Account types and Asset Allocation

[Helen]

A really important point is that you look at all your accounts as one portfolio. You don't want an allocation for your IRA and one for your 401k and one for your taxable account, etc. You want one allocation for the whole thing and you want to rebalance over the whole thing. You will keep different asset classes in each account as some are more or less tax efficient than the others.

I've been struggling with this very issue. I spent a bit of time coming up with my asset allocation plan. However, now that I am trying to implement it I am having a problem viewing my different pots of money as one big pool.

Here's the problem. I plan to retire at age 56. I do not want to keep my money in the TSP (401k) fund as I find the withdrawal rules too limiting. So, my plan is to roll it into a Vangauard IRA once I retire. That then means that I will not be able to tap into that money until 59.5 - I do not want to use Rule 72T.

This really won't be a problem as I should have about $300k in my after tax account and my partner and I will have a combined cola'd pension of about $25k. We'd probably want to withdraw about $50k per year to supplement the $25k pension.

So the issue is that I would have allocated the $300k to the Total Stock Market Index and put bonds, small cap & international in the 401k & Roths. However, I think that is too risky since we will be living on the after tax account beginning in 8 years and leave the 401k and Roth money to grow until age 60 or 62. This after tax money is really important as the first 4 - 6 years of retirement is when we plan to do the most traveling, so I do not want to put this money at risk.

I'm thinking of laddering CDs in the after tax account so they begin coming due the year I retire.

I should probably allocate less to bonds in my 401k and Roth to offset the $300k of CDs in my after tax account.

Anyone have some input for this situation ?

-helen

 

[REWahoo]

I should probably allocate less to bonds in my 401k and Roth to offset the $300k of CDs in my after tax account.

Anyone have some input for this situation ?

-helen

Think you are on the right track. I'm retiring in June at 58.5 and plan on using a portion of $150K (laddered CD's) in after tax savings for living expenses the first year. The remainder will be used to reduce annual 401(k)/IRA withdrawals until starting to draw SS at 62.

My allocation of all assets (excluding home) is roughly 40% stock 45% bonds 15% cash including the $150K in CD's.


REW

 

[ats5g]

Helen,

That's a good idea. Some people have used Savings bonds in addition or in place of laddered CD's. I'm curious as to the limiting withdrawal rules of the TSP. I'm interested b/c my wife uses the TSP.

- Alec

 

[Helen]

Hi Alec,

Well, it looks like withdrawals from TSP are limited to:

http://216.239.63.104/search?q=cach...p.gov/forms/tsplf15.pdf+TSP+withdrawals&hl=en

You have three withdrawal methods to choose from:

1. a single payment, your entire account, paid at one time.

2.  monthly payments, in an amount you choose or based on your life expectancy.

3.  a life annuity, paid to you throughoutyour lifetime or to you or your spouse (oranother joint annuitant) while either of youis alive. Available only for an amount of$3,500 or more.

A fourth possibility: a mixed withdrawal or any combination of the above three methods.

-----

I would prefer to withdraw when ever I want.  For example, if the market is really down one year, I may want to use other reserves such as a CD.

I believe rolling the TSP over to a Vanguard IRA would give me the flexibility I'm looking for.  Other than the withdrawal options, I think the TSP is a great program.

-helen

 

[yakers]

If I read the TSP information right, it looks like you can just leave your funds there and withdraw them as you want until 70 1/2. Then you have to decide which of the three withdrawal methods you prefer. At that point you could just transfer some funds to Vanguard and leave what you like. I might do this and just leave the remaining money in the F Fund and transfer the rest to Vanguard for other investment options.

 

[Helen]

If I read the TSP information right, it looks like you can just leave your funds there and withdraw them as you want  until 70 1/2. Then you have to decide which of the three withdrawal methods you prefer. At that point you could just transfer some funds to Vanguard and leave what you like. I might do this and just leave the remaining money in the F Fund and transfer the rest to Vanguard for other investment options.

I'll have to dig a little deeper on this. It looked to me as though the monthly amount was a fixed amount every month. So while I can choose the amount, it will be the same amount drawn from the account each month.

Is anyone here retired under FERS and drawing from the TSP ?

-helen