Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Borrowing against a pension for investing?
Old 03-03-2007, 12:07 AM   #1
Thinks s/he gets paid by the post
Fireup2020's Avatar
 
Join Date: Feb 2007
Posts: 1,186
Borrowing against a pension for investing?

I mentioned on my welcome post that I am working on my short term savings.

All my "savings" is in retirement accounts (TSP, pensions, Deferrred comp) where AM NOT TAKING ANY money out - loan or authorized early w/d. On the flip side, because of my pension contributions - I have a little bit of money (I'd only be willing to take out a 5-10K loan)

Here's the kicker - my pension dollar amount has little to do with my contributions - it is based on my highest paying 12 months and my number of years employed and age of FIRE Loans are charged approx 4.25% interest.

Does it make any sense to this board to borrow $$$ out of my contribution collection to invest in something like a VG Target retirement account?

I'm also considering borrowing some of this in about 18 mos to replace my car (currently at 92K miles) - figured this interest rate is lower than typical for a used car

My vacation savings account (a personal priority) and regular "emergency" fund are growing slowly at $100 per mo each - just FYI.

I'm open to suggestions
__________________

__________________
Make no mistake, my friend, it takes more than money to make men rich. - A. P. Gouthey
Fireup2020 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Borrowing against a pension for investing?
Old 03-03-2007, 07:32 AM   #2
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,934
Re: Borrowing against a pension for investing?

Personally I wouldn't suggest borrowing against your TSP. Consider the difference in interest rates to be a form of insurance. No investment is a sure thing. You never know what life will bring. Others may disagree and I know that I tend to have a cautious point of view.

Wait - - I just re-read your post and apparently I read it wrong the first time. So you're NOT talking about borrowing against a TSP or pension? Never mind the above answer, then! But the same goes for your "contribution collection" as you call it. I'm not quite sure what that means, but I'd suggest looking away from any of this for your investing seed.
__________________

__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Re: Borrowing against a pension for investing?
Old 03-03-2007, 07:41 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,646
Re: Borrowing against a pension for investing?

Fireup, are you in the Federal system? If so, the TSP is a key component of your retirement. You want to max it out and leave it be. It doesn't make sense to touch the TSP absent a true crisis. How could you possibly make money by taking it out of the most cost efficient set of index funds on the planet and placing it elsewhere? Are you planning to use it to fund a Roth IRA at Vanguard or some other strange gambit?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Re: Borrowing against a pension for investing?
Old 03-03-2007, 08:02 AM   #4
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,934
Re: Borrowing against a pension for investing?

Not only that, but in the TSP he has access to the "G" fund which is not really a mutual fund but a special case - - annual yield has only varied between 4.11% to 6.77% during the past ten years. From a TSP website publication, The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of lossof principal and very little volatility of earnings. The objective of the G Fund is to maintain a higher return than inflation without exposing the fund to risk of default or changes in market prices. The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no “credit risk.”

I'm not saying that the G fund is the be-all and end-all, but this is a fund that he would not have access to in a Roth or anywhere else other than the TSP. It is nice to preserve that option.

But if you reread his post - - he says "All my "savings" is in retirement accounts (TSP, pensions, Deferrred comp) where AM NOT TAKING ANY money out - loan or authorized early w/d." It's very unclear to me exactly what he is talking about spending if he is not talking about a loan from these accounts. The current TSP loan interest rate as of today is 4.625% so he must be talking about something different.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Re: Borrowing against a pension for investing?
Old 03-03-2007, 08:18 AM   #5
Thinks s/he gets paid by the post
Fireup2020's Avatar
 
Join Date: Feb 2007
Posts: 1,186
Re: Borrowing against a pension for investing?

Good morning all,

LOL - sorry for the misunderstanding. I am NOT talking about any investments that grow (pre-tax deferred comp or TSP) I work for the state (my former active duty and current reserve duty fund my TSP and I am NOT touching that)

We kick in money towards our pensions, but come retirement, the calculation is based on our salary, years employed, and age. Since this money is not earmarked just for my pension, I posed the question about borrowing against it.

Hope this helps explain....thank you for your advice! Oh, and I am a "she" for the earlier poster
__________________
Make no mistake, my friend, it takes more than money to make men rich. - A. P. Gouthey
Fireup2020 is offline   Reply With Quote
Re: Borrowing against a pension for investing?
Old 03-03-2007, 10:02 AM   #6
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Re: Borrowing against a pension for investing?

Quote:
Originally Posted by Fireup2025
Good morning all,

LOL - sorry for the misunderstanding. I am NOT talking about any investments that grow (pre-tax deferred comp or TSP) I work for the state (my former active duty and current reserve duty fund my TSP and I am NOT touching that)

We kick in money towards our pensions, but come retirement, the calculation is based on our salary, years employed, and age. Since this money is not earmarked just for my pension, I posed the question about borrowing against it.

Hope this helps explain....thank you for your advice! Oh, and I am a "she" for the earlier poster
So, if I understand you correctly, the state makes you put a % of your salary into a fund which in turn is used to pay state retiree pensions. I assume that the state also puts in some money for each pension participant.

Questions:

1) Does the state actually let you borrow from this fund?

2) If so, are you looking to borrow money from the pension fund to invest in a TR fund from Vanguard?

3) If so, where are you going to be investing this money? taxable account, Roth, etc.

No offense, but this seems like a hairbrained idea to me.

- Alec
__________________
ats5g is offline   Reply With Quote
Re: Borrowing against a pension for investing?
Old 03-03-2007, 01:31 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Borrowing against a pension for investing?

Quote:
Originally Posted by Fireup2025

Here's the kicker - my pension dollar amount has little to do with my contributions - it is based on my highest paying 12 months and my number of years employed and age of FIRE Loans are charged approx 4.25% interest.

Does it make any sense to this board to borrow $$$ out of my contribution collection to invest in something like a VG Target retirement account?
If the 4.25% is fixed for the life of the loan, not only does it make sense to borrow it to invest, it even makes sense to borrow it to invest in CDs that are paying more than that. This type of thing has been discussed here based on borrowing from low interest rate credit cards. Make sure you write off the interest you pay on your taxes as an investment expense and any money you make on the spread is, after taxes, free money.
__________________

__________________
jdw_fire is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Military pension and pay - how much is it past 20 Average Joe FIRE and Money 13 03-18-2007 11:22 AM
Traditional Pension being frozen by megacorp murg FIRE and Money 16 03-15-2007 11:41 AM
Pension Time Bomb Article Mountain_Mike FIRE and Money 11 01-17-2006 07:49 AM
The Fat Pension newellcr Young Dreamers 34 07-26-2005 09:23 AM

 

 
All times are GMT -6. The time now is 10:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.