Am I on track to retire at 55?

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jnk715
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Am I on track to retire at 55?

Post by jnk715 » Tue Jun 19, 2018 10:24 am

Background: 35 years old. Single. PA Resident. Government employee. I make about 53k a year. No debt. 25% tax bracket.
Monthly expenses: 1,800 dollars.

TSP Traditional: 10% contribution every check

Balance: 92k

60% C Fund
20% S Fund
20% I Fund

Roth IRA: Start maxing two years ago.

Balance: 16K

100% VTSAX

Cash: 225k

If I was to open a taxable account, should I go with something like the tax managed capital appreciation with the tax managed small cap and a intermediate bond? I would like some input from other government employees on retiring earlier than when you can take your TSP money. I was thinking of using the taxable to live off of until pension, social security, and TSP. I would then roll over most of my TSP into a traditional IRA.

Thanks.

CnC
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Re: Am I on track to reitre at 55?

Post by CnC » Tue Jun 19, 2018 11:36 am

If you open a taxable invest in in

Sp500/tsm
Total international
Us municipal bonds index or at your income level just regular bond index.

Don't mess with any "tax managed capital appreciation" funds. You don't need them and they will not do anything special for you.


You may want to consider holding your bonds in your government tsp and just stocks in taxable. This way you are most tax efficient.


As far as are you on track here is a very handy little formula. Image



So simple math says no, 10-15% won't get you retired by 55. 35 years now, you need to save ±45% per year to retire by 55.

This includes your pension, your existing savings ECT.

If you were to max your tsp at (18500 I think) and max a Roth every year from now until 50 then bump up to max catch up contributions from 50-55 + your pension then yes you can do it. But remember marriage and children if you have any can drastically change your amounts.
Last edited by CnC on Tue Jun 19, 2018 11:47 am, edited 2 times in total.

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Meaty
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Re: Am I on track to reitre at 55?

Post by Meaty » Tue Jun 19, 2018 11:41 am

jnk715 wrote:
Tue Jun 19, 2018 10:24 am
Background: 35 years old. Single. PA Resident. Government employee. I make about 53k a year. No debt. 25% tax bracket.
Monthly expenses: 1,800 dollars.

TSP Traditional: 10% contribution every check

Balance: 92k

60% C Fund
20% S Fund
20% I Fund

Roth IRA: Start maxing two years ago.

Balance: 16K

100% VTSAX

Cash: 225k

If I was to open a taxable account, should I go with something like the tax managed capital appreciation with the tax managed small cap and a intermediate bond? I would like some input from other government employees on retiring earlier than when you can take your TSP money. I was thinking of using the taxable to live off of until pension, social security, and TSP. I would then roll over most of my TSP into a traditional IRA.

Thanks.
Without knowing your expenses it’s impossible to tell. That said, retiring early usually requires a really high savings rate
"Discipline equals Freedom" - Jocko Willink

Grt2bOutdoors
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Location: New York

Re: Am I on track to reitre at 55?

Post by Grt2bOutdoors » Tue Jun 19, 2018 12:17 pm

CnC wrote:
Tue Jun 19, 2018 11:36 am
If you open a taxable invest in in

Sp500/tsm
Total international
Us municipal bonds index or at your income level just regular bond index.

Don't mess with any "tax managed capital appreciation" funds. You don't need them and they will not do anything special for you.


You may want to consider holding your bonds in your government tsp and just stocks in taxable. This way you are most tax efficient.


As far as are you on track here is a very handy little formula. Image



So simple math says no, 10-15% won't get you retired by 55. 35 years now, you need to save ±45% per year to retire by 55.

This includes your pension, your existing savings ECT.

If you were to max your tsp at (18500 I think) and max a Roth every year from now until 50 then bump up to max catch up contributions from 50-55 + your pension then yes you can do it. But remember marriage and children if you have any can drastically change your amounts.
I believe the calculator is based on starting from "scratch", OP already has savings, so it should not require a saving rate of 45%. Where did you get the calculator from? Oh, that explains it MMM.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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cockersx3
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Re: Am I on track to reitre at 55?

Post by cockersx3 » Tue Jun 19, 2018 12:24 pm

The graph is from the tool at networthify.com . This is a handy tool, have used it quite a bit. There are options on the site for including a current savings amount, etc.

aristotelian
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Re: Am I on track to reitre at 55?

