Answers to your pre-retirement questions, Part 2

Here, I answer more of your questions from my box.

Q. I am 63 years old. old and will retire in two years (age 65) or earlier, does it make sense for me to just invest in the G Fund now vs. L 2025 Fund.

According to the Thrift Savings Plan website, the L 2025 Fund’s investment objective is to achieve a moderate level of growth with a moderate emphasis on asset preservation. The allocation of the Fund to the G, F, C, S and I funds is adjusted quarterly. The L 2025 Fund will automatically roll into the L Income Fund in July 2025, when its distribution becomes the same as the distribution of the L Income Fund.

Unfortunately, without more details about the circumstances, goals, objectives and risk tolerance, this question cannot be answered.

However, I would caution against being too conservative. If the TSP is not your only source of retirement savings, this may be important in determining the allocation among all. The amount of income you will need from the TSP to meet your monthly living expenses is another consideration in how to allocate your funds. There is a general rule of thumb for dividing up your retirement savings called the «age minus 100 rule.» The result is the percentage of your assets you should put in stocks, also referred to as «stocks» which in the TSP, would be fund C, fund S, and fund I. So you would have a 35% allocation to stocks at age 65 years old. The rule is based on the idea that younger investors have a longer time horizon and can afford to take more risk, while older investors’ time horizons are shortened, and they can’t take as much risk. However, there are many financial professionals who say that the rule, like any «rule of thumb», has some exceptions and should only be considered a starting point:

• Longevity: The rule was created when life expectancy in the US was much lower, so you may want to add 10 or 20 years to it.
• Expenditure needs: Actual asset allocation should depend on your spending needs as they relate to your assets or sources of income.
• Risk appetite: The rule depends on your risk appetite. For example, if you are more financially stable, a retirement strategy of 70% / 25% bonds / 5% cash may be better.

Research by Wade Pfau and Michael Kitces shows that the 100-minus-age approach has produced the worst result in a poor stock market. The best way to determine the best investment strategy for your situation is to consult with a financial professional before making any investment decisions.

Q. Will TSP automatically send me a required minimum distribution of 73?

If you do not choose a withdrawal that meets your RMD in the year you turn 73, the TSP will automatically send an amount to meet the remaining required amount. The required start date for your first RMD is April 1 after the year you turn 73. However, if you delay until the following year, you will need to take two RMDs that year. One for the year you turned 73 and one for the current year. In December. On 20, 2023, TSP processed any remaining RMD amounts for 2023. For income tax purposes, these payments will be reported to the IRS as income for 2023. For income tax purposes, these payments were reported to the IRS as income for 2023.

Q. Am I allowed to take part of my TSP towards the annuity option and still have flexibility with my TSP balance for partial and installment withdrawals?

You can receive a partial distribution of a portion of your account even if you are receiving installment payments or purchased a TSP annuity with a portion of your account balance. There is no longer a 30-day waiting period between withdrawal requests, so if you request a withdrawal from your TSP account, you no longer need to wait 30 days to request another withdrawal. You can now complete your withdrawal requests entirely online in My Account. You can stop, change or start your installment payments at any time. You can learn more by reviewing the TSP Distributions booklet, the TSP Annuity Fact Sheet, and the Tax Rules booklet about TSP payments.

Q. Do you have any advice on which method is best when withdrawing money from a TSP (tax minimization): partial withdrawal or monthly withdrawal (ie $150,000 one time or $12,500 per month for 12 months)?

The total amount you receive per year is what matters. A lump sum payment of $150,000 or monthly installments of $12,500 will result in the same tax liability.

Question. Where would I look on the TSP website if I want to request a withdrawal from my pre-tax traditional TSP money rather than my balance invested in the TSP Roth portion of my account?

To request a TSP withdrawal after you leave federal service and designate the money distributed from Roth or Traditional funds, log in to My Account to start the request or contact ThriftLine. See the TSP booklet on Distributions and the booklet on Tax Rules About TSP Payments.