Author Topic: Supercharge TSP or hold cash for transition?  (Read 430 times)

Villanelle

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Supercharge TSP or hold cash for transition?
« on: November 03, 2023, 09:57:50 AM »
DH is retiring from the Navy next year.  He will go on to another career, but we have no idea exactly what that looks like (location, rent/buy--though leaning toward buy as this will hopefully be a long-term location, salary, how long it will take him to land a job, etc.).

He could increase his TSP contribution % as of Jan 1 so that he get the full annual limit in before he retires. ($23k in 2024) That means smaller paychecks for that time, but we'd be fine.  This seems to make sense as TSP is a nice investment situation and once he retires he will lose the ability to put money in to it.  (He almost certainly won't end up on a government job.)  Note that he does not get a TSP match so we aren't giving up free money if he doesn't max it out, just access to TSPs low-cost investing and Roth-style investment.

At the same time, I'm stressed and worried about this transition.  Ideally, he will have a job lined up so that there is no gap.  If we are fortunate, he will actually be double dipping for a month or two, receiving full military pay and benefits on terminal leave*, while starting his civilian job, but that is far from guaranteed.  We can cost for quite a while on his pension (and our savings if need be) so he is going to be picky about employment.  (**Terminal leave is basically being on vacation time from the military in your last 2 months, and you are allowed to take another job during this time.)  So my instinct here is to hoard cash for both a gap in pay checks and also expenses associated with relocating.  (Note that he will receive his pension after a month or two gap, which would typically cover all of our basic expenses, but perhaps not everything as we move, figure out a new life, potentially purchase new work wardrobe for him, etc.)  We don't currently keep much cash cushion, though we do have a good amount in non-retirement accounts that we could easily access if needed, but of course selling stocks never feels good. 

(As I type this, I realize that in one sense, we could look at this as potentially taxable investment accounts for Roth TSP, since we could put money in the Roth TSP and then sell taxable investments to offset that lost accessible income.  Put like that, maybe this makes sense?)  We also have HELOC with >$100k that would could use if necessary, but given interest rates this is kind of a last-resort. 

So, do we stash as much as possible in TSP, stash as much as possible into a savings account (short term; surely <12 months, at which point we'd be settled and would invest any of the remaining extra cushion), or go with the middle ground which is more or less continuing on as we are now? 






cincystache

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Re: Supercharge TSP or hold cash for transition?
« Reply #1 on: November 03, 2023, 08:15:23 PM »
congrats on the upcoming pension and thank you to your husband for his service.

I would probably pile up cash until you have more clarity on your future situation. Have you considered taking a mini retirement and enjoying a few months of not working? More power to you if you want to keep plowing forward but this seems like a natural point to take a minute and enjoy life a little and reflect on the last 20 years in the Navy instead of jumping right back into another grind. Just a thought to consider. Good luck with the big transition.

Nords

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Re: Supercharge TSP or hold cash for transition?
« Reply #2 on: November 04, 2023, 06:42:34 PM »
At the same time, I'm stressed and worried about this transition.  Ideally, he will have a job lined up so that there is no gap.  If we are fortunate, he will actually be double dipping for a month or two, receiving full military pay and benefits on terminal leave*, while starting his civilian job, but that is far from guaranteed.  We can cost for quite a while on his pension (and our savings if need be) so he is going to be picky about employment.  (**Terminal leave is basically being on vacation time from the military in your last 2 months, and you are allowed to take another job during this time.)  So my instinct here is to hoard cash for both a gap in pay checks and also expenses associated with relocating.  (Note that he will receive his pension after a month or two gap, which would typically cover all of our basic expenses, but perhaps not everything as we move, figure out a new life, potentially purchase new work wardrobe for him, etc.)  We don't currently keep much cash cushion, though we do have a good amount in non-retirement accounts that we could easily access if needed, but of course selling stocks never feels good. 
This topic is a Perpetual Internet Debate among military families, and the important aspect is emotional instead of logic & math.