Post by aristotelian » Tue Jun 19, 2018 12:33 pm

Meaty wrote:
Tue Jun 19, 2018 11:41 am

Without knowing your expenses it’s impossible to tell. That said, retiring early usually requires a really high savings rate

He said $1800 per month. Going by the 25X annual expense rule of thumb, he needs about $540K (real). So he is more than halfway there with 20 years to go. I'd say he is in good shape to just let his savings grow.

OP, any reason why you have so much in cash? Keep in mind that market risk is only one risk. There is also inflation risk, and cash is losing value to inflation. Fortunately inflation has been low but it may not stay that way. Generally, a combination of stocks and bonds is needed just to preserve wealth.

02nz
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Re: Am I on track to reitre at 55?

Post by 02nz » Tue Jun 19, 2018 12:57 pm

aristotelian wrote:
Tue Jun 19, 2018 12:33 pm
OP, any reason why you have so much in cash? Keep in mind that market risk is only one risk. There is also inflation risk, and cash is losing value to inflation. Fortunately inflation has been low but it may not stay that way. Generally, a combination of stocks and bonds is needed just to preserve wealth.
+1. What to do with the 225K depends a lot on your goals - e.g., will it be down payment on a house? If it's just part of your retirement savings, then it should be invested in accordance with your desired asset allocation for your overall portfolio.

Re: your quesiton about retiring earlier than when you can take TSP distributions (age 59.5), you certainly can use taxable, but there are also alternatives such as SEPP and Roth conversion ladders that can give you penalty-free access to your money before that age, while also taking advantage of low (or zero!) income tax rates. Good writeup here: https://www.madfientist.com/how-to-acce ... nds-early/.

You can roll over your TSP into a traditional IRA (and any Roth TSP balance to Roth IRA) after you separate from federal service. I'd recommend leaving enough in TSP to cover the bond portion of your asset allocation, given the G fund's advantages. TSP withdrawal options are currently quite limited, but that will change within the next year or so, as the TSP Modernization Act is implemented.

delamer
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Re: Am I on track to reitre at 55?

Post by delamer » Tue Jun 19, 2018 1:14 pm

What is your Minimum Retirement Age? How much service will you have at that time?

If you can hold out until your MRA+30, your retirement finances will be much simpler.

But maybe that is too late?

ExitStageLeft
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Re: Am I on track to reitre at 55?

Post by ExitStageLeft » Tue Jun 19, 2018 1:20 pm

It looks like you have about $13,000 per year additional TSP contributions before you hit the annual limit. I would max that out before adding anything more to a taxable savings account. If you will be eiligible for a full retirement at 55, you will have access to all of your TSP. You won't have penalty-free access to IRA accounts until you reach age 59.5.

You could start maxing out the TSP contributions and tapping into your savings if needed. If you end up saving $24k per year into TSP and Roth IRA, in 20 years you would likely have a nest egg over $2M in today's dollars. For a 40 year retirement, you could spend about $67k per year.

If you are a FERS employee, you would get a retirement pension as well. Assuming 30 years and the same pay, that's another $16k per year in 2018 dollars. If you have faith in the continuance of social security, it will likely be about the same as your FERS pension. All told, that adds up to $100k per year.

If you keep saving at your current rate of about $11k per year, your portfolio will be about $1.5M, which would allow withdrawal of about $50k per year. That would probably be more than enough as long as your lifestyle doesn't change.

All calculations done at http://www.cfiresim.com/

kaudrey
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Re: Am I on track to reitre at 55?

Post by kaudrey » Tue Jun 19, 2018 1:26 pm

Keep in mind that your minimum retirement age is NOT 55; it is likely 57 (mine is 56 years and 10 months, and I'm 49).

Even if you have 30 years in the gov't at age 55, that doesn't matter. If you retire at 55, you'll have to take a deferred pension; which in itself isn't a big deal. What IS a big deal, however, is that if you do that, you lose your FEHB. So, from age 55 to 65, you'd have to go on ACA, or whatever health care program exists 20 years from now. That's a deal-breaker for most people under FERS to retire before their MRA.

