Delurk and advice opinions wanted

[elb]

Hey all, have been lurking here for a few weeks now and I have read every post. whew! (I'll need to figure new eye glasses into my ER plans )

If anyone has time/advice I would appreciate any opinions on my situation.

I am 31 years old, working for the federal gov't. Just started a few months ago (lots of school). I'd like to ER in 20 years.

- I contribute the maximum allowed (13%) to the TSP www.tsp.gov (401k) pre-tax plan ($13k this year, $14k next year). Employer matches the first 5% dollar for dollar. So in essence will be 18%. I have $5k total so far in a moderately aggressive allocation.

- I have $60k equity in a $250k mortgage.
- I have school loans of $80k. ( professional school )
- Other than the mortgage and school loans, I have no debt.
- I have about $7k in a Roth IRA.
- I am eligible for a pension which would amount to approximately 30k per year, if I put in 30 years of service. If I ER in 20 years, i will end up taking about a 40%-50% penalty to the pension.
- After the mortgage and school loan payment, and all other expenses, I could probably squeeze another 4-500$ a month to put into some other investment, but dont know what.

My plan is to ER in about 20 years.

I was wondering if anyone had any advice for any other
investments I can start now while I have 20 years ahead of me. I'd hate to get 10 yrs down the line and regret not starting something when I had the years to accumulate.

Thanks for reading this far! And thanks for the site, it has already been a great help.

 

[unclemick]

How hard can you push - got a blurb from Vanguard today - listing their tax managed funds. At 61 and 12 years into ER they are a little late for me. But at 31 with some loose cash and with 20 years for 'time in the market' and DCA to do it's thing - Hmmm? There is a small number(5) to choose from - would be somewhat limited for an advanced 'slice and dicer'. If I were young again - heh,heh - would look at balanced first(being a Boglehead) depending on other assets - ie treating all together to view a total portfolio allocation and diversification.

 

[elb]

Funny you should mention that, I was just looking at the Vanguard funds.  I am more comfortable with  balanced funds as well, and was leaning towards the Wellesley Income fund.

My 401k is 80% stocks now.  I wouldn't mind the lower stock % in the wellesley.  Also at 10%+ returns over the life of the fund and the past 10 yrs with minimal losses over that time, it looks pretty good to me, but im very amateur.

My only fear is being too conservative, but with 80% stocks in the 401k which is 70% of my investing and 40% stocks in the wellesley which is 30% of my investing, I hope thats aggressive enough to grow.  

Hrmm if I calculate correctly, thats 68% stocks and 32% bonds total, which is about right 70/30 from what I've been reading.

Just thinking out loud.

Im conservative at heart, but the pull of ER...

 

[charlie]

You might consider trying to pay off the mortgage
faster to coinside with ER. Depending on your
location, it might be as good as any other investment
idea.

Cheers,

Charlie

 

[daystar]

Hey Elb, it's time to get with the 2005. It's TSP Open Season and we can contribute up to 15% (or $14,000) this year. If you make your open season change before December 12th, it will be effective on December 12th and will show up on your December 31st Leave and Earnings Statement.

You can read more about your FERS Retirement System at this website: http://www.opm.gov/fers_election/ri_90/f_toc.htm

Here's a teaser:
"Retirement. . . a time for reflection, rest, and enjoyment . . . a rewarding time. But, a rewarding retirement doesn't just happen. It takes careful planning."

You know you wanna read it now.

 

[arrete]

Don't get locked into the "I have to stay in for the pension" mindset. If you are happy with your job, that's fine, but make sure you have other assets so that if you can't stand it any more, you can switch and it won't delay your retirement so much.

Depending on the interest rate, wouldn't paying off the student loans faster make more sense than paying off the mortage faster?

arrete

 

[John Galt]

I agree with arrete, i.e. "don't get locked into the stay
for the pension" idea. I never had a pension benefit in my life, but I could have stayed on the job and made a lot more money. I was not even to the point where I
"couldn't stand it". Once I saw I could go, I quit.
No regrets.

John Galt

 

[elb]

I couldn't agree more. The pension isn't really a factor.

I've decided to put the extra 500$ or so into a total stock market fund with automatic transfers set up so I wont even know it. I am also going to try to squeeze out some more money and pay off the mortgage early, which shouldn't impact me too much.

School loans are at about 3.5%, so those will be the last to go I think.

Much thanks to everyone for the advice. It is greatly appreciated.

My Bernsteins (x2) and Retire Early and Live Well just arrived today..off to read

 

[daystar]

Elb, if you spend at least 5 years under FERS, you can leave government and get a deferred annuity at age 62. If you have at least 10 years before you resign, you can get a reduced-deferred annuity at your minimum retirement age (between 55-57). One thing you never want to do is to take your money out of FERS after you resign. If you refund your FERS contributions, you will lose all of those years of service for retirement purposes.

Oh yeah, arrete and John Galt are correct. The FERS annuity isn't very big and may not be worth staying in the government for 30+ years for. The bulk of your retirement should come from your TSP, and then you can use the FERS Annuity and Social Security to add some stability to your monthly cash flow in retirement.

 

[Helen]

Don't get locked into the "I have to stay in for the pension" mindset. If you are happy with your job, that's fine, but make sure you have other assets so that if you can't stand it any more, you can switch and it won't delay your retirement so much.

Well, in some cases it's not just the pension, it's the health benefits as well and the relative security of the Federal pension system. I too am in the Federal system. In 8 years I can bail at age 56 with 20 years of service. I'll take a 30% reduction in pension, but I should be able to handle it.

