Decrease savings on tsp or roth?

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geocache59
Posts: 42
Joined: Wed Dec 31, 2008 8:55 pm

Decrease savings on tsp or roth?

Post by geocache59 » Mon Feb 11, 2019 9:38 am

Hello everyone,

I'm going to do a more updated version of my finances soon. Last time was years ago when Laura and others gave me some good advice. I'm in need of a major update but for now I need an immediate answer to a question.

We have been contributing the max to our tsp account including catching up for a while and the max to both our Roth IRA accounts. Husband is 54 and I am 59. We have 3 kids at home. Since moving back from overseas, we are unable to maintain our standard of living with the amount we had been saving and have more going out then coming in. We live on one income and in a HCOL area.

I estimate we need at least another 10K per year easily.

My question is how much should I cut down on the tsp savings vs. Roth or should I cut from both?

Hate to do it but we aren't making it as it is and we are pretty frugal. Thanks!

02nz
Posts: 1297
Joined: Wed Feb 21, 2018 3:17 pm

Re: Decrease savings on tsp or roth?

Post by 02nz » Mon Feb 11, 2019 9:51 am

If you're in the 22% federal income tax bracket or higher, and particularly if you have significant state taxes (likely, as you're in an HCOL), you're better off decreasing Roth IRA contributions. Traditional TSP contributions reduce your taxes, and even with a pension you should be able to withdraw that money in retirement at lower tax rates. If you post numbers we can give better recommendations.

A good thing about Roth IRA is that unlike with TSP you can contribute "in arrears" - until the tax filing deadline of the following year. So if you end up with a bit more than expected, there's an opportunity to make up the contribution. Another reason to stop/decrease Roth IRA contributions first.

kelvan80
Posts: 99
Joined: Sun Jan 12, 2014 10:06 pm

Re: Decrease savings on tsp or roth?

Post by kelvan80 » Mon Feb 11, 2019 10:00 am

From previous posts it looks like you were late starters and you asked a similar question in April of last year. Were you able to continue contributing between April and now. You have the opportunity to fill Roths until April for the previous year. Will you get a tax refund that could help fill a Roth? Have you considered posting a budget?

Topic Author
geocache59
Posts: 42
Joined: Wed Dec 31, 2008 8:55 pm

Re: Decrease savings on tsp or roth?

Post by geocache59 » Mon Feb 11, 2019 10:42 am

@kelvan Do you know I completely forgot about that post? I don't even recall making it. Maybe I was having my wine in the evening. HA!. Well nothing has changed. Still not making it. We had a cushion when we came from overseas which dwindled rapidly. Yes, we have contributed up until now the max and now that the cushion is about gone, need to do something. Between last post and this post, it has become more urgent.

Where would I post a budget? I'm not how much more we could do. We have one old car, 2005 honda and I drive my husband to the Marc where he gets paid to go to work. Zero debt but we do rent and I have no desire to own a home again as we don't know what we will be doing in the future. Currently have a two year lease and paying $2300 a month for essentially a way too small starter home. No cable, netflix included free in our cell phone coverage with T-mobile which we got for a discount due to being retired reserves, hulu at 99 cents a month (another special), and the rest is utilities and food and the kids activities and copays for a child with type 1 diabetes plus savings. Just made my own laundry detergent yesterday.

@O2 I honestly don't know what tax bracket we are in now. This will be the first year since being back.

Not sure what you mean by numbers but we have the following:

Me:

52,485 in Traditonal IRA no contributions
94,730 My Roth IRA 6500/year contribution

His:

91,685 Roth IRA 6500/year contribution (a couple of years nothing went into it because he didn't realize there was some screw up until I happen to look at his and noticed it :oops:)
557,197 TSP 24 K/year contribution

Money Market Vanguard: 238,742

He will get 2 pensions one from his regular civil servant job and a very small one from retired reserves.

I worry a little about our status as it is so easy here to watch your money dwindle and it is a big adjustment from living overseas with all the benefits. However, I am pretty frugal and will do what is necessary since we got such a late start. Seems like the balances never change even though I know they do.

Thanks to both of your for your input.

02nz
Posts: 1297
Joined: Wed Feb 21, 2018 3:17 pm

Re: Decrease savings on tsp or roth?

