Q. I retired several years ago. I receive income from pension benefits and Social Security. In August of 2015, when I reach age 70, I will convert from a Social Security survivor benefit to one based on my own history. All pensions have COLA increases, at rates somewhat less than actual inflation. My pension and Social Security income will probably always exceed my actual expenses, plus I will have additional funds available from RMD’s, in addition to other investments.
I have no children, and upon my death, any remaining assets will go to my two sisters, and to charities. When I begin to receive RMDs, I plan to give a portion to some friends and one sister, if I determine that there is a need, and if it suits my financial situation.
My overall asset allocation is 50 percent equities, 48 percent bonds and 2 percent cash. My equities are somewhat higher right now, but have not yet reached a 5 percent band for re-balancing. I own my home, with no mortgage. I have no debts, other than a credit card bill that I pay in full each month. I have significant investments with Vanguard – Total Stock Market Index Admiral (taxable), Total Bond Market Admiral (Roth IRA), Total International Admiral (Roth IRA), Intermediate Term Tax-Exempt Admiral (taxable), and Prime Money Market Fund (taxable). I have a checking account with Bank of America which holds funds for current expenses.
I also have a TSP account in the amount of $880,000+. This money is invested entirely in the F fund, consistent with my overall asset allocation. As I approach the time to begin RMDs, I’m considering several options:
1. Leave the funds in the TSP F fund (current ER of .039 percent) and take monthly distributions as required (probably $25 per month with a larger distribution at the end of the year).
2. Leave the funds in the TSP, but convert all or a part of the monies to the G fund (ER of .027 percent), and take monthly distributions as required.
3. Transfer the TSP funds to a Vanguard IRA, to be invested in the Total Bond Market Admiral (ER of .08 percent), and take the RMD in December of each year.
The rationale for transferring from the TSP to a Vanguard IRA would be to have better withdrawal options, and consolidation of investments. Vanguard would deduct Oregon state taxes if I wanted; the TSP can’t do this. Also, the state of Oregon provides equal protection to IRAs and 401(k) plans in the event of lawsuits and bankruptcies. What is your recommendation for this situation?
A. If I were responsible for managing your portfolio, I would choose option 2.