I've thought of leaving, but it's really not bad there. I think my problem is that I'd rather be retired

At this point, if I hang in there I will have medical coverage for the rest of my life. If I leave, I would be working much longer to make up for the medical benefit.

So, I'm maxing out the TSP, funding my Roth and dumping into an after tax Vanguard account as well. In four years the house will be paid off and I will pour that money into Vanguard as well.

Elb, have you run your numbers through the Firecalc yet ?

On thing you will have to consider is how you will fund your health benefits if you retire at age 51. My minimum retirement age (born in 1957) is age 56 with 20 years of service. If I leave before then, I will have to defer my pension and medical until age 62.

Also, a $20k per year pension may not seem like a lot, but it is the equivalent of $500k in equities at a 4% withdrawl rate. The nice thing about the Federal Government pension is it is much safer than any private industry pension.

What you could look at is how much you think you could earn in private industry and compare it to what you are making now. Then, try and quantify the value of the job security, pension security and retiree medical benefits and see how it compares.

Best of luck,

-helen

 

[elb]

Hi Helen, thanks for the info. I am still trying to figure out the federal system, I am under FERS.

I was just beginning to wonder about the medical coverage. My MRA is 57. At that point I would have 25 years. I am trying to figure out the deferred pension/medical aspects.

I have run everything through firecalc and it looks good. What I am trying to do is use outside investments to cover the years until I can take the deferred pension, etc. I am still trying to figure out the earliest time that I would be able to access TSP/pension.

I dont mind the lower pension, even if I retire at 51ish, I figure it would cover my property taxes and a good bit of other expenses. Just trying to get the minimum ages for everything.

As things stand now, I plan on having my house paid off in full in 13 yrs and the loans at that time as well, I would be 44ish.

Basically I think it can be done, I just need to figure out the minimum ages for the pension/tsp/insurance, and read more about deferred benefits.

I would have read more about the above sooner, but I've had my head buried in Bernsteins Four Pillars for the past week

I feel the same way, its not that bad here, id just rather be retired too

 

[Brat]

OPM has a great website.

Since I am CSRS I can't help you but I am sure the answer it there.

 

[elb]

Interpreting the FERS rules is not easy but this is what I found:


You may continue your heath insurance coverage only if you meet the following conditions:

Your annuity must begin within 30 days or, if you are retiring under the Minimum Retirement Age (MRA) plus 10 provision of the Federal Employees Retirement System (FERS), health and life insurance coverages are suspended until your annuity begins, even if it is postponed.

Now I am not sure how that works if I retire at 51 and am willing to take a decreased pension. That looks as though, if I begin my pension within 30 days of retirement, even at age 51, I can still keep my health insurance.

Your guess is as good as mine

 

[Helen]

I agree, trying to interpret the FERs rules is painful.  Here is something to look at though:

http://www.opm.gov/fers_election/facts/ri90-11.htm

Eligibility Requirements for Immediate Retirement Under FERS

Type of Retirement

Minimum Age    Minimum Service   Special Requirements

62                      5                           None

60                     20                          None

MRA*                 30                          None

MRA*                10                          None

(Note: Annuity is reduced 5% for each year employee is under age 62.)

---------------

It looks, from this particular publication, that you have to hit the minimum retirement age (MRA) to be eligible for the immediate annuity.  

The way out may be to sock away as much as possible in an after tax account - after maxing out the TSP and Roth.  It's hard to say how much health care will cost in 20 years, maybe there will be some changes for the better to allow you to fund your own healthcare between the ages of 51 - 57.

The good news is that you are looking into this while you are still young - that can only help you.  

-helen

 

[Brat]

WARNING: When I retired the only way you could access FEHB (Federal Employee's Health Benefits Program) was to qualify for an immediate annuity sufficient to pay the premium.

Because the rate of increase in health insurance exceeded the rate of increase in the pension I believe that annuitants can make up the difference now. In the past you lost it if you didn't receive a pension sufficient to pay the insurance.

 

[Helen]

Sorry for all the posts, but ouch, look what I found:

http://www.opm.gov/retire/html/library/ri92-19a/index.asp

"If you separated from Federal service with at least 10 years of service before reaching the Minimum Retirement Age or if you separated from Federal service with at least 5, but less than 10 years of service, and are now applying for a deferred annuity, you are not eligible to continue any health benefits or life insurance coverage you had while employed. "

It sounds like we have to stay until we hit the MRA in order to get health benefits with the annuity.

-helen

 

[daystar]

I'll try to answer everything here.

If your annuity isn't big enough to pay the health insurance premiums, you can still continue your health insurance, but you must mail a check to OPM each month.

If you resign from government and later get your deferred retirement, you can't get your health and life insurance benefits back.

For Elb: If you are lucky, you will be offered an early retirement or discontinued service retirement. The FERS Requirements are (Any Age, 25 Years Service) or (Age 50, 20 Years Service).

I'll be eligible for early retirement at age 48 with 25 years of service. I think for Elb, he will be age 51 with 20 years of service. If you take an early retirement, you can keep the health and life insurance. You will also get the FERS Annuity supplement when you reach your minimum retirement age.

TSP: There are so many ways to get your money out of the TSP. I'll just provide you the link to the TSP Handbook:
http://www.tsp.gov/features/chapter13.html

And important tax information about your TSP Account:
http://www.tsp.gov/forms/octax92-32.pdf

Early retirees should read page 5 and 6: "Early Withdrawl Penalty Tax"

P.S. Posting on this message board is starting to feel like work! I do this at my job, so you can understand if I don't login everyday to answer the same questions I answer at work.