Your last TSP allotments before retirement - WWYD?

[snapdragons_]

Background: My military retirement is effective 1 March 2024. I am currently interviewing with five organizations for my second career, post-transition. All of these organizations are NOT with the federal government. I feel confident I can start new employment in late January or early February 2024, thus double-dipping for a few weeks.

My "what would you do" question centers around TSP contributions for January and February 2024. If I allocate 100% of my base pay toward TSP, I will fall about $150 short of the 2024 max of $23K. Is this a good strategy for a soon-to-be-retiree?

Data points: Relocating from my OS assignment. Yes, I can afford to allocate 100% of my base pay, but do I want to? With an OS move, there will naturally be some startup costs at my new location (e.g., temp AirBnB, buying a second car, groceries -- ya know, Dislocation Allowance-type stuff). For the record, my second career will drive my destination, and the organizations are literally coast to coast.

Anyway, I appreciate your constructive feedback -- and if your reply is, "if you can afford it, do it, then, thanks in advance."

Aim High-

Edit: I appreciate all the feedback. Thanks, Reddit peeps. Hopefully, a second career job offer will present itself over the next few weeks, and I can zero in on how to execute my TSP allocations.

 

[sjasti]

@snapdragons_ What if your new job offers 401k matching? You've just missed out on any of that by maxing your TSP.

 

[snapdragons_]

@sjasti Solid point, Van. In other words, If I max out my TSP in Jan/Feb as a uniformed service member, I cannot "start over" as an employee in company X, which offers 5-6% matching. That's wazzup...

Best-

 

[sjasti]

@snapdragons_ Correct. The only exception would be if you became a state or local government employee that offered a 403b. Edit: 457 not 403b.

 

[kitty346]

@sjasti I thought 401k/403b/TSP shared a limit and it was the 457 that was separate.

 

[sjasti]

@kitty346 Whoops. Yep, you're correct.

 

[snapdragons_]

@sjasti Oddly enough, 4 of the 5 organizations I'm interviewing with are for city/state government employment - so the 403b is also an option.

Nevertheless, you have offered me a data point that I did not consider previously. So I can bake that into the decision-making gonkulator. I am nearing the end of the interview process this coming week, so I should have enough time to make an informed decision before I make my allotment/allocation changes next month, so they will take effect in January.

 

[kitty346]

@snapdragons_ Assuming you’ve already been saving for retirement, I doubt this decision will have a huge impact long term.

I wouldn’t max it out so that you can save a bit extra for transition and to leave room for contributions and matching on your new employer’s plan.

 

[snapdragons_]

@kitty346 The other part that keeps my brain thinking about this subj is the tax burden. So if I pull on this thread some more...I lower my tax burden with a $23K TSP contribution in Jan/Feb, correct? If I take on a state/local gov't job, say Virginia, and elect to participate in a 457 plan - do I lower my tax burden even further? Or am I just going down the rabbit hole...

Your question about assuming I am saving for retirement is accurate. I think I can FIRE now, but honestly, I like working, and I can't stay at home -- I drive my spouse nutz.

Thanks,

 

[girl4god86]

@snapdragons_ If you contribute Traditional dollars to the TSP and Traditional to the 457, yes, you’d be lowering your taxable income even further. For 2024. But consider the long-term effects as well. If you stuff your Traditional accounts super full, you’re going to face hefty RMDs in the future, on top of your pension and social security. With tax brackets scheduled to increased in 2026, you might be better off paying 22% now rather than 25% later. If you plan on fully retiring significantly before age 73-75, you can do a Roth conversions during your lower-income years, but it’s something to be aware of.

 

[dchristian]

@snapdragons_ Your question isn't exactly clear to me. What is your proposed alternative: don't deposit any during January/February to maintain that liquidity for your new life? Or save at your previous rate?

My thoughts:

TSP is great and all, but at this stage in your life, I doubt having $23k in a TSP vs your company's 401k is going to make a significant long term difference in your retirement quality of life, especially if you are about to start collecting pension.

