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Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


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kedward777  
#1 Posted : Friday, November 15, 2019 6:53:01 AM(UTC)
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Hello,

If I retire at 56 with 37 years, I am thinking I would move my TSP money out of the TSP G fund (<2%) to an external IRA where I can get FDIC CD's at 3% or more.

However, I am now aware that you cannot pull money out of an IRA before 59.5. I was reading about SEPP's however, and it seems to allow me to bridge the gap between 56 and 59.5 by taking payments for 5 years based on my age expectancy.

For instance, in one SEPP calculation, if I had 900k in an IRA, I think I would get around 25 to 35k a year for 5 years, which would be roughly the interest on $900k x 3%, so I am thinking my IRA balance would not drop much if at all (?)

What do the rest of you fed's do that move out of the TSP and retire before 59.5?
roger.d  
#2 Posted : Friday, November 15, 2019 11:18:49 AM(UTC)
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If you retire after age 55, there is no penalty for taking distributions fron the TSP.

What is the G Fund currently paying?
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kedward777  
#3 Posted : Friday, November 15, 2019 11:28:24 AM(UTC)
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Correct, no penalty from TSP withdrawal before 59.5, BUT I want to move ALL my TSP out to an external IRA where I can earn 3% or more (G Fund is like 1.7% now, a $10k per year difference). But non-TSP IRA withdrawals before 59.5 have a penalty unless you create a SEPP.

In general, you can always beat the G fund with FDIC insured CD ladders, hence why I want my money out of the TSP.
Endless Summer  
#4 Posted : Friday, November 15, 2019 12:13:15 PM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Hello,

If I retire at 56 with 37 years, I am thinking I would move my TSP money out of the TSP G fund (<2%) to an external IRA where I can get FDIC CD's at 3% or more.

However, I am now aware that you cannot pull money out of an IRA before 59.5. I was reading about SEPP's however, and it seems to allow me to bridge the gap between 56 and 59.5 by taking payments for 5 years based on my age expectancy.

For instance, in one SEPP calculation, if I had 900k in an IRA, I think I would get around 25 to 35k a year for 5 years, which would be roughly the interest on $900k x 3%, so I am thinking my IRA balance would not drop much if at all (?)

What do the rest of you fed's do that move out of the TSP and retire before 59.5?


First, if you have $900k in your TSP, spend a few $k on some expert advice. Honestly, an independent financial advisor, not one who is selling you a product, will easily save you 10 to 20 times what he/she costs. Even if you've only got $250k it's worth doing.

As for the SEPP, I don't understand how you benefit except for getting the $25k per year tax free for 5 years. After 5 years you will still have the bulk of your funds in the TSP. OK, $25k tax free is nice, but what tax bracket will you be in at that point? How much in taxes will you avoid? All to earn an additional 1% on $25k per year worth of laddered bonds?

If you retire at 56 I'm guessing that you'll be taking your annuity immediately and waiting on the Social Security. So, I'm guessing that you'll gross about $45-50K? The SEPP is going directly into the bond ladder, so it's not like you will count that as spendable income.

I ran the numbers, if you put 25k a year into two accounts, one earning 2% and one earning 3%, after 5 years the 2% account will have $157,703 and the 3% will have $161,710. That's $4k difference over 5 years.

I just don't see it. If we're talking about a $900k pot, there are a lot of ways to structure your investments to provide the security you are looking for that will give you a lot more than 4K over 5 years.
roger.d  
#5 Posted : Friday, November 15, 2019 4:24:06 PM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Correct, no penalty from TSP withdrawal before 59.5, BUT I want to move ALL my TSP out to an external IRA where I can earn 3% or more (G Fund is like 1.7% now, a $10k per year difference). But non-TSP IRA withdrawals before 59.5 have a penalty unless you create a SEPP.

In general, you can always beat the G fund with FDIC insured CD ladders, hence why I want my money out of the TSP.


Read the withdrawal rules again. If you retire after you turn age 55, there is no penalty for taking money out of the TSP

I see the YTD return is 1.93% on the G fund. According to Bankrate.com, current rates are 2.3% for a 2 year CD. Please shoe me a 6 month CD earning above 3, if you are wanting to ladder them.

