My wife and I have Cola'd military retirements and cheap medical coverage. Overall, we could probably retire early if we didn't have a mortgage. I am very tired of working and am ready to retire to a more simple lifestyle. We are only 48, so we have several years left before we could access our TSP penalty free. I have been thinking about cashing out about $200k, combined with some other savings to buy a home with cash so that we no longer have a mortgage and can retire. I realize that I will only end up with about $130k of that withdrawal, but honestly at this point I am willing to take that hit.
I'm sure almost everyone would argue against it, but wanted to see if anyone else has done this or if there are other options available.
Homestead, here's a list of all the ways you can tap your TSPs before age 59.5. All of them are penalty-free, and most of them are tax free.
http://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/
I'm not sure why you're planning to buy a home (and a mortgage). Could you continue to rent for a while? Once you start your full retirement then you might want to use your military Space A travel benefits instead of spending your time taking care of a home.
One way to look at it: when you rent your home then your payment is never higher than your rent. When you own your home then your payment is never
lower than your mortgage.
If you're set on acquiring a home then... as others have mentioned, you can withdraw contributions to your Roth IRAs at any time for any reason, penalty-free and tax-free. You can also withdraw some funds from your Roth IRAs for a first-time home purchase.
You could buy the home with the cash from your savings (for a down payment) and use your VA loan eligibility for the rest. If either of you have a VA disability rating then you could waive the VA's origination fee. You could also start accelerating payments on the mortgage from your other savings.
If you apply for a 30-year fixed-rate mortgage, its principal & interest payments remain fixed for 30 years. Meanwhile your two military pensions are rising every year by the cost-of-living adjustment, and you could use some of that extra money to accelerate the mortgage payoff. You're essentially borrowing money (the VA loan) at a fixed rate, and the loan payments are backed by one of the world's best inflation-adjusted life annuities.
In your situation, I'd use the Mad FIentist post (linked above) to do a rollover of your TSP accounts to their equivalent IRA accounts. If you have Roth TSPs then you can roll them over to Roth IRAs, wait five tax years, and withdraw the amount that you rolled over. You can also roll your traditional TSPs over to to traditional IRAs and then start converting them to Roth IRAs (as per the Mad FIentist thread).
Finally, if either of you have tax-free contributions to your TSPs from tax-exempt pay during a deployment to a combat/support zone, then as you roll the TSPs over to your IRAs you can withdraw the tax-exempt contributions right now-- free of penalty and (of course) free of tax.