New Guy

[martyb]

Hey everybody! I've been lurking around here for some time, soaking in lots of great information. I've read literally hundreds of posts, & now I'm ready to join the community. I'm a federal employee, just shy of 49 yrs old & will be retiring in 6 yrs, 2 months at age 55 (January 18, 2013). I'll have at that time, 35 yrs & 8 months total federal service, which includes 4 1/2 yrs active military (Air Force) and also, since I've been in the AF reserves all this time, I'll have the same number of years towards a military pension. Here's my current & projected retirement stats:

Age 55 - $36000/yr Defined Benifit Plan/CSRS with COLA (employer pays 75% of health ins. premium)
Age 60 - $14000/yr with COLA (military pension)
Age 62 - $4000/yr Social Security (approx) reduced due to WEP/govt pension

My wife, 3 yrs younger than I, will have to work a couple of years longer than I will, but will probably retire around 2015. She only earns about $20,000 & that's not likely to increase by much. We expect her to have at least $100,000 in her 401k by then (currently $25000) and she will qualify for full SS, but don't know the amount.

I only currently have about $50,000 in my TSP (govt. version of 401k) but intend (hope :) to have this at approx. $200,000 when I retire in 2013.

If I can achieve the $200,000, then I can SWR $1000 to $1200 per month from this account to supplement the above. However, I have some questions regarding this money, & I'll be posting them later on. Oh heck, how about I just ask right here?

Here's the deal....our house (market value approx. $190,000) is not, and will not be paid off by the time I retire in 2013. Currently, the mortgage amount is $97000. I'm sinking all the extra $$ I have into my TSP/401k to try to build it as much as possible prior to retirement.

Would I be better off:
A. Continue to build the TSP/401k while still making house pmts? (20 yrs remaining on the mortgage right now). Then, continue making house pmts after I retire?

B. Plan to use the TSP/401k money to pay off the mortgage when I retire, which will squash my income plans for the TSP/401k?

C.

Any suggestions are welcome!

Oh, I forgot to add that I will be required to retire in 2013 at 55 yrs old, I can't work past that because I will have exceeded the "high year of tenure" for being in the reserves. I can only continue to work in my civilian job until I am qualified to retire. I am required to be in the reserves as a condition of employment. Any other retired or active military technicians on this board?

Sorry for such a long initial post!

[donheff]

That is a tough question. There are a lot of threads in this forum on the mortgage payoff question. I gravitate toward the pay it off side since one cannot get as good an income (using SWR formulas) from the money needed to make the payoff as will be needed to pay the monthly mortgage. But others have different opinions.

Have you looked at this lengthy thread?

[excellent]

Hi Marty! Welcome to the forums! Iunno about your current situation... there are people here that actually own homes and deal with this situation, and they should be equipped with the sorts of advice that can help you. Have a nice day!

[yakers]

And another lengthly thread here:http://early-retirement.org/forums/i...p?topic=753.30

I would go for it as I hate debt. I just feel a little like a slave if I owe money even though I know you can calculate some ways that it is better to invest Vs pay the mortgage at different times.

[MooreBonds]

Quote:

Originally Posted by martyb I'm a federal employee, just shy of 49 yrs old & will be retiring in 6 yrs, 2 months at age 55 (January 18, 2013). Age 55 - $36000/yr Defined Benifit Plan/CSRS with COLA (employer pays 75% of health ins. premium) Age 60 - $14000/yr with COLA (military pension) Age 62 - $4000/yr Social Security (approx) reduced due to WEP/govt pension My wife, 3 yrs younger than I, will have to work a couple of years longer than I will, but will probably retire around 2015. She only earns about $20,000 & that's not likely to increase by much. We expect her to have at least $100,000 in her 401k by then (currently $25000) and she will qualify for full SS, but don't know the amount. Would I be better off: A. Continue to build the TSP/401k while still making house pmts? (20 yrs remaining on the mortgage right now). Then, continue making house pmts after I retire? B. Plan to use the TSP/401k money to pay off the mortgage when I retire, which will squash my income plans for the TSP/401k? C.

It would heavily depend on what your current marginal tax rate is and what your projected retirement marginal tax rate is (don't forget Federal plus any state/local taxes). Also, do you currently itemize, or take the standard deduction? That will effect whether you're taking the mortgage interest deduction, (if you're not itemizing, then it would possibly make more sense to pay it off since you aren't deducting the interest...but other factors weigh in).