I agree with Endless Summer, spend 1 hour with a fee based financial advisor.


IMO, if you have $900K plus, you are trying to squeeze blood out of a turnip.

You might want to make an account at bogleheads.org and post there. Orjust do some reading.
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roger.d  
#6 Posted : Friday, November 15, 2019 4:30:29 PM(UTC)
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https://forum.federalsou...s&t=85724#post950502

I see you have asked this question to Ed on the employee benefit's board.

Take his advice and meet with a professional in person.
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kedward777  
#7 Posted : Friday, November 15, 2019 6:57:46 PM(UTC)
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Thank you all for wrestling with the numbers, but I think some of you are missing the point.

1) In retirement, a retiree needs a steady stream of yearly cash, with minimal risk. At any given time, the CD rates at various banks will be 1 to 2% higher than the TSP G fund. I just signed up for a 40 month 3.6% at Navy Federal (no longer offered after rate cut, but they have periodic sales).

2) If I leave all my $900k money in the TSP, and I am 55 with 37 year of service, THEN I can withdrawal money from the TSP without a 10% penalty before 59.5! BUT then I am only earning 1.75% from the G Fund (G fund November return rate is 1.75%) which is ONLY $15750 per year income stream ($900k x .1.75% G fund = $15750).

3) However, if I take out ALL of my $900k from TSP and transfer it to a FDIC insured bank IRA CD earning 3.6% then I earn $32,400 per year ($900k x 3.6% = $32400). The trick is however that IRA's (not in TSP) incur a 10% tax penalty for any withdrawals before age 59.5. --UNLESS you invoke a SEPP on the IRA, in which case you can withdrawal a certain amount for 5 years (around $30k)

4) There is a longer term commitment on the CD, BUT if the rates go up (5%) I can just break the CD for a small penalty and re-invest at 5% which will make up for the penalty and boost my income even further. ($900k x 5% = $45k)

5) Instead of purchasing an annuity, I am simply using CD's. For a little more work, I can pass the $900k to my kids when I pass on, whereas most annuities result in the loss of part or all of the balance.

Edited by user Friday, November 15, 2019 7:00:22 PM(UTC)  | Reason: Not specified

roger.d  
#8 Posted : Friday, November 15, 2019 7:20:05 PM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Thank you all for wrestling with the numbers, but I think some of you are missing the point.

1) In retirement, a retiree needs a steady stream of yearly cash, with minimal risk. At any given time, the CD rates at various banks will be 1 to 2% higher than the TSP G fund. I just signed up for a 40 month 3.6% at Navy Federal (no longer offered after rate cut, but they have periodic sales).

2) If I leave all my $900k money in the TSP, and I am 55 with 37 year of service, THEN I can withdrawal money from the TSP without a 10% penalty before 59.5! BUT then I am only earning 1.75% from the G Fund (G fund November return rate is 1.75%) which is ONLY $15750 per year income stream ($900k x .1.75% G fund = $15750).

3) However, if I take out ALL of my $900k from TSP and transfer it to a FDIC insured bank IRA CD earning 3.6% then I earn $32,400 per year ($900k x 3.6% = $32400). The trick is however that IRA's (not in TSP) incur a 10% tax penalty for any withdrawals before age 59.5. --UNLESS you invoke a SEPP on the IRA, in which case you can withdrawal a certain amount for 5 years (around $30k)

4) There is a longer term commitment on the CD, BUT if the rates go up (5%) I can just break the CD for a small penalty and re-invest at 5% which will make up for the penalty and boost my income even further. ($900k x 5% = $45k)

5) Instead of purchasing an annuity, I am simply using CD's. For a little more work, I can pass the $900k to my kids when I pass on, whereas most annuities result in the loss of part or all of the balance.


How are you going to get an income stream from a CD at 40 months term?

AFAIK, you get the money at the end of the term. So you will not get ANY money until 40 months have passed. IOW 3 1/3 years. In that case you will be close to the 59.5 age.
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Endless Summer  
#9 Posted : Friday, November 15, 2019 8:25:13 PM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Thank you all for wrestling with the numbers, but I think some of you are missing the point.

