When to withdraw (public safety retiree)

[JeffKL]

I am retired public safety/law-enforcement. 53 years old served over 20 years retired after 50. Life is good, but I’m thinking about making a small withdrawal from my TSP to pay off a car loan loan at 4%.

I am on my second career now, so I am earning my government pension and a very good salary with my new job. I am in the 24% married tax bracket.

But I am thinking about making a small withdrawal (30k) from my TSP to pay off a new car I purchased. Based on my current pension and future pension from my wife. We will never be below the 22% married tax bracket. Even if I pass away, we are still never going to be below 22%. We are currently in the 24% tax bracket.

So I’m considering withdrawing $30-$50,000 from my TSP. It will be penalty free because I am public safety. If I look at this correctly, all I’m giving up is future earnings on this TSP. And a 2% tax hit if I take it out now versus in 15 years when I’m in a slightly lower tax bracket.

Everyone says don’t touch your TSP. But if I’m looking at this correctly, it’s only a 2% difference if I take it out now or in 10 years. I’m never gonna get to a very low tax bracket never below 22%.

As far as future earnings lost. The way I see it I can always reinvest in my current companies 401(k) if I have those funds in the coming years. I took a pretty good pay cut the last couple years when I retired so I would like to have More cash on hand the next few years. Until my new salary makes up a difference so I may pay off the car or just keep some of those funds as cash for immediate emergencies. Like my air conditioning last week that cost me $6000.

 

[tsptalk]

I am not a financial expert at all and my philosophy goes against all the normal rules. I say, do what makes you happy or takes stress away.

It sounds like a pretty low interest loan and assuming stocks maintain their long term average, it will obviously cost you in the end, but peace of mind has to be factored in as well.

If it won't change your life much, why not take care of that burden and go on with life? It probably won't be on your mind in 20 years and you'll be just fine.

This is not specific advice. Just a philosophy.

Welcome, by the way!

 

[TommyIV]

The savings from avoiding the interest payments from your car loan is a guaranteed 'return'. Future earnings on your TSP are not guaranteed. If the cost to withdraw from your TSP is less than the interest costs to hold the loan, then that is the path I'd take. There may be better strategies or different logic, but that is the simple justification for me.

 

[JeffKL]

I am not a financial expert at all and my philosophy goes against all the normal rules. I say, do what makes you happy or takes stress away.

It sounds like a pretty low interest loan and assuming stocks maintain their long term average, it will obviously cost you in the end, but peace of mind has to be factored in as well.

If it won't change your life much, why not take care of that burden and go on with life? It probably won't be on your mind in 20 years and you'll be just fine.

This is not specific advice. Just a philosophy.

Welcome, by the way!

Perfect answer and just how I saw it. I see so many people with A LOT of money in their TSP but dealing with stress in their early retirement as they transition. Taking 5 or even 10% out now to deal with one time issues and stress is better in my book. I want to live good now. I don’t need much money at 85 when I’m watching Matlock reruns.

 

[JeffKL]

The savings from avoiding the interest payments from your car loan is a guaranteed 'return'. Future earnings on your TSP are not guaranteed. If the cost to withdraw from your TSP is less than the interest costs to hold the loan, then that is the path I'd take. There may be better strategies or different logic, but that is the simple justification for me.

Thank you. Just wanted to make sure I was reading this correctly. I realize there might be some lost potential in the future, but like you said, they are clear savings now in the short term. I’m in a good situation where I have two separate pensions to carry in the future. The TSP is my safety net.

 

[tsptalk]

I don’t need much money at 85 when I’m watching Matlock reruns.

 

[nasa1974]

If in your mind you are comfortable taking money out of your TSP to pay off the car loan. Then that's all that really matters.

 

[JTH]

I've done 2 TSP loans (that I can remember) but those weren't withdrawals.

Anyhow, I'll give you my fiscally irresponsible opinion. We are at the Top of the markets, you may not find a better time to withdrawal. It might be better to take it out now after we've had 2 back to back 20% years. But... this also depends on what funds you were/are in.

Also, what will you save in interest paying off the car early Vs. what will you pay in taxes for the withdrawal?

I'm 52, on my 4th year of retirement, I worked really hard that last working year to pay my car off, being debt free was really important to me, so my opinion is somewhat tilted towards taking the withdrawal.

 

[FAAM]

There are quite a number of uncertainties involved, so trying to nail the decision with detailed data/ assessments/ estimates & assumptions seems overly obsessive & waste of time/worry... they way you paint it, seems close to "6 to one, half-dozen to the other" -- to me.

