To manage yourself or pay someone. That is a great question.

Someone at work asked me about what to do with ones money if they were retiring at 73 years old and had a TSP account. The basic question was would I let someone run it for a fee or just leave it in the TSP. Ok, no one can answer that question except the person that owns the account. But I can give an opinion on what I would do.

To me the answer is simple, leave the money in the TSP and at that age, I would just throw it all into the L-income fund. Distribution is safe and it gives you a the chance to make a little money to help it grow and or replenish a bit. Your distribution looks like the chart below.

 

74% of your money is protected in T-bills which never go down. T-bills do not pay much at 1.47% currently, but you will not lose principal either. The C-fund is the next largest asset investment here and there is the risk. The C, S, and I are the most risky assets and that makes up 20% of your investments. Bonds are only 7% of assets and are not as safe as the G, but it is still fairly safe. So this entire invest portfolio has just a little bit of risk to give it a little earning power and a lot of safety.

So here is the money managing part of it. Ever heard of the 4% rule? Basically you take your entire portfolio value and multiply it by 4% and that gives you your yearly withdrawal number. If you need a monthly number, simple enough, take the last number and divide it by 12.

Total value of your account is $500,000

Annual withdrawal is $20,000

Monthly equals $1666

Now let’s just say your 73 years old. The IRS says that you will take a minimum withdrawal based on your age and that can found here. This has to be figured every year on December 31 and it has to be based on the entire value of the retirement account on that day. So looking at table III, at 73 years old, you have to divide $500,000 by 24.7 and that would give you an annual withdrawal of $20,242. That’s pretty darn close to the 4% rule and you can see just by this little tiny exercise that you really can do this yourself. What is important is that it is the minimum and if you don’t take at least that much, there will be a penalty. Who needs a money manager? The TSP folks only charge .27 a year on account value if I remember correctly, and those fees are almost untouchable on the market.

This approach will not make you rich but it is safe and you know what is happening with your money at all times. All that is required is that the meet the minimum withdrawal requirements each year for the IRS. One little note for us early retirement types. Even if you start withdrawing money prior to 70.5 years of age, you still have to start making the calculations to see if your taking the minimum each year until death.

Death and Taxes! You just can’t escape them!