Early Retirement and 401k

[elb]

Hey all, I had another (yes another!) question I hope you can help me with. First let me say I am a buy and holder and big believer in asset allocation and am steadily becoming a Boglehead, and a Diehards groupie.

I work for the federal government and put the maximum allowed 14k per year (+ approx 5k matching per year), into the TSP (401k) program for retirement. This is my main investment vehicle.

I plan on retiring in about 20 yrs (hopefully) at about 51-52 yrs old.

Now as I understand it, I cannot touch this TSP money until 59.5 yrs of age without significant penalties unless I take an annuity or payout based on IRS life expectancies. Neither of which I am too enthusiastic about.

In light of this I have begun to put approximately 7k per year (hopefully to increase with time) into Vanguards total stock market fund.

My mortgage should be paid off early about 13 yrs from now.

What I am trying to do is to create a vehicle of some kind to carry me through those 8-9 years after I retire, until I hit 59.5 yrs old and can access the majority of my TSP/401k investment without the penalties. Right now this is the Total Stock market fund.

Is there anything I am missing? My biggest fear is to get 5 years from retirement and realize I should have begun an investment years earlier. I am very open to suggestions and grateful for any advice.

Thanks in advance.

 

[shanna]

elb,

With your good savings habits, your 7K for the next 20 years should be a nice nest egg. Will you be able to keep your fed health benefits if you go out at 51? (I think you need 30 years if you retire before age 56)

The only suggestion I might add is consider diversifying your extra 7K in bonds (how about the Total Bond Market fund) rather than put all of it into equities. There is plenty of reasonable advice over on the Diehards site.

Good luck,
shanna

 

[shanna]

p.s. What about your FERS annuity? When will that start if you retire at 51?

 

[elb]

Thanks for the quick replies!
Can't get the FERS annuity until age 57. There would be a 25% reduction, which is ok with me and will help supplement for 2.5 yrs until I can tap the TSP.

Cannot keep Federal health benefits either. Thats the worst of it, but I can't see working another 6+ years for health insurance. Although, who knows what the health care situation will be 20 years from now, it may be socialized!

I use a 70/30 allocation right now with less equity exposure as the years progress.

I use the G-fund as my bond allocation and periodically rebalance my other funds to reflect that. That is something to think about though, since my tsp funds will be untouchable for a few years, maybe I should keep the 70/30 allocation outside of the TSP as well. It's a strange situation.

 

[Hyperborea]

If the TSP can be rolled out into an IRA then you can roll it into the IRA and pull from it at any age by using SEPP (substantially equal periodic payments).  These rules just like any tax laws can and do change.  The current rules are discussed at:

http://www.retireearlyhomepage.com/sepp2003.html
http://www.72t.net/

 

[shanna]

Elb,

I think the health care situation will be just as expensive, but if you are in good health when you retire you can get an individual policy with Blue Cross with a $2500 deductible for less than $250/ month (today's dollars)- my parents are in their 60s and self-employed and they pay $500/ month.

Maybe you'll get lucky and get offered an early out! Our friend got one at age 51. Good luck!

shanna