I will say regarding your estimates of future tax rates: a lot of very smart folks (economically/ financially) I've heard over the years, think USA tax rates will go up before long - maybe in a decade more or less -- thinking the tax rate "need" to go up by some degree, maybe substantially so for some; yes, even with the great "savings/ cuts/ efficiencies" we are hearing about (not really seeing yet) & especially that with upcoming continuation of tax cuts (the ones that really were welcomed 5 or 6 years ago by many, always are so, but not so much earned or justified & still haven't "paid" for themselves yet - though neither did the "trickle-down tax cuts" of the 1980s). Then there will be exponentially-growing costs (to governments too) of increasing affects/ impacts due to global climate change (if you "believe" in that) and more unfunded war (look at Reagan's military build-ups for the Cold War (#1) and now for #2+, & for Afghanistan, Iraq, Syria, etc./etc. (human condition in this age; there will be more war -- especially more with mentioned impacts of climate changes). So, unless there are massive cuts to government -- to the tune of Libertarian-istic type with only Military funded & little if anything else, still having to pay-off most of the "Nat'l.-Debt" (& the social chaos/anarchy likely attendant with that... & I do not think "the people" will accept that)... I think there's great chance our taxes will need to increase a bit... & overall it done right I think it a pretty good deal or return for the money -- especially if they "increase" the staffing and budget for IRS & have them go after the "bigger-fish" (recent national credible report I heard on broadcast news mainstream was that the return for cost of such IRS audits for the richer citizens is about 11:1 !!; it was 1:1 or less return for audit costs of normal & poorer Americans). SOOOO -- paying those IRA/TSP withdrawal taxes now (including converting traditional to ROTH now) may be a smart-ish move.

 

[robo]

Someone in Congress needs to start a bill that folks being fired can withdraw funds out of their TSP accounts with no penalty. Who wants to get that started? Who should we contact.

All I can say about a 30k withdraw from your TSP account is - It always feels really good to be debt free. However, one should look things over closely before adding 30k to your income if such a large withdraw is not really needed.

What about your RMDs? It looks like ours will be 20kish a year, and that is with no big gains added on during a good market year.

 

[felixthecat]

Do what you want. You went over the numbers and you appear to be comfortable in your decision. Looks to me like a higher tax bracket means you are probably doing well. I would just say please try to keep no debt at retirement. You will feel a lot better.

 

[nasa1974]

Just something to think about. I retired in 2012 at 60. In 2013 I withdrew $70K from my TSP to help pay off some loans along with helping my daughter's pay off some college loans. I don't remember the interest rates, but they were nowhere near 4%.
I transferred all my TSP money late last year to my 401K. Those 11 years in TSP from 2013 to 2024 I averaged 10.75%/year. That 70K would have given me at least another $80,000.00 plus into my TSP just on the $70K. I had two bad years in that 11 but 7 really good years. Do I regret taking out the money? No.
Bottom line is we all have to do what we feel is right for us. Good luck.

 

[JeffKL]

Thanks everyone. I’m going to make the withdrawal. Just a wanted to make sure I was reading things correctly and also wasn’t missing something. Sometimes life is more important than some numbers.
My father passed away unexpectedly while I was packing up my desk to retire, my very last day. He had been doing poorly for months before I retired. I spent my last several months, just throwing money at the problem. A private Nurse , new air-conditioning for his house various medical aids to assist around the house, etc. Then OPM did not get my retirement correctly and underpaid me for six months which required congressional support to fix. things are much better this year but that first year of retirement drained a lot of my assets and energy.
2% is a small price to pay for piece of mind and to help my mother now while she needs it. Not in 15 years when I already have a good pension.

 

[nasa1974]

Thanks everyone. I’m going to make the withdrawal. Just a wanted to make sure I was reading things correctly and also wasn’t missing something. Sometimes life is more important than some numbers.
My father passed away unexpectedly while I was packing up my desk to retire, my very last day. He had been doing poorly for months before I retired. I spent my last several months, just throwing money at the problem. A private Nurse , new air-conditioning for his house various medical aids to assist around the house, etc. Then OPM did not get my retirement correctly and underpaid me for six months which required congressional support to fix. things are much better this year but that first year of retirement drained a lot of my assets and energy.
2% is a small price to pay for piece of mind and to help my mother now while she needs it. Not in 15 years when I already have a good pension.

Good luck and enjoy retirement.