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THE MISSING KEY

TO THE TSP

Part Two

Disclaimer:

This  webinar  is  designed  to  be  broad  in  nature  and  give  you  informa5on  for  helping  you  plan  your  re5rement.    This  does  not  give  individual  advice.        Shilanski  &  Assoc.,  Inc.  Securi5es    are  offered  through  Summit  Brokerage  Services  Inc.,  Member  FINRA/SIPC.  Shilanski  &  Assoc.,  is  not  affiliated  with  Summit  Brokerage  Services,  Inc.    Shilanski  &  Associates  Inc.  is  not  hired  by  or  represent  the  Government  in  any  way.    Tammy  Flanagan  is  an  independent  contractor  not  affiliated  with  Shilanski  &  Associates  Inc.  

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Today’s Presenters:

Micah Shilanski Tammy Flanagan

The  Missing  Key  to  the  TSP  

¨  The Basics ¨  It’s All About Taxes! ¨  The Funds and How to

Manage Them. ¤ Before Retirement ¤ Post-Retirement

¨  What Do You Do With All of This Money? ¤ Roll It or Keep it in the

TSP? ¤ TSP Options

n Monthly Payment Options

n Annuity Options

Part One Part Two

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2013  TSP  Survey  Results  

Plans for transferring money from TSP – Separated Participants

(Survey conducted by Aon Hewitt)

http://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2013.pdf

CSRS FERS

Want to consolidate all retirement accounts

73% 66%

More or better investment choices 9% 33%

More flexible withdrawal options 18% 23%

Available financial advisory services 55% 18%

Better investment or financial planning tools

18% 15%

Lower costs or administrative fees 18% 18%

Better customer service 9% 11%

Other 18% 18%

2013  TSP  Survey  Results  

Reasons for Keeping Money in the TSP – Separated participants

(Survey conducted by Aon Hewitt)

http://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2013.pdf

CSRS FERS

I don’t need to use my TSP now 59% 49%

I am satisfied with the TSP investment options and/or performance

59% 51%

I want to take advantage of the TSP’s low fees

40% 36%

I am receiving monthly payments from the TSP

32% 39%

I don’t know what other choices are available

9% 10%

I am using the TSP to consolidate all of my other retirement funds

4% 4%

Other 4% 6%

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In-­‐Service  Withdrawal  Op5ons  ¨  TSP loan program

¤  $50 fee ¤  Unpaid loan balance at retirement:

n  Reamortize loan prior to retirement n  Pay off full or partial loan balance with a check within 90

days of separation n  Declare a taxable distribution on balance

¤  Does not count as partial distribution ¨  In-service withdrawal program

¤  Hardship ¤  6-month barr on contributions ¤  Age-based

n  Counts as your 1-time partial distribution

Ques5ons:    In-­‐Service  Withdrawal  

¨  I'd like to understand the one-time withdrawal from TSP allowed while still working. ¤ What are the positive outcomes of taking a

withdrawal? ¤ What are the potential negative consequences? ¤ How to determine the best percentage to withdraw? ¤ Where is the best to place to put the money?

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TSP  at  Re5rement  or  Separa5on  

¨  Can withdraw a portion or all of funds ¨  Can make interfund transfers

¤ Account continues to be invested in C, F, G, S, I and/or L Funds

¨  Cannot contribute to your account ¨  Cannot borrow from your account

Processing  Requests  for  TSP  Payments  

¨  TSP  website:    efficient  loan  or  withdrawal  elec5on.    ¨  Use  “My  Account”  sec5on  

¤  13-­‐digit  TSP  account  number  (or  customized  Web  user  ID)  and    

¤  TSP  Web  password.  

¨  Complete  the  process  online  or  print  out  the  Withdrawal  Form  or  Loan  Agreement,  complete  the  form,  and  mail  or  fax  it  to  the  TSP  (with  any  addiLonal  required  informaLon).  

¨  Loans:    The  TSP  must  receive  the  Loan  Agreement  before  the  expiraLon  date  at  the  top  of  the  agreement.  

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Under  age  59  ½  Ques5ons:  

¨  What is the earliest date I can take a TSP withdrawal/distribution (i.e. in monthly payments), rather than a total rollover to an IRA? I retired at 51 years old. I'm now 55 years old.

¨  How can I use rule 72t to withdraw TSP? I will be 50 years old and retire June 2015 from Air Traffic Control. And can I change what I do with TSP at 59 1/2 years of age?