Also...many people don't realize this, but if you pay your standard 30 year mortgage payment in half every 2 weeks (i.e. $500 every 2 weeks instead of $1,000 once a month) you can shave 3 YEARS off of your mortgage simply by paying every 2 weeks instead of once a month. Doesn't sound like it would make a big deal, but it does. Check your mortgage contract to see if you can make such payments to reduce your oustanding balance/interest accumulated.

Doesn't your wife get an annual Social Security summary? If so, simply go to the SS website and plug in your wife's earnings history on the SS webpage to estimate her benefit if she works so many more years at a certain income.

I don't believe federal workers get a match in their 401(k), do you?

Also, what is your and your wife's family medical lineage like? Any particular reason you're looking to take SS at age 62, when it seems like you have a good pension setup? Waiting just a few years to draw can make a B I G difference in your (and your wife's, if her wife benefit is bigger than her contribution) SS payment. And, if you're able, if you wait beyond your full retirement age (67?), you get something like an additional 7%/year (?) in payments.

Quote:

Originally Posted by martyb Sorry for such a long initial post!

Nonsense! We can't get to know you and answer your questions by saying "Hi, great to be here. I'm Joe. I have 100k. Do I need to save more? Bye."

[martyb]

Thanks for the above responses. I know I should have given more info, I got in a hurry with the post. Yes, the govt. does give matching contributions to the TSP, if your'e under thier newest retirement plan, FERS. Those folks get the match, plus they get a smaller govt. pension in addition, as well as they get to collect full SS when they reach that age. However, I'm under the older Civil Service Retirement System (CSRS) which means I am on a DBP and don't pay into SS, so won't collect the full amt, only what I qualified for back in the 70's prior to starting my gvt career...hence it will be about $350 or so. Actually, my pension is the plan of choice between the two, even though I don't get a match on my 401k because it's a DBP, not reliant on my contributions over the years, only my high three average and my COLA will be larger each or most years. I start receiving my COLA at an earlier ager (immediately at 55 vs wait till 62), and several other differences that are in my favor. It's true I don't get the match, but that's a trade-off I and most people under the old CSRS system were willing to make. We were offered a choice & most chose to stay with the old plan. I will pay Fed taxes on both my pensions, but not state taxes. I haven't figured up the tax rates I'll be subject to yet, that's something I need to look at though. I wouldn't be getting any tax deduction on my mortgage at this point, except I have an outstanding $15000 HELOC that I am working to pay off. For now, I'm getting to deduct that interest when I file long form. I haven't looked at my wife's SS statement lately, but last time I did, seems like it was in the neighborhood of $800-$850 that was estimated at age 62. You're right, we'd get more by waiting till a later age to file SS, and we may very well do that, just depends on our financial situation when that time draws near. She's going to retire at about age 57, and until she's getttin SS payments, the only income from her side will be what's in her 401k at that time. Hopefully it'll be $110,000 or so, and even then, we'll only touch it if absolutely neccessary. We should be able to live ok on my income from 3 sources (2 pensions & 401k).

Well, the old alarm clock is blasting away, gotta get on the old road to the grind....you guys remember what it's like to have to go to work.....doncha

[Mr._johngalt]

Quote:

Originally Posted by yakers And another lengthly thread here:http://early-retirement.org/forums/i...p?topic=753.30 I would go for it as I hate debt. I just feel a little like a slave if I owe money even though I know you can calculate some ways that it is better to invest Vs pay the mortgage at different times.

Debt can be the best (financial) friend you ever have, if you know what to
do with it.

JG

[Nords]

Welcome to the board, Marty!

Quote:

Originally Posted by martyb Age 55 - $36000/yr Defined Benifit Plan/CSRS with COLA (employer pays 75% of health ins. premium) Age 60 - $14000/yr with COLA (military pension) Age 62 - $4000/yr Social Security (approx) reduced due to WEP/govt pension My wife, 3 yrs younger than I, will have to work a couple of years longer than I will, but will probably retire around 2015. She only earns about $20,000 & that's not likely to increase by much. We expect her to have at least $100,000 in her 401k by then (currently $25000) and she will qualify for full SS, but don't know the amount. I only currently have about $50,000 in my TSP (govt. version of 401k) but intend (hope :) to have this at approx. $200,000 when I retire in 2013.

It sounds like you're planning to start your retirement at income of $36K/year (plus whatever your spouse earns) and approximately $300K in assets plus another ~$100K in home equity. (Please correct me if I'm wrong on those numbers.) You'll want to plug that into FIRECalc along with your expenses (especially your portion of the health insurance costs) for a first cut on your success rate.

Quote:

Originally Posted by martyb If I can achieve the $200,000, then I can SWR $1000 to $1200 per month from this account to supplement the above.