Having said that, I'm likely going to retire at age 52 (when I have 30 years in), and just deal with the health care issue. Life circumstances have allowed that to be possible for me, but it will be a huge expense that needs to be considered in any expense projections you have.

ExitStageLeft
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Re: Am I on track to reitre at 55?

Post by ExitStageLeft » Tue Jun 19, 2018 1:27 pm

One reason to hold out for a full retirement is the continuance of the Federal Employee Health Benefits. That's something to keep in mind as your opportunity for retirement nears. If you are instead intent on an early retirement and don't see the need for the FEHB, I recommend boosting your current TSP and Roth IRA savings up to the max.

jnk715
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Joined: Sat Oct 15, 2011 3:24 pm

Re: Am I on track to reitre at 55?

Post by jnk715 » Tue Jun 19, 2018 2:30 pm

aristotelian wrote:
Tue Jun 19, 2018 12:33 pm
Meaty wrote:
Tue Jun 19, 2018 11:41 am

Without knowing your expenses it’s impossible to tell. That said, retiring early usually requires a really high savings rate

He said $1800 per month. Going by the 25X annual expense rule of thumb, he needs about $540K (real). So he is more than halfway there with 20 years to go. I'd say he is in good shape to just let his savings grow.

OP, any reason why you have so much in cash? Keep in mind that market risk is only one risk. There is also inflation risk, and cash is losing value to inflation. Fortunately inflation has been low but it may not stay that way. Generally, a combination of stocks and bonds is needed just to preserve wealth.
I have my 225k in a 1.79% no penalty CD at the moment.

jnk715
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Re: Am I on track to reitre at 55?

Post by jnk715 » Tue Jun 19, 2018 2:31 pm

ExitStageLeft wrote:
Tue Jun 19, 2018 1:27 pm
One reason to hold out for a full retirement is the continuance of the Federal Employee Health Benefits. That's something to keep in mind as your opportunity for retirement nears. If you are instead intent on an early retirement and don't see the need for the FEHB, I recommend boosting your current TSP and Roth IRA savings up to the max.
I thought I would be eligible for FEHB if I took an early out. Is that not the case?

delamer
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Re: Am I on track to reitre at 55?

Post by delamer » Tue Jun 19, 2018 2:33 pm

jnk715 wrote:
Tue Jun 19, 2018 2:31 pm
ExitStageLeft wrote:
Tue Jun 19, 2018 1:27 pm
One reason to hold out for a full retirement is the continuance of the Federal Employee Health Benefits. That's something to keep in mind as your opportunity for retirement nears. If you are instead intent on an early retirement and don't see the need for the FEHB, I recommend boosting your current TSP and Roth IRA savings up to the max.
I thought I would be eligible for FEHB if I took an early out. Is that not the case?
You have to be offered an early out — you can’t take it if none is offered.

jnk715
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Joined: Sat Oct 15, 2011 3:24 pm

Re: Am I on track to reitre at 55?

Post by jnk715 » Tue Jun 19, 2018 2:36 pm

ExitStageLeft wrote:
Tue Jun 19, 2018 1:20 pm
It looks like you have about $13,000 per year additional TSP contributions before you hit the annual limit. I would max that out before adding anything more to a taxable savings account. If you will be eiligible for a full retirement at 55, you will have access to all of your TSP. You won't have penalty-free access to IRA accounts until you reach age 59.5.

You could start maxing out the TSP contributions and tapping into your savings if needed. If you end up saving $24k per year into TSP and Roth IRA, in 20 years you would likely have a nest egg over $2M in today's dollars. For a 40 year retirement, you could spend about $67k per year.

If you are a FERS employee, you would get a retirement pension as well. Assuming 30 years and the same pay, that's another $16k per year in 2018 dollars. If you have faith in the continuance of social security, it will likely be about the same as your FERS pension. All told, that adds up to $100k per year.

If you keep saving at your current rate of about $11k per year, your portfolio will be about $1.5M, which would allow withdrawal of about $50k per year. That would probably be more than enough as long as your lifestyle doesn't change.

All calculations done at http://www.cfiresim.com/
Thanks for your help. I continue to try to up my contribution as much as possible. I dont know if its possible for me to max out TSP at my salary. I would have to live off of my savings?

jnk715
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Joined: Sat Oct 15, 2011 3:24 pm

Re: Am I on track to reitre at 55?

