Originally Posted by texasdiver
One thing to think about if you are dumping current savings into the TSP (as you should be) or traditional and Roth IRAs is that you will have an 8 year gap from your retirement date at age 52 and age 59.5 when you can start taking withdrawals from your additional retirement savings without penalty.
For most people I think that miniscule risks to the stability of a Federal pension is greatly outweighed by the far greater risk is that life's uncertainty will throw additional costs at them. Just make sure you have a plan B or "cushion" as others put it which could either be investments or earning potential of some sort.
I get this position from a lot of readers who dismiss tax-deferred investing for precisely this misguided reasoning. It's not the whole picture, and because of this lack of detail a lot of people are missing out on TSP & Roth IRA contributions.
The issue is that younger servicemembers (or civilian employees) think that they can't tap their tax-deferred accounts until they're 59.5, so they're not going to "risk" locking up their money for years and years of their lives.
The reality is that they can attempt to maximize their tax-deferred contributions for decades and then, just a few years short of retirement, build up a cash stash by shifting their contributions to taxable accounts. In the case of military retirees, they're frequently starting a bridge career and won't need to tap those tax-deferred funds early.
For those who think that they can't possibly live without being able to touch their tax-deferred accounts before 59.5, here are two simple methods:
1. Anyone can withdraw their Roth IRA contributions any time without penalty.
2. When a TSP or a conventional IRA is converted to a Roth IRA, then five tax years after the conversion the principal of the conversion (but not the gains) can be withdrawn tax-free and penalty-free. Most bloggers refer to this as a Roth conversion ladder because you convert a year's worth of principle five years before you'll need it and repeat the process every year until you're 55 years old. By the time the conversion ladder ends, you're over age 59.5.
Of course there's always the 72(t) SEPP, but planning ahead with a cash stash and the other two methods seems a lot easier.
Early Withdrawals From Your TSP and IRA After The Military - Military Guide
Funding The Gap: "I Need Money From My TSP!" - Military Guide
How Should I Invest During Retirement? - Military Guide