Hello Ed,
I'd like to hear what people plan too. Right now, I think I'm pulling most of my money out of TSP.
I'm at least eight years from retirement and, until two weeks ago, assumed I'd stay in TSP. But not after after what I just learned--TSP's rule of proportionate withdrawals. In a nutshell, it means that as you take withdrawals in retirement, the TSP pulls money proportionally from all of your funds. So if you have half in the G fund and half in the S fund, half your money comes from each.
This matters a lot if you are withdrawing regularly in the middle of a big market plunge. Withdrawals during downturns stress your stock index funds, and you are exposing yourself to the long-term risk of wiping out your retirement savings, especially if there are a few downturns early in your retirement career. The only way to avoid this risk is to put your money exclusively in the stable funds like G and F. But that move exposes you to low lifetime returns and, again, risk of wiping out your funds. The TSP is the only retirement fund in the United States with this proportional rule, as far as I know, and that is ALMOST a deal breaker. It means you can't use the "bucket strategy" for your withdrawals.
We love the TSP for its low fees and the accessible G fund that still gives us 2.75 percent on our money. But I think the rule of proportional withdrawals more than counters the TSP's advantages with elevated risk. And, anyway, outfits like Vanguard have fees are not quite as good but pretty close.
So here is my plan, drawn up with all the certainty that one can have in an idea that has floated in my head for four days.
1) On retirement, pull all TSP I, S, and C funds and transfer them to an IRA with index funds—a mix of stocks and bonds. These are buckets 1 and 2 (long and middle-term) of the typical three-bucket strategy.
2) Leave behind enough money in the TSP G or F funds to last a few years—Bucket 3 (short term). Schedule regular monthly withdrawals from the TSP for estimated annual income needs. This part is a bit fuzzy since I don't know yet what the new rules on withdrawal will look like.
3) When the market is OK, replenish the G fund with transfers from the IRA. I called TSP today and was told that doing these transfers back and forth are allowed.
4) Reschedule withdrawals as necessary.
I can think of some positives and negatives to this approach, but I'd like to know if anyone does something like this and whether it has worked for them.
Posted by: thomas.wellock@gmail.com
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