Post by jnk715 » Tue Jun 19, 2018 2:39 pm

delamer wrote:
Tue Jun 19, 2018 2:33 pm
jnk715 wrote:
Tue Jun 19, 2018 2:31 pm
ExitStageLeft wrote:
Tue Jun 19, 2018 1:27 pm
One reason to hold out for a full retirement is the continuance of the Federal Employee Health Benefits. That's something to keep in mind as your opportunity for retirement nears. If you are instead intent on an early retirement and don't see the need for the FEHB, I recommend boosting your current TSP and Roth IRA savings up to the max.
I thought I would be eligible for FEHB if I took an early out. Is that not the case?
You have to be offered an early out — you can’t take it if none is offered.
So what would you do in shoes? Keep asset allocations and just invest more into TSP?

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David Jay
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Re: Am I on track to retire at 55?

Post by David Jay » Tue Jun 19, 2018 2:41 pm

I believe you are in the 12% tax bracket for 2018 if you put 10% in pre-tax savings as follows:

Single 12% bracket: 38,700
Personal allowance: $12,000
Top of 12% tax bracket: $50,700
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

delamer
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Re: Am I on track to reitre at 55?

Post by delamer » Tue Jun 19, 2018 3:24 pm

jnk715 wrote:
Tue Jun 19, 2018 2:39 pm
delamer wrote:
Tue Jun 19, 2018 2:33 pm
jnk715 wrote:
Tue Jun 19, 2018 2:31 pm
ExitStageLeft wrote:
Tue Jun 19, 2018 1:27 pm
One reason to hold out for a full retirement is the continuance of the Federal Employee Health Benefits. That's something to keep in mind as your opportunity for retirement nears. If you are instead intent on an early retirement and don't see the need for the FEHB, I recommend boosting your current TSP and Roth IRA savings up to the max.
I thought I would be eligible for FEHB if I took an early out. Is that not the case?
You have to be offered an early out — you can’t take it if none is offered.
So what would you do in shoes? Keep asset allocations and just invest more into TSP?

I’d approach it this way —

It is not true that you can’t access your TSP without penalty before age 59.5. You can begin withdrawals at age 55 if you have separated from service. If you choose to move your TSP to an IRA, you can still access the money before 59.5 if you follow rule 72(t). [Google it.]

Estimate your expenses in retirement. If you subtract your TSP, IRA, and payroll tax contributions from your gross pay, that will give you a rough number. That’s probably around $38,000.

If your SS and pension will cover your expenses, then your main concern will be about the years before you are collecting both — in terms of having enough in savings to cover those years.

With the TSP match plus your TSP contributions plus the Roth, you are saving about 25% of your income. I am guessing you don’t need to invest any more than you already are.

Even if you need to cover 10 years of expenses (age 55 to 65), you’ll just need $380,000. (More if your SS and pension won’t cover all your expenses.). You’ve got $330,000 already; even if it only grows at the rate of inflation, you’ll have way more than enough in 20 years with all your added savings.

Again this assumes that you’ll need minimal withdrawals once you have SS and pension and your expenses will be $38,000; if not adjust upward or downward as needed. (You’ll probably want a cushion for irregular and emergency expenses too.)

But now you have a basic framework.

Your TSP/IRA allocation is fine, but you need to put some of that cash into stocks and bonds.
Last edited by delamer on Tue Jun 19, 2018 9:52 pm, edited 1 time in total.

JoeRetire
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Re: Am I on track to retire at 55?

Post by JoeRetire » Tue Jun 19, 2018 3:25 pm

jnk715 wrote:
Tue Jun 19, 2018 10:24 am
Cash: 225k
Why?

ExitStageLeft
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Re: Am I on track to reitre at 55?

Post by ExitStageLeft » Tue Jun 19, 2018 4:25 pm

jnk715 wrote:
Tue Jun 19, 2018 2:36 pm
...
Thanks for your help. I continue to try to up my contribution as much as possible. I dont know if its possible for me to max out TSP at my salary. I would have to live off of my savings?
If the alternative is investing savings in a taxable account, you're better off maxing out the TSP and taking that increase from your savings if you need it to live off of. The same amount of money gets saved, but it gets saved in the TSP (pre-tax or Roth) rather than saved in taxable. Contributing to the max in the TSP is something that you could build up to. If you intend to separate from service prior to drawing retirement then should definitely increase your savings rate.