1) In retirement, a retiree needs a steady stream of yearly cash, with minimal risk. At any given time, the CD rates at various banks will be 1 to 2% higher than the TSP G fund. I just signed up for a 40 month 3.6% at Navy Federal (no longer offered after rate cut, but they have periodic sales).

2) If I leave all my $900k money in the TSP, and I am 55 with 37 year of service, THEN I can withdrawal money from the TSP without a 10% penalty before 59.5! BUT then I am only earning 1.75% from the G Fund (G fund November return rate is 1.75%) which is ONLY $15750 per year income stream ($900k x .1.75% G fund = $15750).

3) However, if I take out ALL of my $900k from TSP and transfer it to a FDIC insured bank IRA CD earning 3.6% then I earn $32,400 per year ($900k x 3.6% = $32400). The trick is however that IRA's (not in TSP) incur a 10% tax penalty for any withdrawals before age 59.5. --UNLESS you invoke a SEPP on the IRA, in which case you can withdrawal a certain amount for 5 years (around $30k)

4) There is a longer term commitment on the CD, BUT if the rates go up (5%) I can just break the CD for a small penalty and re-invest at 5% which will make up for the penalty and boost my income even further. ($900k x 5% = $45k)

5) Instead of purchasing an annuity, I am simply using CD's. For a little more work, I can pass the $900k to my kids when I pass on, whereas most annuities result in the loss of part or all of the balance.


I wish you well, but I fear this is going to end tragically. With the kind of money you're talking about, and this being the legacy you leave to your children, you desperately need to engage a qualified independent estate planner. There ae too many ways that this can go horribly wrong.

Just one example... If you move $900k into a single IRA CD account you will only be covered for $250k by the FDIC. To get coverage for the entire 900k you will need to set up IRA CD's with four separate institutions, each providing 250k of coverage. Having multiple accounts with one institution won't count.

And we haven't even touched on the issue of RMD's and the complexities of a non-spouse inheriting an IRA.

I'm also not sure your interpretation of the SEPP rules is correct. If you set up a SEPP, you need to be able to withdraw the annual distributions. You can't do this if all 900k is locked into CD's. You don't get the interest from the CD until you ca***** out but your required disbursement is based on the total value of the IRA. I know you are planning on laddering the CD's, but if you are using 40 month CD's you will need to retain three years' worth on distributions in liquid investments, and if you are laddering the CD's you will need to make sure that the interest from the years 4 and 5 will cover the required distribution.
roger.d  
#10 Posted : Friday, November 15, 2019 8:57:09 PM(UTC)
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I project that I will have between $600k and $800k when I retire in 6 years (ETA: age 56, 10 months). I will not have 30 years. So will have a 25% reduction in my FERS pension.

Drawing from my TSP, Roth IRA and pension, I project a 100% success rate.

IMO, you are over complicating things.

Edited by user Saturday, November 16, 2019 6:19:14 AM(UTC)  | Reason: Not specified

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junkmail  
#11 Posted : Saturday, November 16, 2019 2:15:35 AM(UTC)

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Originally Posted by: kedward777 Go to Quoted Post
I am currently a private sector employee. I have 2 federal jobs I applied for. I was referred for both jobs (Job A and Job B at different agencies). Job A gave me a Tentative Offer last week, but I have to go through extensive Security Background checks that will take months. Job B is interviewing me today (no security clearance), and is really the job I would prefer. Can I accept Tentative Offer from Job A, but if Job B comes through, just cancel the TO, and accept Job B??? Is this risky?


Kedward777 are you a long time federal employee looking to retire at 56 or a private sector employee trying to get a federal job as you posted in New Hires 2 days ago??
thanks 1 user thanked for this useful post.
Endless Summer on 11/16/2019(UTC)
Endless Summer  
#12 Posted : Saturday, November 16, 2019 6:46:17 AM(UTC)
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Originally Posted by: junkmail Go to Quoted Post
Originally Posted by: kedward777 Go to Quoted Post
I am currently a private sector employee. I have 2 federal jobs I applied for. I was referred for both jobs (Job A and Job B at different agencies). Job A gave me a Tentative Offer last week, but I have to go through extensive Security Background checks that will take months. Job B is interviewing me today (no security clearance), and is really the job I would prefer. Can I accept Tentative Offer from Job A, but if Job B comes through, just cancel the TO, and accept Job B??? Is this risky?