Excep5ons  to  59  ½    10%  tax  penalty:  

Important  Tax  InformaLon  About  Payments  From  your  TSP  Account  TSP-­‐536  

¨  Paid  aQer  you  separate  from  service  during  or  aQer  the  year  you  reach  age  55;  

¨  Annuity  payments;  ¨  AutomaLc  enrollment  refunds;  ¨  Made  as  a  result  of  total  and  permanent  disability;  or  

made  because  of  death;  ¨  Made  from  a  beneficiary  parLcipant  account;  ¨  Made  in  a  year  you  have  deducLble  medical  expenses  

that  exceed  10%  of  your  adjusted  gross  income  (7.5%  if  you  or  your  spouse  is  65  or  over);  

¨  Ordered  by  a  domesLc  relaLons  court;  or  ¨  Paid  as  substanLally  equal  payments  over  your  life  

expectancy.  

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Op5ons  at  Re5rement  or  Separa5on  

¨ Partial ¨ Full

¤ Single payment ¤ Monthly payments ¤ Life annuity

Example of Partial Withdrawal

$300,000 TSP $100,000 keep in G

Fund / withdraw $2,000 monthly payment

Transfer $2,000 to bank

$200,000 transfer to IRA

May change amount annually, but can change deposit location

anytime

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Request  for  Par5al  Withdrawal  TSP-­‐77  

Ques5ons:    Withdrawal  Op5ons  

¨  I  would  like  to  take  money  out  in  monthly  regular  payments  then  chunks  very  once  in  awhile  for  home  repairs  or  big  trips.  Is  this  possible?    

¨  Can  you  withdraw  for  emergencies  or  do  you  have  to  take  out  fixed  payments?  If  payments,  can  you  change  the  amount  and  how  oQen?  

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Leave  it…  or  transfer  it?  

Leave it in TSP

¨  Net expenses are only 28.5 cents / $1,000 / year

¨  No additional annual fees, commissions, or charges

¨  TSP does not make a profit on your investments ¨  Responsibility to put your interests ahead of its

own. ¨  TSP protects retirement funds from creditors’ ¨  Set up a series of scheduled withdrawals ¨  No “back-end” charges when changing

investments or take withdrawals.

Leave  it…  or  transfer  it?  

Move To An IRA

¨  More  control  of  using  money  as  you  wish  from  your  diversified  investments  

¨  By  moving  your  TSP  into  an  IRA,  you  can  separate  the  Roth  money  from  the  tax-­‐deferred  tradiLonal  TSP  investments.  

¨  Ride  a  slower  roller  coaster  that  doesn’t  have  the  big  ups  and  downs  of  the  C,  S,  F  and  I  funds  

¨  You  will  be  able  to  take  out  money  on  an  “as-­‐needed”  basis  

¨  Beder  estate  planning  opLons  ¨  Looking  for  an  annuity?    The  TSP  is  not  the  only  

opLon  

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Pro-­‐Rata  Distribu5ons  

EXAMPLE: $500,000 earning 6% may provide payments for 30 years of $3,000 / month

G Fund 30% $900

I Fund, 20% $600

C Fund 30% $900

F Fund 10% $300

S Fund 10% $300

Ques5ons:    Pro-­‐Rata  Distribu5on  

¨  I  have  money  in  both  the  TradiLonal  and  Roth  TSP.  AQer  I  reLre,  withdrawals  are  taken  out  pro-­‐rata  according  to  the  balances.  To  me  this  is  a  serious  flaw  in  how  the  Roth  porLon  of  the  TSP  was  designed.    ¨  Is  there  any  effort  being  made  to  change  the  withdrawal  policy  to  allow  the  accountholder  to  decide  which  pot  of  money  their  withdrawals  are  taken  from?  

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Example:

Sam has $500,000 in his traditional TSP account and $10,000 is in the Roth TSP.  When Sam retires he wants to do a partial withdrawal to remove the $10,000 that is in the Roth TSP and transfer this to his Roth IRA.  Can he do this? Yes:  He has to elect a partial withdrawal of $10,000 and transfer 100% of his Roth Balance to his Roth IRA  

Or No:  If he elects a partial withdrawal of $10,000, only $200 of it will come from his Roth TSP and the other $9,800 will be transferred out of his traditional TSP … withdrawals are always taken pro-rata the way you are invested.  ¨  2% of his balance is in the Roth TSP, so therefore 2% of his withdrawal will be Roth

and the other 98% will be traditional

Answer  from  the  TSP:  

The answer is no – it would be a pro-rata distribution.  We know that this is not particularly welcome news for our participants and we have an on-going project right now to review this issue (and some others related to Roth accounts). 

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Request  for  Full  Withdrawal  TSP-­‐70  

Monthly  Payment  Based    on  a  Specific  Dollar  Amount  

¨  Choose an amount of $25 or more ¨  Receive payment until fund is depleted ¨  Continue to make interfund transfers ¨  May change amount once per year

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Monthly  Payment    Based  on  Life  Expectancy    

¨  Payment based on account balance and age ¨  Amount will change every January ¨  May make a one-time only change ¨  The amount of payment is not guaranteed!

