Q. I am a law enforcement officer planning to retire next year at age 50. I have a pretty good sum in my TSP and would like to take life expectancy (72t) payments. Two financial advisors have told me I shouldn’t need this money (after reviewing my expected income and expenses) and advised against taking the distributions. What is the downside of sticking with life expectancy payments for 10 years if I am invested correctly? It seems to me, assuming a greater than 5% return over this period, I should never touch the principal. Currently my TSP is fully invested in the L2020 fund (however I’m considering moving it all to the L2030).
Once the life expectancy payments begin, if I decide to take them, can I start/stop the payments or am I “locked in” until 59 ½?
A. In my opinion, the certain downside is a reduction to your access to the G Fund. Once the life expectancy payments begin, they must continue, exactly as planned, until you reach age 59 ½, or for 5 years, whichever is longer.
If they are not needed, you should avoid 72(t) payments since the rules for taking them are strict and the penalty for violating them can be severe. If you need them, you should take them under the supervision of a CPA to avoid making any costly mistakes.
I don’t see the relevance of your comments about how the money is invested and don’t think this is a factor in making the decision, since you are free to implement and manage the right investment strategy in either scenario. Your assumption about a rate of return greater than 5% over the coming 10 years is unrealistic, however, and ignores the risks associated with actual return sequences under regular withdrawals.