Kedward777 are you a long time federal employee looking to retire at 56 or a private sector employee trying to get a federal job as you posted in New Hires 2 days ago??


Nice catch...

So Ed, which is it? Two fake job offers or one fake 900k TSP?

I'm leaning towards both.
kedward777  
#13 Posted : Sunday, November 17, 2019 3:37:04 AM(UTC)
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Haha,

I have no problem people kicking my tires. In fact, I seek it. However, I prefer my tires be kicked by people that have actual experience in the subject matter in question. It is obvious that most of the replies are from people without any TSP transfer investment experience, nor have a basic understanding of CD's and SEPP. If you did, then you would know that most/all CD's have the option to either reinvest the interest earned back into the CD, OR have the interest earned be distributed to an *outside account*. No need to wait for the CD to come due to get the interest earned. I've done this many times, it creates a very nice income stream. CD's are great income tools if you know the basics on how to find and structure them. In fact, I just made a quick couple grand by selling my TD Ameritrade brokered CD's when the rates were recently cut, and then opening a 40 month 3.6% CD. AND I could sleep well at night because they are FDIC insured, and I do not have a slimy financial planner churning my investment to make commissions for himself.

And yes, I am fully aware of the $250k FDIC rule, so yes the $900k would be roughly spread across at least 4 FDIC banks. Although the FDIC rules also increase the FDIC insured amount based on martial status and account types so I will probably only need 2 or 3 banks.

As far as my other post about the job, I was simply helping a friend out by posting his question for him.

kedward777  
#14 Posted : Sunday, November 17, 2019 3:55:57 AM(UTC)
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CDs are not complicated, and from what I read, SEPP is not bad once you figure it out.

Really, 100% success rate? Didn't you live through the 2008 collapse of the stock market when TSP accounts lost around 40% of value!?!? Granted the government propped the stock market back up (this time), but our country is trillions of dollars in debt and China is on the rise. After the election, you are going to see stocks CRASH. It is only the Republicans propping up the market until after the election...... So you keep it in G Fund that under performs CD's by 1 to 2 percent? If so, you are losing $10k to $20k per year of income!

Originally Posted by: roger.d Go to Quoted Post
I project that I will have between $600k and $800k when I retire in 6 years (ETA: age 56, 10 months). I will not have 30 years. So will have a 25% reduction in my FERS pension.

Drawing from my TSP, Roth IRA and pension, I project a 100% success rate.

IMO, you are over complicating things.

Edited by user Sunday, November 17, 2019 3:56:48 AM(UTC)  | Reason: Not specified

Endless Summer  
#15 Posted : Sunday, November 17, 2019 6:12:33 AM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Haha,

I have no problem people kicking my tires. In fact, I seek it. However, I prefer my tires be kicked by people that have actual experience in the subject matter in question. It is obvious that most of the replies are from people without any TSP transfer investment experience, nor have a basic understanding of CD's and SEPP. If you did, then you would know that most/all CD's have the option to either reinvest the interest earned back into the CD, OR have the interest earned be distributed to an *outside account*. No need to wait for the CD to come due to get the interest earned. I've done this many times, it creates a very nice income stream. CD's are great income tools if you know the basics on how to find and structure them. In fact, I just made a quick couple grand by selling my TD Ameritrade brokered CD's when the rates were recently cut, and then opening a 40 month 3.6% CD. AND I could sleep well at night because they are FDIC insured, and I do not have a slimy financial planner churning my investment to make commissions for himself.

And yes, I am fully aware of the $250k FDIC rule, so yes the $900k would be roughly spread across at least 4 FDIC banks. Although the FDIC rules also increase the FDIC insured amount based on martial status and account types so I will probably only need 2 or 3 banks.

As far as my other post about the job, I was simply helping a friend out by posting his question for him.



As for the roll-over, you've been saying all along that you are going to live off the interest, so you won't be rolling over the interest into another CD.

