement at age 49. Your plan is interesting, for at the end of 15 years, you were still left of 1.6 million. You are getting hit with penalty (10%) + high tax bracket (36%) which lowers down your expected distribution considerably.

I didn't do a 36% tax bracket and 10% penalty for Wheels excel worksheet, so those who downloaded it, just remember that tax follows these withdrawals. Dang IRS;-(

Ocean, It seems like your point of view is to leave the rest of 1.6 million to your heir. This is really a good thought. However, if you do croak after year 15 (I really hope not), having your retirement account in TSP is not the best place to have your heir keep this retirement account. Why? Because according to the IRS rules, your heir must drawdown everything within 5 years. However, if your retirement account is in IRA, they get to used their own life expectancy to do a drawdown. Hence they are able to keep the retirement for the rest of their life and possibly pass it on to their heir as well...

Gents and Gals, if you like additioanl reading concerning drawdown and how to maximize it please read my other posts in the IRA thread. There are also excel worksheet there that shows examples on how to keep your retirement account for the next generation or two.

P

Pyriel,

Hmmm I did not know the IRA and TSP rules for passing onto the heir. The TSP rule really hurts. Let me try this again:

Age now: 52 (in few months)
Retire at: 57 (5 more years - Feb 2012)
TSP balance in Feb 2012: estimated $1M
Leave everything in TSP and take 6.7% each year for 15 years.
Expected annual returns in TSP = 10%
After 14 years of withdrawal at age 71 1/2, do an one time transfer to my IRA for all my TSP balance. (Hope I live long enough to do the transfer).

Pyriel,
How does my spreadsheet look like? Thanks again.

Ocean

 

[Wheels]

Wheels,

Good to see you here again. I have a question on your method of withdrawing your TSP payment. I understood that you would take the annuity based on your life expectancy. But I believe the number they use for annual returns from the carrier (Met Life?) is very small. (much less 8%). Base on your life expectancy, say 35 years, the monthly payment would be small even if you have $1M to begin with. And at the end of 35 years, the $1M will be gone.

As for my plan, say if I start with $1M also, I will choose an annual withdrawal option based on my own predefined amount. For example, I would take $1M and divide it into 15 years.

Ocean

Your mixing apples and oranges here. First, I am not talking about buying an annuity from Met Life. Buying an annuity means forfeiting your account balance. The balance is gone immediately, not after 35 years as you stated. If you die in a year, there is nothing left for your heirs. Buying an annuity is a bad idea in all but a very few specific instances.

I am talking about withdrawing funds from my account in substantially equal payments based on the IRS life expectancy tables. The IRS will allow you to do this without assessing a 10% penalty (Rule 72t). There are several methods but the TSP only uses one, which would net me about 3% a year initially. If I didn't think it was going to be enough income, I could move my balance into an IRA and then use one of the other rule 72t methods to take out more (up to about 5 1/2%) I can show you the calculator if you are interested.

Now there is nothing wrong with your method, in fact it is probably preferable. But if you retire before the year that you have turned 55, and you are not yet 59 and 1/2, then you WILL BE assessed the 10% penalty using your method.

 

[Birchtree]

There is no required mandatory distribution on a Roth IRA and the subsequent income is tax free - even to heirs. Use a grandchild as a beneficiary and the RMD will shift to the child at a very small amount leaving the rest to grow long after you are gone. The only problem is getting the income to the Roth via a regular IRA. Use a scheduled deposit from your TSP on a monthly basis into a regular IRA but be gentle and take some time leaving plenty of funds in TSP to grow. Then you can develope a program of consistently transferring money from the regular IRA into the Roth IRA - this amount will require tax consideration because it will generate a 1099. The heir is all important in this scenario to make the money live in perpetuity even if you don't. The heir is required to take a minimum distribution based on their life range but it is tax free - a great way to help with college.