Distribution, or not


Q. I am retiring in 15 months with 34 years of service at age 56. I am downsizing my house for a lower house note. I have enough in my TSP to purchase a home. Is this a good idea? The note on the house would be equal to what I would receive from my TSP. I will still have my FERS supplement and my FERS.

A. You’re asking about whether you should finance the purchase of your home or take the money for the purchase from your TSP account. The answer will depend entirely upon how you manage your TSP account over the term of the loan if you borrow the money and leave the funds in your TSP account. You are, essentially, choosing between investing your money in the TSP’s five funds and investing it in a mortgage. The return on your investment if you move the money from your TSP account into your home’s equity (investing in the mortgage) is the after-tax cost of the debt. So, one of the questions you need to answer is: How will the return on my investment compare to that if I leave the money in my TSP account instead? Another way to look at the decision is to consider whether or not the income that the TSP will safely support under your management will exceed the amount of the mortgage payment.

It’s a complex question to analyze and consider, but it can be done. If you’re not sure about the answer, the safest bet is probably to put the money into your home.


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

Leave A Reply