(40y/o) and about to retire after 21 years of service in June. I’m thinking about withdrawing 40k of my TSP to clear over 35k of debt. With the uncertainties of post retirement employment and potentially not being able to maintain my current financial position, I’m seriously considering clearing all my debt and starting retirement with a clean slate. Has anyone done this? Any tips or suggestions?
Tsp withdrawal right before retirement
byu/Tomwiz85 inMilitaryFinance
Posted by Tomwiz85
8 Comments
Do you have a pension with 21 years? 40+%?
Is this really retirement though? Doesn’t sound like it.
What savings do you have? How long until you actually retire and stop getting an AD paycheck? Pulling from your TSP is one of the worst things you can do for yourself, and, and you’re going to have to withdraw more than 40k to actually end up with 35k of usable cash.
What kind of debt? Interest rates? How much can you get paid off before you retire if you buckle down now?
The TSP is required to withhold 20%, and you’ll owe an additional 10% in penalties and possibly more in taxes the following April. So you’ll need to withdraw about $42K to have $35K cash in hand, and you’ll owe another ≈$4,200 to the IRS later.
Instead, beef up your emergency fund to last you 6-12 months in case it takes that long to find employment. Use your current monthly expenses minus expected pension payment times 6-12 to determine what dollar amount that would be. Then, once you have post-military employment, plus your pension, and potentially VA income, *then* aggressively pay down your debt using the debt snowball or debt avalanche.
I would not do that until you met with both a DC and FA so they can provide you different financial scenarios to consider, sleep on, then decide.
So you’re saying with disability and a pension you couldn’t get a simple job like working at Home Depot and be able to slowly attack this debt? Or even doing under eats on the side?
Borrowing from your retirement should be the last thing. But only are you paying penalties you’re also losing out on all the money the money you took would have grown into.
Just a heads up, if you’re active duty the only way to withdraw money from your TSP is through a hardship withdrawal and you have to provide proof that you actually need it to the TSP folks before it gets approved. The only way you can take money out easily is a TSP loan where you pay yourself back with interest. While you are active, they just take the payment right out of your paycheck on your LES and then once you separate, you’ll have to set up a payment plan.
Sounds like a bad plan