$1000-$1200/month works out to $12K-$14.4K/year, and on a $200K account that's an initial draw of 6-7%. Pretty aggressive but you have other income in a few years that will allow you to reduce this high starting SWR later. More numbers to plug into FIRECalc.

Quote:

Originally Posted by martyb Here's the deal....our house (market value approx. $190,000) is not, and will not be paid off by the time I retire in 2013. Currently, the mortgage amount is $97000. I'm sinking all the extra $$ I have into my TSP/401k to try to build it as much as possible prior to retirement. Would I be better off: A. Continue to build the TSP/401k while still making house pmts? (20 yrs remaining on the mortgage right now). Then, continue making house pmts after I retire? B. Plan to use the TSP/401k money to pay off the mortgage when I retire, which will squash my income plans for the TSP/401k?

It depends on the mortgage interest rate and on how much you're holding in bonds/cash. If your mortgage is less than 6% then you could possibly make more in the stock market over the next 20 years. However a bond portfolio will probably not return that much and I hope CDs don't return that much over the next two decades. This calculation can get pretty convoluted because although your mortgage-interest deduction is probably less than the standard deduction, your TSP gains are tax deferred. You'll have to match your portfolio's expected after-tax gains (all of it, not just the TSP) against your mortgage's interest rate.

Even if it's a close call, you could consider maxing out the TSP (especially with your Reserve pay) until retirement and then accelerating your mortgage payments by making biweekly payments or an extra principal payment every year. You'll have the assets in your accounts if you need to pay off the entire mortgage but you'll still have access to the capital (and its compounding gains).

So that's three more FIRECalc scenarios-- pay off the mortgage at retirement (with the attendant hits to your assets), continue to pay the mortgage at retirement (15 years of higher expenses), or some sort of accelerated payment plan (~10 years of higher expenses).

Quote:

Originally Posted by martyb Oh, I forgot to add that I will be required to retire in 2013 at 55 yrs old, I can't work past that because I will have exceeded the "high year of tenure" for being in the reserves. I can only continue to work in my civilian job until I am qualified to retire. I am required to be in the reserves as a condition of employment. Any other retired or active military technicians on this board?

It sounds like you'll hit 30 years in 2013? I'm not trying to talk you into hanging around, but the USAF has made a lot of changes to their Reserve programs. In the Navy Reserve you're done at 30 (unless you're a flag officer) but the pay tables have just been extended to 40 years and, depending on your rank, you might be allowed to hang around. The Navy also has a system where even if you're maxed out on years at a particular enlisted rank you're able to fill a non-pay billet with the chance to go on short periods of active duty. And I was stunned to learn that AF active-duty retirees are eligible under some conditions to join the Reserve. So if you're feeling the need to keep working there might be a few loopholes on your side.

BimmerBill's a military technician in the Army National Guard.

A couple other issues while we're on the subject-- essentially you're using your assets today to bridge the gap until all your pensions, Medicare, & Social Security kick in. (That's what we're doing.) You probably have to decide how you want to address the survivor's benefits on your pensions and your spouse's SS might be a significant part of your income. So your $14K/year pension might be reduced by the deductions for survivor's benefits, which would affect your FIRECalc data entry. My spouse will be getting her own pension so we elected for no survivor's benefits.

As for your spouse's SS, depending on your survivor's benefits, she may benefit from delaying hers until age 70. She'll probably elect to take SS on her earnings record, not yours (but I don't know how your WEP affects her SS payout), and if she takes it earlier than age 70 then she's permanently giving up the chance to receive the max. It's possible that if you survive to age 70 then you guys could swing your retirement on your pension with no survivor's benefits. If you die earlier then her then she has that much more SS. Again you could look at whether her higher SS at age 70 makes it worth carrying the survivor's benefits on your pensions. Bud Hebeler at AnalyzeNow.com has a lot of poignant comments on Social Security widows.

Finally, have you looked at Federal Long-Term Care insurance? Still yet another impact on your retirement expenses & FIRECalc.

By the time you work through all the permutations you'll be a FIRECalc expert...

[grumpy]

Quote:

Originally Posted by martyb If I can achieve the $200,000, then I can SWR $1000 to $1200 per month from this account (TSP) to supplement the above.

Marty,

I think you should check the TSP withdrawal regulations. If I recall correctly, you can't pull a monthly income from TSP. You can annuitize (an extraordinarily bad deal) or you can pull the money out in total but I don't think you can take regular recurring amounts. I retired under CSRS in 2002 and haven't touched my TSP account so I may not be remembering the regs correctly.