It's all pretty far down the road, so you've got time to contemplate your options, study the details better, and then devise a strategy. If you work to your minimum retirement age and have 30 years of govt service you will have a very comfortable retirement. That's with your current level of saving. Increasing your savings increases your options, but it won't be easy. Start out by contributing 11% of your pay to the TSP. After six months or a year, bump it to 12% and keep bumping it up every year. You might not ever get to the max, but your future retired self will thank you for the effort.

Edit to add: I'm not saying you shouldn't start a taxable brokerage account. With that much in savings you definitely want to put it to work for you. What I am suggesting is the equivalent of moving some money from your savings into the TSP. You can do that at a rate of up to $18.5k per year.
Last edited by ExitStageLeft on Tue Jun 19, 2018 5:07 pm, edited 1 time in total.

SEAworld9
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Re: Am I on track to retire at 55?

Post by SEAworld9 » Tue Jun 19, 2018 4:39 pm

IMO the biggest variable is your expenses. given that you're single and 35 (young), how realistic is it to think that your expenses will remain the same over the next 20 to 30 years given the things you want to do and experience?

- another 35 y/o

Nate79
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Re: Am I on track to retire at 55?

Post by Nate79 » Tue Jun 19, 2018 5:43 pm

In 20 years everything can change. Save as much as possible and come back to this thread in 15 years. Withdrawal rules can change, medical insurance cost, addition of family, etc.

02nz
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Re: Am I on track to reitre at 55?

Post by 02nz » Tue Jun 19, 2018 7:30 pm

02nz wrote:
Tue Jun 19, 2018 12:57 pm
aristotelian wrote:
Tue Jun 19, 2018 12:33 pm
OP, any reason why you have so much in cash? Keep in mind that market risk is only one risk. There is also inflation risk, and cash is losing value to inflation. Fortunately inflation has been low but it may not stay that way. Generally, a combination of stocks and bonds is needed just to preserve wealth.
+1. What to do with the 225K depends a lot on your goals - e.g., will it be down payment on a house? If it's just part of your retirement savings, then it should be invested in accordance with your desired asset allocation for your overall portfolio.

Re: your quesiton about retiring earlier than when you can take TSP distributions (age 59.5), you certainly can use taxable, but there are also alternatives such as SEPP and Roth conversion ladders that can give you penalty-free access to your money before that age, while also taking advantage of low (or zero!) income tax rates. Good writeup here: https://www.madfientist.com/how-to-acce ... nds-early/.

You can roll over your TSP into a traditional IRA (and any Roth TSP balance to Roth IRA) after you separate from federal service. I'd recommend leaving enough in TSP to cover the bond portion of your asset allocation, given the G fund's advantages. TSP withdrawal options are currently quite limited, but that will change within the next year or so, as the TSP Modernization Act is implemented.
I'd also add that, at your income level, you only have a small (a few thousand dollars) of income that falls into the 22% federal income tax bracket. I'd make enough traditional TSP contributions to get below the 22% bracket (at which point you're paying just 12% marginal, and less on average), and then contribute as much as possible to Roth rather than traditional TSP. If/when your income goes substantially higher, you might shift more toward traditional. (The biggest disadvantage of the Roth TSP has been the lack of flexibility - under current rules any withdrawals come pro rata out of traditional and Roth balances, you can't specify which. But that's also changing by the end of next year.)

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Cycle
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Re: Am I on track to retire at 55?

Post by Cycle » Tue Jun 19, 2018 7:44 pm

jnk715 wrote:
Tue Jun 19, 2018 10:24 am
Monthly expenses: 1,800 dollars.
Wow, that is really low. How much is your rent or mortgage? Do you own a car, if so how much did it cost and how many miles do you drive/yr?

How much do you expect to pay for healthcare when you retire?

yukon50
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Re: Am I on track to retire at 55?

Post by yukon50 » Thu Jun 21, 2018 2:03 pm

If the OP invested all his cash and roughly maintained the current low level of expenses, couldn't he retire at 55 with a reasonable real return and zero additional contributions?

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