When to begin TSP withdrawals

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Q. I am a single, 57-year-old CSRS Offset retiree, mortgage-free, no car payment, no children and debt-free. I have enough pension to live on comfortably and still put away money into savings monthly. I have more than 30 quarters of Social Security credit. I have two six-figure IRAs that I do not plan to touch until required. My Thrift Savings Plan is approximately $400,000 and I have yet to touch it. I am perplexed about when to begin drawing money from my TSP, but I know that I will have to begin withdrawals by age 70½. Should I draw TSP monthly distributions based on my life span, or should I pick the amount myself and be more conservative based on my outliving the actuarial table established by TSP and/or by insurance tables? At this point, while in good health, I would only use the extra money to take an extra vacation each year. One friend said that I should start withdrawing well before 70½ and live a higher lifestyle standard. Finally, I do not want to move the TSP money into an IRA since the fees in TSP are so low.

A. I recommend that you leave your money in the TSP as long as possible, spending other money first. Whether you can safely maintain a higher standard of living, and how much higher, is impossible to determine without a comprehensive analysis of your circumstances, goals and constraints. The answer is also dependent upon how you will manage your investment decisions along the way. Before you take your friend’s advice, you should make sure that he or she will stand responsible for the results if things don’t work out in your favor. What if you spend money now that you wind up needing later?

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  1. I have a small diagreement with your comments. I would recommend a withdrawal from the TSP each year preferrably from the C fund ( or rebalance the TSP so the c fund takes most of the reduction) Each year you should take withdrawals to maximize the benefit of the tax bracket. That is if you are in the 25% marginal tax bracket withdraw enought to be $1 below the 28% bracket. If it comes essentially from the C fund you can then transfer the after tax amount to a S&P index fund. Otherwise the RMD at age 70.5 could throw the procedes into a higher tax bracket, especially with the additional medicare tax and non-indexing of tax brackets for infltion.

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