From a timing perspective, I similarly doubt you're going to accumulate significant interest or dividends by lump-dumping it into your retirement in Jan/Feb instead of DCA over the remainder of 2024.

As others have pointed out, there is a big opportunity cost to loading into your TSP in Jan/Feb: namely that your new employer may offer an even better match than 5%.

How will your new income compare to your current base pay? Make sure to factor in your salary into this, not just the percentage. Ignore if this insults your intelligence but 3% match of a new 200k job is more than 5% of 100k base pay ($6k vs $5k).

Last consideration - are you comfortable with your current emergency savings? Can you absorb those expenses while maxing your TSP? Do you have any big purchases planned?

With that in mind and not knowing your specific financial circumstances, my recommendations would be as follows:

1. Save the minimum to get your TSP match for January and February. This provides you extra liquidity during a dynamic change in your life, and let's be honest, is more valuable right now during these relatively high interest rates.
2. If the opportunity to double dip presents itself, then do it. Again if you need the liquidity, simply deposit the minimum to match for each.
3. There's honestly no scenario I can envision where front loading your TSP is all that beneficial, even if your new match is lower. At this stage in your life, the relative lifetime gains of $20k in TSP vs another 401k, and the extra months of interest/ dividends are probably going to be a rounding error, especially once you consider your pension.

 

[snapdragons_]

@dchristian I appreciate the comments - all solid points. To answer the question, yes, my alternate plan was to abandon TSP allocation in January/February to have some liquidity on hand in case things get hairy throughout my move...but I was mentally struggling between maintaining my current TSP allocation of 18% or going full-tilt to 100% before retirement.

Thanks,

 

[sparrow4]

@dchristian Some solid analysis you're doing there! Taking into account your phase of life, liquidity needs, and the possibility of a better employer match at the new job does change the equation quite a bit. The strength of your TSP vs the potential 401k needs to be considered too.

About one part though - the 'extra months of interest/dividends' you mention. Given the state of the economy, and the recent rise in rates, high-yield savings accounts might be something to consider. It's not just about the little extra you'd gain. It's about maximizing efficiency for each buck you've got, ya know?

I mean, check out these rates on top APY savings accounts

Bank
APY
Link
Min. Deposit
Fees

CIT Bank (Platinum Savings)
5.05%
Link
$5000
None

Synchrony Bank
4.75%
Link
$0
None

CIT Bank
4.65%
Link
$100
None

Sofi Bank
4.60%
Link
$0
Direct deposit required to get the highest rate.

Live Oak Bank Savings
4.40%
Link
$10
Dormant account fee administered on inactivity for 24 straight months and a balance of less than $10.01

Barclays Online Savings
4.35%
Link
$0
None

. Pretty sweet for just tossing funds in an account. Who knows, it might come in pretty handy down the line when considering what to do with the extra liquidity. If you are mining for more, head to 'https://apy.fyi'. Not to humblebrag, but I've collected all the top rates there.

But yeah, depending on your full situation, front-loading TSP might not be as beneficial as it first appears. Your insights provide a great perspective.

 

[averygirl72]

@snapdragons_ here’s a different approach: take a loan from your tsp and size the payments to pay it back in full on your last paycheck. it’s a good way to get that money into a taxable account you can access without penalty. nice little cushion to smooth the transition to civilian employment.

i did this, but spread it out over about two years. there’s no opportunity cost if you invest the loan as you would had it been in the tsp. alternatively, can be more conservative to have a nice transition cushion in case jobs don’t materialize as soon as you hope.

 

[averygirl72]

this also lets you get the max employer match on the civilian side since the loan repayments don’t count against the contribution limits.

 

[kc316]

@snapdragons_ You won’t get January and February. They do not take out TSP in your final month before you retire. You will only get TSP deducted in January.

When I retired in 2022 I finished 1 August. I did max out my TSP Jan-Jun. pulling money out of savings to do so as I maxed.

You won’t be able to do that with one month. But you can try to max out as much as you can.