If the question is causing any stress at all then I’d save up 12 months of retirement expenses (net of your pension) for a transition fund.  You don’t want to lose sleep at night waiting on him to get a job (and maybe your job too), and he doesn’t want to feel obligated to accept his very first offer just to stop the cash burn.

To add to your transition stress, I’ll mention that DFAS will not deduct TSP contributions from his final month of pay.  They also won’t deposit his final paycheck until after their account audit, and those have (rarely) been known to take longer than two weeks-- especially for a travel claim or a balance on a government travel credit card.  Third, the first pension deposit does not occur until the end of the first month of retirement, so there’s a potential six-week gap in deposits between last payday and first pension. 

And finally, there have been labor shortages at all of the services (as well as DFAS) which have led to cases of people not getting a pension deposit for a few months.  In one case a retired Navy O-5 had to get on a phone call with his finance staff from his last duty station, plus Navy Personnel Command and DFAS, and ask a bunch of pointed questions before the NPC civil servant said to the DFAS GS:  “Oh, you sent that package to our Mr. Schmuckatelli?  He retired three months ago and nobody’s been hired to replace him yet.  I don’t know if we’re even checking his e-mail.”

Perhaps you want to start planning on a minimum of three months’ full retirement expenses in cash, and that assumes the pension’s been delayed by a couple of months.

(As I type this, I realize that in one sense, we could look at this as potentially taxable investment accounts for Roth TSP, since we could put money in the Roth TSP and then sell taxable investments to offset that lost accessible income.  Put like that, maybe this makes sense?)  We also have HELOC with >$100k that would could use if necessary, but given interest rates this is kind of a last-resort. 
If you have a Roth IRA then of course you’d be able to withdraw those contributions at any time for any reason, no taxes or penalties.

As soon as you retire, you could roll over your Roth TSP to a Roth IRA.  If you’ve had an existing Roth IRA for at least five tax years then you can immediately withdraw your Roth TSP contributions (but not the gains in the Roth TSP).  No taxes, no penalties.

If you have Combat Zone Tax-Exempt pay in either TSP, then you could roll that TSP over to its equivalent IRA and immediately withdraw the CZTE pay contributions... but not the gains on those contributions.  Still no taxes and no penalties.

All of this is complicated by a claim for a VA disability rating.  If the rating is less than 50% then you choose to let the (tax-free) compensation offset the (taxable) pension, and DFAS just reduces the number on the 1099-R that you get after the year ends.  Any rating from 10%-30% is relatively straightforward.

If the rating is at least 50% (particularly if the C&P exam *properly* documents PTSD, TBIs, or spinal cord/vertebrae issues) then the Concurrent Retirement & Disability Pay is *in addition* to the pension.  You might be fairly confident of the degree of the disability rating, but don’t make spending plans for CRDP until you actually get both the VA compensation deposit and the full pension deposit in your checking account.  Let me know if you have more questions about CRDP, but you’ve probably already seen this post:
https://themilitarywallet.com/concurrent-receipt-military-retirement-pay/

In the other side of the VA disability rating debate, if there's any sleep apnea or a CPAP prescription then the VA might still find a total disability rating of less than 50%.  They've apparently adopted tougher criteria for that particular rating, although it still has very real symptoms and life-threatening effects.

So, do we stash as much as possible in TSP, stash as much as possible into a savings account (short term; surely <12 months, at which point we'd be settled and would invest any of the remaining extra cushion), or go with the middle ground which is more or less continuing on as we are now?
If the discussion lasts for less than 10 minutes, and you’re personally confident that you’ll sleep well enough at night (with everything else about the transition still going on) then I’d go with the middle ground.

But if you have any ominous misgivings whatsoever then I’d stash as much as possible in savings.  In 10 years, Future You will not regret that decision.

wenchsenior

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Re: Supercharge TSP or hold cash for transition?
« Reply #3 on: November 05, 2023, 10:47:38 AM »
Our household is wrestling with this question ourselves, and I'm currently leaning toward stashing (rather than investing) a lot of the last 3 years worth of retirement contributions simply bc I can envision an incredible stack of high expenses as part of the transition period to retirement. I appreciate the discussion.