Post by 02nz » Mon Feb 11, 2019 11:33 am

You previously posted that you were in the 25% bracket. That means you're likely at 22% now, plus DC/VA/MD taxes. So it's close to 30% total. Definitely keep deferring as much in taxes as you can through TSP. (The 22% tax bracket starts at a little over $100K of income for married filing jointly, accounting for the $24400 standard deduction. See https://taxfoundation.org/2019-tax-brackets/ for the exact numbers.)

Is there a reason why you're holding so much in the money market account? You could easily spend some from that to enable maxing both Roth IRAs. Essentially, move money from taxable to tax-advantaged. Don't pass up tax-advantaged space if you have money hanging around in taxable.

I know it can be stressful to go from a high-cash-flow situation to one where you have to cut back on retirement contributions to make ends meet, esp. with DC-area costs. But you're doing quite well. Fidelity suggests as a very rough guide that you should have about 6x your salary saved at age 50 (https://www.fidelity.com/viewpoints/ret ... -to-retire). You won't need as much in retirement savings as most people, because of the pension income. And with about 800K in retirement savings (not counting the 240K in MM), you're far ahead of most people. Keep maxing tax-advantaged accounts and you'll be more than fine.

If you want to make sure your portfolio is well-optimized and has an asset allocation with which you're comfortable, go ahead and post the break down of what you're invested in. No need to give exact numbers, just round off each position to the nearest thousand.

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FiveK
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Re: Decrease savings on tsp or roth?

Post by FiveK » Mon Feb 11, 2019 12:52 pm

geocache59 wrote:
Mon Feb 11, 2019 10:42 am
Where would I post a budget?
...
Not sure what you mean by numbers but we have the following:....
For the best chance at good investment advice here, see Asking Portfolio Questions - Bogleheads.org and follow that format.

For some "tough love" budget/spending suggestions, consider starting a "Case Study" thread in that forum.

delamer
Posts: 6899
Joined: Tue Feb 08, 2011 6:13 pm

Re: Decrease savings on tsp or roth?

Post by delamer » Mon Feb 11, 2019 3:01 pm

Have you considered getting a job? It sounds like $300/week gross would make up your deficit.

Also, with over a million dollars in savings — although it is unclear if some of that is college money — plus a civil service pension plus Social Security— it isn’t clear to me why maxing your TSP and Roth is such a high priority.

Are your expected retirement expenses significantly higher than your fixed retirement income? How long does your husband plan to work? How much longer will your kids be dependent?

kelvan80
Posts: 99
Joined: Sun Jan 12, 2014 10:06 pm

Re: Decrease savings on tsp or roth?

Post by kelvan80 » Mon Feb 11, 2019 3:39 pm

I don't think you look behind according to those numbers. Understand that if you do stop saving in the TSP his taxable income is likely to go up if it's traditional contributions. I guess it would depend on what your retirement expenses look like especially if you could retire to a lower COL area or what ages you want to retire. If you get a tax refund have you considered having your spouse adjust his tax withholding? You may just be in a season of life where children are more expensive. I can only tell you though they get older they get more expensive when it comes to cars insurance graduation expenses. Do you guys anticipate buying a house in retirement? Is that a goal you guys need to start saving for to have a down payment?

deskjockey
Posts: 248
Joined: Sat Dec 03, 2016 11:15 am

Re: Decrease savings on tsp or roth?

Post by deskjockey » Mon Feb 11, 2019 4:08 pm

The $238k in a money market stands out as odd to me. Is that money slated for some short-term expenses, like college for kids currently in High School? If it isn't, then, as 02nz suggested, you should keep up your current savings level to "transition" part of that money to your Roth account.

If you are saving for college, remember that money in taxable accounts counts against you for financial aid (to the tune of 5.56% of total amount every year your kid is in college), but money in retirement accounts does not, so it may still be a good idea to put at least some of that money in your Roth. If you're in VA or MD, you should also look into whether putting some of that money in a 529 account would be financially worthwhile (because of the state tax deduction). In VA, the state gives you back $5.56 for every $100 you save, so it's a pretty good deal if you're looking to eke out a bit more money from your budget (plus you get tax-free growth in the 529).

Other than these generic suggestions, it's hard to know what else to say without a detailed breakdown, as FiveK suggested.

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