Monthly Payments: Two Options Example: Balance: $500,000 / Growth: 5%

Dollar Amount Life Expectancy

¨  $3,000 / month Run Out at age 78

¨  $2,000 / month Balance at age 100: $209,484.99

Monthly Age Balance

$1,407.66 55 $508,224.49

$2,208.64 65 $557,817.99

$2,069.36 75 $572,237.19

$3,095.55 85 $539,728.21

$3,612.99 95 $347,388.27

$3,166.00 100 $212,558.69

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Types of Annuities

¨  Single Premium Immediate Annuity

¨  Death Benefits

¨  Single Premium Immediate Annuity

¨  Fixed Annuity ¨  Indexed Annuity ¨  Variable Annuity ¨  Death Benefits ¨  Living Benefits

TSP Annuity Other Annuity Options

Questions to ask?

¨  How do I get my money out? ¤ When? ¤ How much?

¨  Fees (base fee, M&E (mortality & exp.), rider, sub account)

¨  Caps or limits ¨  Surrender Charge ¨  Death Benefit ¨  Flexible withdraw options? ¨  Compensation to the sales person for selling the

annuity? ¨  Why?

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Life Annuity

¨  Provides a monthly income for life ¨  Purchased with TSP funds

¨  Monthly payment is determined by: ¤ Choice of annuity ¤  Your age ¤  Your TSP account balance ¤  The market interest rate

Life  Annuity  OpLons  

Type Payments Death Benefit Features

Single Life Level or increasing

Cash refund 10-year certain

Joint Life With Spouse (or non-spouse but no increasing income)

Level or increasing

100% survivor annuity 50% survivor annuity 100% survivor annuity with

cash refund 50% survivor annuity with cash

refund

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How about an annuity?

Example: Payments

¨  $500,000 purchase ¨  Begin at 55 ¨  Single Life ¨  2% Interest Rate Index

¤  (set for life at time of annuity purchase)

¨  Level Payment ¨  No Cash Refund

Monthly Age Balance

$1,980 55 $0

$1,980 65 $0

$1,980 75 $0

$1,980 85 $0

$1,980 95 $0

$1,980 100 $0

TSP Annuity Questions

¨ How  do  I  know  which  annuity  is  best  for  me?  I  want  a  monthly  income  payment,  with  low  fees,  cash  access  and  beneficiary  rights.  

¨ How  will/can  I  know  what  my  monthly  payment  if  I  chose  an  annuity  would  be?

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Advantages  of  a  Life  Annuity  

¨  Steady income for life ¨  May not have to manage investments ¨  May offer a joint life annuity or other death

benefits

Disadvantages of a Life Annuity

¨  Cannot be canceled or changed ¨  Takes many years to recover the original investment ¨  No access to your original investment

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Annuity VS Monthly Payment Questions

¨ What  are  the  pros  and  cons  of  purchasing  an  annuity  with  one's  TSP  account  balance  following  reLrement  versus  drawing  down  the  balance  in  periodic  withdrawals?

Withdrawal Options / General Questions

¨ Given  the  limitaLons  on  withdrawal  opLons  for  the  TSP,  do  you  think  it  is  sLll  beder  to  leave  the  money  there  (b/c  of  the  low  fees)  rather  than  rolling  it  to  a  private  IRA  account  aQer  reLrement?  

¤ I’m  under  CSRS  and  won't  need  to  touch  any  of  the  TSP  money  for  at  least  the  5  years  aQer  reLring.  

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Your Questions!

¨ When  is  the  best  Lme  to  withdraw  TSP  if  reLring  "early"  (MRA  +  10).  Is  rollover  to  IRA  beder  plan?  ¨  I  want  to  know  more  about  using  some  of  my  TSP  for  my  adult  daughter.  She  has  a  disability  and  earns  limited  income.  I  want  to  supplement  her  income  by  using  part  of  my  TSP  to  give  her  a  monthly  payment.  

Estate Planning Questions

¨  What options does one have once retired with one's TSP in the way of retirement & estate planning? ¤ My main concern is how to handle your "quirky #3"

situation...and, if I die with a large balance, how to keep 1/3 of it from going to the IRS...

¨  I am CSRS ----looking how to best utilize TSP with my CSRS annuity. ¤ Also any recommendations on how to handle survivors

annuity

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Estate Planning TSP

¨  TSP-3 (Beneficiary designation) ¨  Beneficiary Account

¤ Spouse Only ¤ Can not be transferred or a rollover

TSP Web Site: Planning & Tools: Retirement Income Calculator TSP: Retirement Income Calculator