Author Topic: Should I stop contributing to my TSP? A liquidity problem.  (Read 1477 times)

shipright

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Should I stop contributing to my TSP? A liquidity problem.
« on: August 15, 2017, 05:39:57 AM »
So here are my current basics. I am a military member using TSP as my primary retirement account which I max out annually. I am current stationed overseas in a tax free area so am using the Roth option to escape ever paying taxes on anything I contribute now.

I currently have roughly 150K spread out between my traditional and Roth TSP accounts. These funds are essentially unavailable to me until I hit the statutory retirement age of 60+.

I have equity in my home of 100K. I know this isn't the same as a TSP regarding unavailability because I can sell this to get that money but my long term plan is to keep this property for rental income through my early retirement at least. So while I could tap this in an emergency, for planning purposes I am going to declare this and any increase in its value as unavailable until post 60+

Outside of this I have 100K in what I will call liquid assets, essentially things I can turn into cash inside an hour (savings, brokerage accounts). This is what I can access for early retirement withdrawals pre  age 60.

So I went through all the calculators and what I ended up with, assuming I maintain my current cash savings rate and TSP contribution rate, of having an allocation  of 500K in liquid assets and 700K in inaccessible wealth when I retire in 9 years at age 45 (this doesn't include money set aside to purchase a new primary residence with cash). My retirement goal was 1M for a 40K annual 4%SWR, so this is pretty good. However, since I can only withdraw out of that 500K using that withdrawal rate I will have less than 100K I can access at age 59. This makes me uncomfortable, because god knows what the housing market or TSP rules will be like by then, let alone something like an unexpected medical condition.

Of course during my 15 year retirement before 60 my TSP and hopefully mortgage equity will increase so I should be fine post 60. My question is whether its a good idea to redirect my current TSP contributions to pre 60 accessible accounts  so I have more of a safety margin in my early retirement? Is there some hidden folly I am not seeing in doing this?

Note: I am being extremely conservative here. 40K is my goal SWR but my annual spend rate is 30K (or it will be when I kill this mortgage pre early retirement). I also hit military retirement safe harbor this year and could begin drawing the pension in three, so this decision is not life or death. I just don't want there to be an unexpected crunch between 45 and 60 years old.

terran

  • Handlebar Stache
  • *****
  • Posts: 2022
Re: Should I stop contributing to my TSP? A liquidity problem.
« Reply #1 on: August 15, 2017, 08:31:39 AM »
Definitely don't stop contributing, especially right now when you're in a no tax ever situation.

Once you're no longer working for the federal government you can roll your TSP into an IRA and then you can access this money penalty free like so: https://forum.mrmoneymustache.com/taxes/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-ag-39647/

Heroes821

  • Pencil Stache
  • ****
  • Posts: 566
Re: Should I stop contributing to my TSP? A liquidity problem.
« Reply #2 on: August 15, 2017, 09:20:14 AM »
At 45 how close are you from military retirement?  If you joined at 18 we're talking 3 more years and you would need a significantly smaller stash with retirement pay.  Plus I know very few vets who do 6 years without qualifying for disability, let alone 15+.  I think following MMM principles you should be safe, but your 500k will probably be mostly in investments so it's also growing and generating dividends not just withdrawing down.  Even if you only get 10k a year in VA benefits that would lower your 4% draw need down to 30k which helps those numbers significantly.

Also congrats on the tax free stuff.

shipright

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Should I stop contributing to my TSP? A liquidity problem.
« Reply #3 on: August 16, 2017, 02:09:32 AM »
Definitely don't stop contributing, especially right now when you're in a no tax ever situation.

Once you're no longer working for the federal government you can roll your TSP into an IRA and then you can access this money penalty free like so: https://forum.mrmoneymustache.com/taxes/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-ag-39647/

Its tax free whether it goes into the TSP or not, the benefit being that I won't have to pay taxes on the returns upon withdrawal. Yeah I agree the benefit of more liquidity is not worth missing out on that, so the question is really whether to stop TSP after I leave the tax free zone.

I didn't know about the penalty free access, I will look into that. Thanks!

At 45 how close are you from military retirement?  If you joined at 18 we're talking 3 more years and you would need a significantly smaller stash with retirement pay.  Plus I know very few vets who do 6 years without qualifying for disability, let alone 15+.  I think following MMM principles you should be safe, but your 500k will probably be mostly in investments so it's also growing and generating dividends not just withdrawing down.  Even if you only get 10k a year in VA benefits that would lower your 4% draw need down to 30k which helps those numbers significantly.

Also congrats on the tax free stuff.

I drew up my FIRE plan with excluding my military retirement because when I started getting to 20 wasn't guaranteed. I am still a year away from safe harbor but there is no statutory way I don't get there at this point. However, I am a cautious sort so I haven't changed my plans now that the pension is all but in the bag, and also because I am lazy and don't want to redo my spreadsheets.

I can retire in four years, so at age 40. whether I actually do so or not depends on the situation. I intend to work until 45, if the civilian sector doesn't look so good I might spend all of that time in the military.

The draw down on the 500K was assuming an all told annual increase in value of 4%. So even with it growing I still end up at below 100K at age 60 in that account. If I can truly withdraw from a roll over retirement account penalty free this solves all the problems.

Heroes821

  • Pencil Stache
  • ****
  • Posts: 566
Re: Should I stop contributing to my TSP? A liquidity problem.
« Reply #4 on: August 16, 2017, 06:15:55 AM »
wow my math failed so bad 18-38 not 48 sigh. 

I think it's good to not plan for things like an employer pension due to historically mismanaged funds going bankrupt, but we're talking about the USG here, that's in the same boat as wall street catching fire and the world economy turning into rocks and sticks.  It could happen, but even if it did we'd have bigger problems than what happened to our investment money.

Might be worth re-doing your spreadsheet in a copy so you can compare them while still following your original plan.