DH (Fed Employee) retiring, need input please

[gattara]

[FONT=&quot]Hi everyone. I've been a lurker here for many years. It’s a favorite forum and I have gained knowledge here that has enhanced our lives … from Netflix videos to travel ideas to … you get the idea.[/FONT]

[FONT=&quot]We’re ready to share our scenario. I’m 46, DH is 55. He is employed by Federal gov’t (FERS) and plans to retire November 2014, after his 56th birthday. We married in 2007, and I quit my job in Atlanta and moved south of the city so DH could continue to live near his work. No children.[/FONT]

[FONT=&quot]Our annual expenses – $52-57K[/FONT]
[FONT=&quot]Annual expenses including state/fed taxes - $70-75K/year [/FONT]
[FONT=&quot]We may pay off our mortgage in December, enabling us to deduct $19,389 from expenses. House would sell for $270K today.[/FONT]

[FONT=&quot]DH salary- his high 3 will be approx. $119,200[/FONT]

[FONT=&quot]DH’s pension - $37,485 (after 10% reduction for 50% spousal benefit) – no cola until he is 62. [/FONT]
[FONT=&quot]DH’s supplemental SS offset - $15,444/yr – no COLA; at age 62 to be replaced by $1,806/month SS, if we elect to take it then. We are considering using our cash or DH’s Roth for a few years so we can delay taking his SS, which would be $2,609 at age 67.[/FONT]
[FONT=&quot]Total annual income (pension and ss offset) – $52,929[/FONT]
[FONT=&quot]In addition, we plan to withdraw 2.5% from TSP, beginning 2015 [/FONT]

[FONT=&quot]DH’s TSP - $830,000[/FONT]
[FONT=&quot]DH’s Roth - $69,000 (Vanguard)[/FONT]
[FONT=&quot]My Rollover IRA – $250,000 (Vanguard)[/FONT]
[FONT=&quot]My Roth - $75,900 (Vanguard)[/FONT]
My pension - $3,000/yr starting age 65
[FONT=&quot]My SS age 62 - $883 month; age 67 $1,254/month[/FONT]
[FONT=&quot]Cash (non retirement $) – $215,000 (this money is ear marked for mortgage pay-off, new cars, emergency $, and a move back to Atlanta)
[/FONT]

[FONT=&quot]Our debt - mortgage - $64,000[/FONT]

[FONT=&quot]We feel good about where we are and have had a couple free sessions with a financial advisor provided to us by the government. I think we have all the bases covered and we’re in good shape, but I welcome your opinions. I especially value your input regarding allocation. Nearly all of our retirement funds are in equities. I’m especially concerned about the TSP allocation since we’ll be drawing from it soon - S Fund 42%, C Fund 34%, I Fund 22%, G Fund 2%. Not sure whether to just park a portion of it in G or move some of it to Vanguard and park some of it in their funds, which would offer us more diversity. Unlike TSP, whatever we move to Vanguard, we can’t withdraw until DH is 59 ½. I’m not looking for anyone to tell us what to do, but if you could share ideas on what you’d do in this situation, I’d be grateful. Honestly, I feel lost right now, and need some ideas to jump start my brain so I can become more knowledgeable and form an allocation plan for his TSP in retirement. Thank you all.[/FONT]

 

[MikeWillRetire]

Based on his age, was he originally under CSRS and converted to FERS? If so, he is one of the few that did that, and it may indicate his risk tolerance. His TSP allocation is very, very aggressive though.
I'm conservative, so at age 52, I have all of my TSP in the L2020 fund. Right now that fund has about 50% in the G. I like that it gets more conservative during the last 5 years.

 

[gattara]

He joined the gov. in May, 1986 and was in limbo (CSRS Offset) until Jan 1987. He then was picked up by FERS. I'm partly responsible for his aggressive allocation ... during the downturn I convinced him to invest in the "riskier" funds, and we obviously have stayed the course.

Thanks for the reminder about the Lifecycle funds. We had forgotten about those. I'd still like to explore the possibility of going outside TSP because Vanguard, Fidelity, etc., offer many other less volatile possibilities that I must educate myself on. I'm hoping to get some suggestions here ...

 

[Greg V]

You look to be in good shape to begin retirement. I retired under FERS 2 years ago and will give you thoughts based on my experience. Caution…it will certainly be tainted by my financial and investment biases and I’m sure I’ll mention things you’ve already discussed and solved.

