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  1. v b

    June 15, 2010 at 6:40 pm

    You gradually put the money into the TSP, you should probably gradually take it out. If you don’t want to leave it in the TSP, you can roll it to an IRA and still take it out a little at a time.

    I’m big on doing income streams and dummy tax returns.

    Factors to consider:

    Your life expectancy is around 85, but you could live longer.
    Are you still working? When will you retire?
    When you retire, what income will you have?
    When do you expect to sign up for Social Security?
    Do you have health care or will you need extra money to pay for a gap policy until Medicare kicks in?

    I did a series of tax returns and looked at the tax rates I’d pay. (Just use blank forms, the standard deduction and the current tax rates shown in the 1040es form.)

    I looked at what I expect when I’m 66 and collecting full SS benefits. Between SSA, pension, other income and 3-5% of my current TSP/IRA balance, I will be in the 15% tax bracket. Possibly the low end of the 25% bracket.

    If I stopped working at 62 and started collecting the reduced SSA (still 15% to 25%).

    If I stopped working at 62, but didn’t collect SSA for a few years, same amount of TSP/IRA, I’d possibly be in the 10% bracket. In which case, I’d be tempted to take out more TSP/IRA money at the lower bracket, but NOT spend it.

    PS, good for you in downsizing. I’m working on it. I’ve taken a good look at my finances and I’m definitely house poor.