Have you stopped to think why nobody seems to have done this before? Like, maybe it's not such a good idea after all?

You've either done a horrible job of explaining your plan or you really haven't thought it out all that well, you're initial post showed you didn't even know about the 10% penalty. And now you think you can transfer money to a spouse, or into a joint account from your personal IRA?

The fact that you are on a forum asking random, anonymous internet idiots like me to do your estate planning for you makes me think maybe you're in way over your head.

The single most knowledgeable and unbiased guy on the forum, Ed Zurndorfer, has suggested you contact a tax attorney. That, at the minimum, is a necessity. You further show your lack of knowledge with your comment about financial advisors, I have neither the time nor the incentive to try to educate you on this issue but every comment you've posted underscores the need for you to seek out professionals.

Again, I wish you well, but I'm pretty sure how this is going to play out.
roger.d  
#16 Posted : Sunday, November 17, 2019 6:32:00 AM(UTC)
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Boogleheads.org.

There are may Federal Retirees on that site. Never have I heard of this plan. Maybe you are on to something. But I doubt it.

Post your idea over there and let those people look it over.

ETA:

As for my 100% success rate, there are many people that live on less than I will make on my pension. I only need to draw $500 from retirement accounts to match my mother's income. And she lives conformable.

Yes, I lived through the 2007-2008 market crash. I was 100% stocks. I never sold and now have done very well. By positioning what you need outside of the market when the time comes to need it, you avoid needing to sell at the bottom. Pretty simple strategy.

Edited by user Sunday, November 17, 2019 6:40:27 AM(UTC)  | Reason: Not specified

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kedward777  
#17 Posted : Sunday, November 17, 2019 9:15:18 AM(UTC)
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Originally Posted by: roger.d Go to Quoted Post
Boogleheads.org.

There are may Federal Retirees on that site. Never have I heard of this plan. Maybe you are on to something. But I doubt it.

Post your idea over there and let those people look it over.

ETA:

As for my 100% success rate, there are many people that live on less than I will make on my pension. I only need to draw $500 from retirement accounts to match my mother's income. And she lives conformable.

Yes, I lived through the 2007-2008 market crash. I was 100% stocks. I never sold and now have done very well. By positioning what you need outside of the market when the time comes to need it, you avoid needing to sell at the bottom. Pretty simple strategy.


What you are saying doesn't make sense. When the stock market crashed, you lost around up to 40% in any of the TSP stock funds. It doesn't matter if you sold or not (since it is a FUND of STOCKS, not an individual STOCK). And you did not have an income stream for that year since it was NEGATIVE (unless you pulled from the principal). This is the exact reason to have retirement funds mostly in laddered CD's providing a consistent income stream that is not affected by the markets.

It sounds like you are living on your pension mostly. Fine, I guess I could do that also on my $50k pension, but why in the world wouldn't someone take an additional $20k to $30k income stream in addition to the pension (or re-invest)?!!? With just a little bit of intelligence and work you could pull 3% to 4% from a FDIC insured CD!
kedward777  
#18 Posted : Sunday, November 17, 2019 9:16:30 AM(UTC)
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Originally Posted by: Endless Summer Go to Quoted Post
Originally Posted by: kedward777 Go to Quoted Post
Haha,

I have no problem people kicking my tires. In fact, I seek it. However, I prefer my tires be kicked by people that have actual experience in the subject matter in question. It is obvious that most of the replies are from people without any TSP transfer investment experience, nor have a basic understanding of CD's and SEPP. If you did, then you would know that most/all CD's have the option to either reinvest the interest earned back into the CD, OR have the interest earned be distributed to an *outside account*. No need to wait for the CD to come due to get the interest earned. I've done this many times, it creates a very nice income stream. CD's are great income tools if you know the basics on how to find and structure them. In fact, I just made a quick couple grand by selling my TD Ameritrade brokered CD's when the rates were recently cut, and then opening a 40 month 3.6% CD. AND I could sleep well at night because they are FDIC insured, and I do not have a slimy financial planner churning my investment to make commissions for himself.

