4 percent rule


Q. I’m a FERS employee. As I reach retirement and knowing about my retirement and Social Security, what is the best way to maximize my TSP? If I have $1 million in my TSP, would moving the money from the C Fund to the G Fund and implement the 4 percent rule without wavering on my withdrawals would I run out of money? If the G Fund pays 1-2 percent every year I still seem to leave this Earth with money remaining. Looking at 4 percent calculation models, if you’re making an average above the 4 percent you wind up making more money than what you started. Maybe I am still coming to work when I should be out living life on a beach somewhere. I look at annuities and don’t think that they are for me as I know I will be leaving what is left to my family.

A. The kind of rule of thumb that you are considering is not reliable, because it depends upon how much return you earn on the remaining principal each year, when you take your withdrawals, whether the withdrawals are fixed or variable, and whether they will be adjusted for inflation to retain their purchasing power. Everything also depends heavily upon how long you live. Dealing with all of this uncertainty requires complex analysis and careful management along the way.

If you’re not up to this, or not willing to engage someone trustworthy to do it for you, then you should consider using your money to purchase an immediate fixed annuity from a reputable insurer. If the payout won’t be enough for you to live on, then you’ll need to keep working.


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.

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