Feds - Roth TSP, Pension, Life Insurance Oh my!

[mrshandy]

Yesterday, I took a financial planning seminar offered by my agency and it was awesome.

I finally learned what a Roth TSP is all about and more importantly I learned all about the mythical pension. I actually will get a pension and if I up my salary enough over the years and work long enough, it will be a decent chunk of change.

Any other feds that are clueless or were clueless about the pension benefits?

It was such an eye-opening day. If your agency offers one, I highly recommend it.

I can't decide about the Roth. I hope eventually we can start contributing to one, but right now we need the extra cash.

Another thing I learned about was borrowing from your TSP. This lady was a financial planner and thought it was something definitely to consider if you're buying a home and need extra cash. DH and I might look into this since we're looking to buy in the spring. Right now I'm 29 and have about $67K in my TSP. I'm maxing it, but not sure if I'll up it in the new year. I need to crunch the numbers.

Thoughts?

[ssmjlm]

I know the FERS pension is there, but I just can't bring myself to count on it for more than about $35k a year or so extra, so I'm pumping a ton into my TSP instead.

I could never imagine borrowing from my TSP unless it was a dire emergency. Too much compound interest.

I also plan to go as soon as I can since I'll have 30 years when I'm only 53.

[rubytue]

I remember having the same reaction when I had my first retirement planning class about a year ago. Lol. There is a great old post on the nest I wrote about it.

I'm not a fan of the Roth TSP only bc it's tied to the regular TSP as far as allocations. If they let you allocate each one individually, then maybe. And I'm also not convinced gains will never be taxed. So while I do have some Roth money, I'm not doing the Roth tsp.

As far as borrowing from the TSP, most folks will say no. You lose out on gains, you owe it back immediately if you leave, things like that. Otoh, I know a lot of folks who do borrow from it for houses and such. I wouldn't take that full $67k from it though, but if you needed a small chuck maybe. Or if you used it so you were paying cash for the house (in essence mortgage your retirement rather than the house). But if something goes wrong and you lose the house, in one case you lose the house, in the other you lose your future.

[simpsongal]

Dec 6, 2012 9:04:24 GMT -5 mrshandy said:

Yesterday, I took a financial planning seminar offered by my agency and it was awesome.

I finally learned what a Roth TSP is all about and more importantly I learned all about the mythical pension. I actually will get a pension and if I up my salary enough over the years and work long enough, it will be a decent chunk of change.

Any other feds that are clueless or were clueless about the pension benefits?

It was such an eye-opening day. If your agency offers one, I highly recommend it.

I can't decide about the Roth. I hope eventually we can start contributing to one, but right now we need the extra cash.

Another thing I learned about was borrowing from your TSP. This lady was a financial planner and thought it was something definitely to consider if you're buying a home and need extra cash. DH and I might look into this since we're looking to buy in the spring. Right now I'm 29 and have about $67K in my TSP. I'm maxing it, but not sure if I'll up it in the new year. I need to crunch the numbers.

Thoughts?

Hello fellow fed. By "maxing it" - you mean getting the full match right, not contibuting $17,5000 per year? ETA: If it's the latter, good for you!

Do not borrow from your TSP. It's just not a good idea. You're putting pretax dollars in your TSP, when you pay it back you're paying it back w/post-tax dollars. It's a double hit.

Definitely try to do the Roth TSP. I put 5% in the regular and 5% in the Roth. You lose a little tax benefit, but the logn term tax benefits of Roth IRAs are pretty awesome.

The pension is decent but I think most feds are better off thinking of it as rainy day money or a nice-to-have. True, you maybe end up getting about a third of your high 3-year salary. But you never know what the future holds. Unlike a defined benefit pension from a private company, federal and state pensions can change via statute.

Look into other life insurance options too. You can probably do much better in the open market if you're young and healthy.

Make sure you're taking advantage of the flexible spending account for healthcare (as well as the dependent one if you have kids). Federal occupational Health also offers a lot of free health programs like vaccines, blood tests, etc. Definitely look into that -- convenient and Free!

[mrshandy]

Simpson gal - I'm contributing about $17K/yr to it.

Thanks for the thoughts on borrowing from TSP. It definitely wouldn't be all of it. It might just be a little extra as a buffer emergency fund. It will be a little tight when we buy depending on closing costs. We'll have hopefully about $60K to buy around a $400k home. So I guess it depends on how much we want to put down.

[cole]

Thanks for the post mrshandy. My brother is an accountant and helps me out with recs for retirement and such, but I'm still pretty illiterate when it comes to this stuff, and have been working here long enough that I can't use it as an excuse anymore. I'm going to look into a planning seminar based on your rec!

Question for those of you much more knowledgeable than me. Is there such a thing as getting a loan against your TSP as opposed to from it?

[gt7301b]

Personally, I think that borrowing from a TSP for a down payment on a home is a horrible idea. Mainly because they have to be repaid with in 90 days of separation of service. I wouldn't want my house to be tied to that money and I wouldn't want to remove the money from the TSP just to beef up my e-fund.

I split my contribution between the Roth and regular TSP. I really don't believe that the government will tax existing Roths in the future. (I think they might do away with the currently favorable tax treatment) We actually have a rather low effective tax rate and I am forecasting us being in a much higher tax bracket in retirement due to losing our deductions. (paid off house, not contributing to TSP, etc)

I don't actually count our pensions in any of my retirement planning. There are so many variables that play into the calculations that I just see it as bonus money if we get it.

[rubytue]

Here is the nest post, which also details the funds
community.thenest.com/cs/ks/forums/thread/58772939.aspx?MsdVisit=1

[mrshandy]

Ok no borrowing from the TSP. I always thought it was a bad idea too, but this lady was all about it. I wonder why.

We'll make it work with the DP we have.

I didn't even know about a pension until a few months ago, so I've never really counted into my retirement planning.

I need to look into a HSA for the next year. I'll have to see what we spent last year.

[mrshandy]

Dec 6, 2012 10:07:01 GMT -5 rubytue said:

Here is the nest post, which also details the funds
community.thenest.com/cs/ks/forums/thread/58772939.aspx?MsdVisit=1

That's a great post. I don't know how I missed it!

[ssmjlm]

FYI the last day to sign up for the HSA or DCA is 10 December.

[simpsongal]

Good call SSMjlm - open season. Instead of borrowing against TSP, I would consider scaling back your TSP contributions temporarily to help pad your house savings. Not everyone would agree, but if you're in DC, it's hard to buy a home in this area and sometimes you need to shift obligations around.

As far as your question, I submitted my TSP balance as evidence of my assets to secure a mortgage. So I suppose that's like getting a loan against your TSP (not exactly though).

It' funny, I went to one of those seminars at my agency and the lady was like yours - championing the ability to borrow TSP savings. I suppose she's trying to entice people to put money into TSP? I looked into borrowing from TSP for our home purchase and a CW snapped me right back to reality, listing the negative things discussed in this thread.

Good luck!