And yes, I am fully aware of the $250k FDIC rule, so yes the $900k would be roughly spread across at least 4 FDIC banks. Although the FDIC rules also increase the FDIC insured amount based on martial status and account types so I will probably only need 2 or 3 banks.

As far as my other post about the job, I was simply helping a friend out by posting his question for him.



As for the roll-over, you've been saying all along that you are going to live off the interest, so you won't be rolling over the interest into another CD.

Have you stopped to think why nobody seems to have done this before? Like, maybe it's not such a good idea after all?

You've either done a horrible job of explaining your plan or you really haven't thought it out all that well, you're initial post showed you didn't even know about the 10% penalty. And now you think you can transfer money to a spouse, or into a joint account from your personal IRA?

The fact that you are on a forum asking random, anonymous internet idiots like me to do your estate planning for you makes me think maybe you're in way over your head.

The single most knowledgeable and unbiased guy on the forum, Ed Zurndorfer, has suggested you contact a tax attorney. That, at the minimum, is a necessity. You further show your lack of knowledge with your comment about financial advisors, I have neither the time nor the incentive to try to educate you on this issue but every comment you've posted underscores the need for you to seek out professionals.

Again, I wish you well, but I'm pretty sure how this is going to play out.



haha,

Of course I knew about the 10% penalty, that is why I was asking if anyone had experience with SEPP (which avoids the 10% penalty).

Plenty of people have done this before. It is called a CD ladder (vs annuity). Google it. It is beyond common. You don't need to "roll over interest" to create a CD ladder. Maybe you are confused with "IRA Rollover".

I wasn't asking for idiots to post responses to my question, or to plan my estate. I WAS simply asking if anyone in the FEDERAL RETIREMENT FORUM had experience with SEPP (look at my question title again please). Why would anyone post a response if they did not have experience with SEPP???

I am pretty sure I know how it will turn out also. Given my conservative ROTH IRA CD and TSP investment track record showing I have a balance of almost a Million dollars.
roger.d  
#19 Posted : Sunday, November 17, 2019 9:55:53 AM(UTC)
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Originally Posted by: kedward777 Go to Quoted Post
Originally Posted by: roger.d Go to Quoted Post
Boogleheads.org.

There are may Federal Retirees on that site. Never have I heard of this plan. Maybe you are on to something. But I doubt it.

Post your idea over there and let those people look it over.

ETA:

As for my 100% success rate, there are many people that live on less than I will make on my pension. I only need to draw $500 from retirement accounts to match my mother's income. And she lives conformable.

Yes, I lived through the 2007-2008 market crash. I was 100% stocks. I never sold and now have done very well. By positioning what you need outside of the market when the time comes to need it, you avoid needing to sell at the bottom. Pretty simple strategy.


What you are saying doesn't make sense. When the stock market crashed, you lost around up to 40% in any of the TSP stock funds. It doesn't matter if you sold or not (since it is a FUND of STOCKS, not an individual STOCK). And you did not have an income stream for that year since it was NEGATIVE (unless you pulled from the principal). This is the exact reason to have retirement funds mostly in laddered CD's providing a consistent income stream that is not affected by the markets.

It sounds like you are living on your pension mostly. Fine, I guess I could do that also on my $50k pension, but why in the world wouldn't someone take an additional $20k to $30k income stream in addition to the pension (or re-invest)?!!? With just a little bit of intelligence and work you could pull 3% to 4% from a FDIC insured CD!


Sense I did not sell any stock (mutual fund shares) during the market downturn, I lost NO money. The NAV of the C fund and the VTSMX returned to the previous level and continued to grow. All the while paying dividends that were reinvested at the lower levels.

Have you re-read the TSP withdrawal rules? There is NO PENALTY if you retire after age 55 and then start to take money out?
Learn to discipline yourself, so someone else doesn't have to
Endless Summer  
#20 Posted : Sunday, November 17, 2019 10:10:31 AM(UTC)
Endless Summer

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I'm going to bow out of this with a Mark Twain quote...

"Never try to teach a pig to whistle, it wastes your time and annoys the pig"
thanks 1 user thanked Endless Summer for this useful post.
roger.d on 11/17/2019(UTC)
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