traditional IRA and yearly withdarw

[74vetguy]

imported post

My wife will be retiring after 20 years as LEO under Fers. She wants to roll her tsp over to a traditional IRA. She is a very safe minded person. she wants to go with an IRA that will allow her to take out 4-5% a year. She is not greedy, she wants the IRA to make around6-7% a year.

She feels that if she does it this way, she can have some extra money each year without touching the principle. Therefore she can leave her money to our BRAT kids!

Is there a company out there that does this? Any information would be great.

 

[Birchtree]

imported post

74vetguy,

If your wife is looking for a 6-7% return you may have to sell the car to achieve it. I don't believe there is any possibility of catching that type of return from an outside investment program that has reduced risk. Any time you switch to any other plan than TSP you will be paying fees to get invested and fees to liquidate. Depending on the risk level she is comfortable withwill determine your potential gain. You can roll to a local bank and go into CDs with maybe a 2% return but your are locked in for a period of time. You can do online investing with reduced fees- buy stocks that pay dividends to be reinvested. It all starts to get complicated when considering the beneficiary - especially someone other than a spouse.

I think I would give consideration to remaining in the TSP program. Depending on how much money you have to work with - could determine your rate of return. If you can think long term (ten years) you will save money from fees - and you can set up a monthly withdrawal program - try to keep it minimal. That way you avoid RMD when you turn 70 years old. Put the money in the C fund and let it ride - you will do fine over the next 10 years. If you want to make a descent return stay away from the life style funds - unless you are just to timid and willing to take a lower return. It all boils down to how much sacrifice you are comfortable accepting - think in term of your total income (AGI) for tax purposes - it all comes into play - and we will all be dealing with similar problems. How to keep Uncle out of your pocket.

If you need more specific comment - ya'll come back.

Dennis

 

[pyriel]

imported post

I totally agree with Birch about leaving it at TSP since the fees are the lowest i've seen. However, I also see your wife's point of view of being able to give it to your kids just in case something happens to her. IRA, whether it is Traditional or ROTH, is the only vehicle that you can pass on your retirement account to your kids while using their own RMD.

I did a scenario estimate using $200k as yourlegacy to your children and if the IRA earns 10% every year. If you decide to switch your TSP funds to a traditional IRA and you die (hopefully not) a week from now, and your child is 25 years old as of today, he she will be set for life just by taking out the Minimum Required Distribution.

Now, if you leave your retirement in TSP and you die a week from now, your heir/children must zero out the account within 5 years.

There are advantages and disadvantages between leaving your retirement account in TSP and rolling it over to an IRA account. However, if you are concern about leaving something to your children/child, IRA is the best way to go... For maximizing return and being able to affect changes to retirement account as well as low fees, TSP is the way to go...

P

 

[Spaf]

imported post

Vetguy,

Birch and pyriel have good points!

You can get an IRA from a lot of sources. I checked out investments at local banks, Fidelity, Vanguard, USAA,etc. These folks have expenses and fees, some of which are quite high, especially funds with loads. Ouch! Normally they are of the buy and hold type of funds. What is doing well today, may or may not being doing well down the road. You still have to keep a eye on these funds. Other options are IRA's with online brokers, or just leaving the funds with TSP.

If you leave it with TSP, you can make a yearly withdrawl in December for the next year, you can still make transfers when ever you like, and they are good index funds, with very low expenses.

Your decision! Spaf

PS I ain't getting into the kids. Thats a family matter!

 

[Mike]

imported post

You can't get a 7% annual return with minimal risk - that's simply not possible.

"Safe" investments will get you up to about 5% (G fund comes close to that). To achieve 7% or higher, you will have to invest some of it in equities - it's unavoidable. A 50/50 split between stocks and bonds might get you there and keep risk / volatility relatively low. If you rolled it into an IRA, your best bets would either be one of the life cycle funds offered by a low-fee company like Vanguardor to split the balance between a few index funds. Unfortunately, the more funds you invest in, the more it will cost you in fees at both ends (since you'll likely incur a transaction fee of some type buying the shares, and you'll get hit by that again when you sell them - whether or not there are loads - most funds on Scottrade result in a $17 transaction fee, FWIW).

If you go the non-lifecycle / non-TSP route, you'll have to make sure you do the legwork to be well-diversified to avoid big swings in your account balance at this point. 50% bonds / 50% stocks is pretty defensive and should be enough to give you a realistic chance at a 7% gain on average.

Of course, you'll have to split the stock money between large, small, and international... which means three different funds. The bond side can be taken care of by investing in something simple like VBMFX (I think that's the ticker symbol).

You could further simplify and just split 50% into VBMFX and 50% into VFINX (S&P index).


Edit: you could also try the approach in this thread - http://www.tsptalk.com/mb/forum20/2160.html

55% stocks / 30%bonds / 10% commodities /5%money market... I don't know what exactly the article meant by stocks, though (S&P? Wilshire 5000?).