Case study for single Federal LE, hoping to retire in 3 yrs on TSP.

[Taco7]

Topic Title: Reader Case Study – am I on track to retire in 3 years?  I don't mind downsizing my house when the time comes close.  I think I could get a $200,000 home instead of my $380,000 one. 

Life Situation: Single, head of household, 1 dependent, age 7, shared custody.  I believe I was in the 28% bracket.  Utah.   House is not even close to being paid off. I like the home, but it's too big. 


Gross Salary/Wages: $114,000

Individual amounts of each Pre-tax deductions $18,000/year into a TSP.

Other Ordinary Income: N/A

Qualified Dividends & Long Term Capital Gains: N/A

Rental Income, Actual Expenses, and Depreciation: N/A

Adjusted Gross Income: $96,000

Taxes:  ??.

Current expenses:
Mortgage $2000
Car $560
Utilities and car insurance $300
Alimony $1400/month, (will end 2019)
(Should I add more expenses like groceries, repairs, etc?)

Expected ER expenses: (optional, if relevant)

Assets:
$350,000 TSP (%50 S, %50 C)  (Maxing my monthly amount to =$18000/year, and hoping to have $500,000-750,000 by retirement)
$80,000 Roth IRA (separate from TSP), in VTSAX admiral shares (maxing it currently and expect to do so until retirement)
$8000 cash
$40,000 paid off second car (hot-rod of sorts.  Not needed but it’s fun)

Liabilities: Vehicle loan, $560/month/$26,000, and 5 years remaining.
 
Specific Question(s): I can retire from the Fed Gubmnt the year I turn 50, which will be January 1, 2020.  When this happens I will receive a roughly 30% pension of current salary (114,000 x .30 = $34,200, and a SSS supplement of let’s say $1000-1200 month, so $46,200 plus in guaranteed income.  This supplement will go away when I can take SS. 

How much can I also draw from my TSP, or would you recommend withdraw from the ROTH first, to that I never touch my balance and let it continue to grow?  I’m assuming a return on investment of 7%, unless you think that is too aggressive.  (I can withdraw TSP penalty free prior to the standard ages because of LE exemption). 

I pretty much want to maintain my same income level and expect the same expenses as well. 

Can I go at age 50? 

Many thanks to the generous folks, and all the expertise that you share with us. 



 

[EricL]

If you withdraw from the Roth before 59 1/2 you may be liable for taxes and penalties. Your best bet is to downsize the home and try to live off your pension and let your investments grow.  I think you have a pretty good shot at success.  But it may be prudent to set an intent to retire in 2020 rather than set it in stone. The markets may hiccup badly in the next few years and the option of another year to bolster your investments may be needed. (Just don't get caught in the "one more year" trap) You should also consider what finances may be needed for your child such as a college fund.

The TSP website has details on how you can extract your money.  Options range from loans to annuities (with details based on the balances), to lump sum. 

[Gunny]

I was close to your situation when I retired.  Retired at 52 (non-LE) under VERA.  My TSP and ROTH balances were combined 500k, now 625k.  My pension is somewhat larger, 41k/year.  I retired to LCOL area but have a mortgage of 1k.  I lived on my pension only for 18 months.  This past year I started taking $8400 yearly from TSP to get my life style to 50k per year.  I pay the 10% penalty but my taxes are low and this was a good option.  You could do this if you are willing to pay the 10% penalty. You can set up an annuity with your TSP at retirement and there would be no penalty.  Or you could take monthly payments based on life expectancy which qualifies as SEPP distributions.  If you are not familiar with SEPP, read up on 72t.net.  SEPP allows for penalty free distributions from your TSP, but there are restrictions.  If you can make it on your pension by down sizing house and lifestyle, that would be the best option.  I think you can do it with a little thoughtful planning.

[Taco7]

Thanks to everyone for their replies.  FYI, congress recently changed the ability of LE to be able to draw from their TSP without penalties, after age 50 (I'm sure there are a couple additional requirements).   I appreciate the info about the Roth age penalties. 

I'll keep on keeping on. 

 

[Accidental Fire]

My one piece of advice would be to sell that $40,000 hotrod and invest that money. I get it, we all have to have some fun in life but at the tune of 40k that's super-expensive fun and lost money. If you had that 40k in VTSAX it would have earned you another $4000 just since last November.

My "guilty pleasure" hobbies and fun are cycling and climbing. But my high-end carbon road bike is $3k, and my climbing equipment is maybe $2k tops.  That $5k combined is a lot more palatable than a hobby that has $40k tied up in it.

But then again I don't have a hot-rod ;)

[EricL]

About the hotrod.  Unless you consider it a truly frivolous purchase, you should keep it if you're a hard core car geek.  Part of the fun of FIRE is to indulge your favorite hobby.  If practical, sell the regular car and drive the hotrod around. 

[zolotiyeruki]

$40k@7% is $2800/year, or about $230/mo in opportunity costs. :)

Yes, you need to detail your other expenses.  Retirement calculations require *all* expenses, not just the big ones.

Yes, I think you'll be able to retire.  Let's assume your TSP is worth $400k, and your other investments are worth $100k.  You'll also have $180k in cash (I'm assuming) from downsizing your home.

You start with $41k in income, equivalent to a $1MM stach.  If you set up a SEPP (or the TSP equivalent, if it's different) and withdraw 2%, that gives you another $8k/year.  That's nearly $50k before taxes, which should be more than sufficient.  If it's not, then shame on you! :P  Just kidding, but if you need more income, you could draw another $20k/year from the $180k you got by downsizing, and that'll get you to age 59.5 comfortably.  At that point, you can withdraw from the TSP and/or Roth without penalty.

[Taco7]

Thanks to all who replied.  I will contemplate the options and move forward.  Such an awesome forum! 

[Malum Prohibitum]

No child support?

Caveat - retiring early, and the judge can use something called "imputed income" (the income he thinks you could be making had you kept working) to increase your payments.