Grumpy

[Khan]

Quote:

Originally Posted by grumpy Marty, I think you should check the TSP withdrawal regulations. If I recall correctly, you can't pull a monthly income from TSP. You can annuitize (an extraordinarily bad deal) or you can pull the money out in total but I don't think you can take regular recurring amounts. I retired under CSRS in 2002 and haven't touched my TSP account so I may not be remembering the regs correctly. Grumpy

You can, after 59 1/2.
--------------------
If under 59 1/2:

You can annuitize.

Or have them calculate an amount based on your age and the total in the account, and recalculated every year.
(Can not change for five years or until 59 1/2; similar to SEPP)

Or some combination of the above .

[martyb]

Re TSP withdrawals...I've done a good bit of research into withdrawal rules for the TSP money. It goes like this: If I retire from govt service in or after the year I reach age 55, then I can immediately begin withdrawals with no penalty. There's a special rule for that, don't ask me what the rule number is right now lol! If i retired early, say at 53 or 54, then I'd have to wait until age 59 1/2 to avoid the penalty for early withdrawal. 55 is the magic number in the govt. Also...withdrawal options include a full or partial lump sum withdrawal, purchase of an annuity through MetLife, regular monthly withdrawals based on 12 equal amounts per year (one each month) of equal amounts that must be determined once each & every year. This amount can be adjusted each year to reflect your anticipated needs that year, inflation, market performance of the previous year etc. You can also take monthly age-based withdrawals. In working the various scenarious, I have pretty much ruled out an annuity, I want to retain control & possession of my resources. Not interested in the age-based thing either. So...that leaves me with the equal monthly payment option that I can adjust once each year as my needs dictate. Also, I may take a small initial lump sum payment if I really need it in the beginning, to pay off the mortgage etc.

The high-year of tenure in the Air Force is 33 years, and as of right now, I'm pretty sure they'll show me the door when I'm 55 LOL. That'll give me 35 yrs & 8 months both civil service & military. More than enough work for anybody!

[JohnP]

Quote:

Age 62 - $4000/yr Social Security (approx) reduced due to WEP/govt pension

Martyb - you may want to revisit your calculations on the WEP reduction due to a govt pension. The WEP reduction is phased out if you have more than 20 substantial years of SS income (from your mil reserves time); as a result, if you have 30 or more "substantial" SS years of credit the WEP reduction is entirely eliminated.

It looks to me like you are well on your way to FIRE!

JohnP

[martyb]

As usual, I've left out some relevant details. Nords, you're right, of course! $1200 wouldn't be a SWR from a $200,000 account, in general. Here's my thought on this: According to the calculations on the TSP website, using the monthly payments calculator, if I have my money in the safe, no risk G-Fund, which will pay in the range of 5% pretty much indefinitely, I can withdraw $1200 every month for a period of 23 yrs, 9 months before I run out of money. Same scenario with $1100 for 28 yrs, 5 monts & $1000 for 35 yrs, 11 months. Of course, this is a spend-down situation with a resulting zero balance. Judging by my several-generational family history (father-79, grandfather-80, gggfather-80...although this is not 100%, I don't figure I'm likely to go a whole lot further. So if I can get the $200,000 to provide $1000 to $1200 per month until I'm 80 yrs old, and then I still have a few years remaining, well I still will have the 2 govt. pensions & my SS, and if the DW is still kicking (her folks didn't see 80's either) we'll also have her SS and will have no mortgage, few bills so we should be doing ok. If we have relative health, it'd be nice to be able to live in our home till we go, but that's not always an option. In a dire emergency we can make on the spot decisions about liquidating the house, tapping the remainder of the TSP etc. I know it's not the ideal situation, but I'm looking to make the most of what we'll have. We'll doggone sure be better off that a whole lot of folks out there. You wouldn't believe how many people where I work who are around my age just don't get it. They look at me like I'm crazy when I tell them I'm putting 25% of my income into the TSP, and that I'm about to go to 30%. They don't see what's looming on their own horizons. I wish I'd gotten serious 10-15 years ago, that God I woke up before it was too late! Now, off to my reserve duty! :

[martyb]

Oh yeah, one more thing.....I don't intend to only have my TSP account invested in the lowly G Fund, so hopefully I'll get a little more mileage out of it than the terms mentioned above. It would be nice to leave a little to my kids, and I'm sure there will be some, but I'm not obsessed with making them wealthy upon my demise either. They'll get the house, any remaining funds, possibly some insurance etc. but my #1 objective is to adequately provide for my wife & myself. We'll enjoy our money with our kids/grandkids while we're here rather than leave it all to them for after we're gone. Everybody's got their own game plan, that's mine. I'm open for some intelligent tweaking, though .

Marty