1. Your stack o’cash will help while OPM finalizes your retirement and you are getting interim retirement pay. If Hubby has accrued Annual Leave to sell back, all the better. For me it was 6 months from Retirement Date until the first full FERS Annuity check and interim pay was about 60% of the final amount.

2. Basing your financial situation on forecast expenses and not some percentage of your pre-retirement salary is a good approach.

3. All pre-retirement estimates from your agency are just that…estimates. The real numbers will come from OPM when they finalize your retirement. In my case, the numbers were pretty close.

4. We took the full (50% level) FERS Survivor Annuity as well. While the cash flow look good with both of you living, if Hubby dies first, your pension income takes a significant hit. That issue affects many financial decisions (when to take SS, Withdrawal rate from your investments, etc). Providing for you, as a widowed spouse, should be a top issue you work out in your long term planning. Since you have a pension as well, this may cut both ways.

5. From the info you gave, your FERS Annuity Supplement estimate appears to be in the ballpark. BTW, It assumes a “full” career (defined as 40 years) with no “bought back” time. The real formula is pretty complex, but, just FYI, a reasonable estimate for the amount is (Hubby’s SS at Age 62) X (Years of FERS Service/40).

6. For Asset Allocation, you must agree on your risk tolerance and long term financial goals. You’ve built up the nest egg, but losses early in retirement would adversely affect your plans. Historically, in the long term, higher equity allocations have greater overall returns, but with greater volatility. Would a steep drop in your portfolio value in the short to medium term undo your retirement plans? We went from an Equity/Fixed Income Asset Allocation of 95/5 during most of my working years to 50/50 for my retirement…enough equity exposure to combat inflation and enough fixed income to insure my Spouse plenty of financial assets if I die first and the market does poorly for an extended period of time.

7. I would not move assets out of TSP. TSP’s expenses can’t be beat and the funds let you cover the major investments types. There may be more options in the future. You have about 1/3 of your retirement assets in IRAs and 2/3 in TSP, plenty of flexibility to use investment vehicles not available in TSP. Our retirement accounts are about half and half, TSP and IRAs. There are plenty of options for investments. We take a constant monthly amount from TSP and can supplement that, if needed, with lump sum(s) from the IRAs. It combines a predictable income stream and the ability to handle larger, specific needs.

That’s more than enough opinion for one post. Congratulations and I hope you enjoy your retirement(s) as much as we’ve enjoyed ours.

 

[gattara]

Thanks for the feedback based on your experience, Greg V. Your perspective is very helpful, and you've highlighted a couple of issues DH and I need to consider more closely. Food for thought - this is just what we needed.

The annual leave check - is that sent relatively quickly, or is there a months-long wait for that as well?

Thanks again.

 

[Greg V]

Normally the final "work" paycheck after retiring (within the next week or two after the big day) has both the final salary payment and the accrued leave...minus withholding. That's how it worked for me. How you pay some of your insurance premiums also changes while in interim status, so be sure you're clear on the latest processes.

Once OPM finalizes the retirement, you get a separate "catchup" check that pays the difference between the actual annuity and the interim annuity you've been receiving...and it includes the FERS Annuity Supplement in the calculation. Depending on how the numbers work out and the delay in getting finalized, it could also be a sizable chunk of change.

As far as the time it takes OPM to finalize retirement pay, my experience and yours may be completely different since that depends on OPM's backlog and the complexity of your retirement application (multiple agencies in a career, military time bought back, etc). The OPM specialist assigned to my case did a good job and patiently handled the many questions I had. Hopefully you will have the same good fortune.

 

[Golden sunsets]

Gattara; Not sure why your DH elected FERs when he could have had CSRS Offset. CSRS Offset is the best of both worlds. At any rate I wanted to make sure that you had factored WEP into your anticipated SS piece.

Vis a vis AA, it would make sense to reduce your equity exposure as your investments presently imply an aggressive risk profile. Are any of your non TSP assets in fixed income?

 

[gattara]

Golden sunsets - DH says he doesn't recall having a choice about FERS - or if he did, he wasn't aware he could choose. As for WEP - on the ss Web site it says the WEP doesn't apply if the fed worker was first hired after Dec 31, 1983, which he was.

We have the large chunk of cash and are currently discussing converting our Roths to fixed income.