Q. I’m writing because of a recent column about staying put in the Federal Thrift Savings Plan (TSP): My question is the flip side of what was discussed— should I transfer money in?
I am 64 years old. I receive a pension from the Arizona State Retirement System. But soon after I retired I became tired of being retired. So I took a teaching job with a community college in Texas. Now I am vested in that defined benefit plan as well.
In all the years that I taught (and I still work full time), I also contributed to a 403(b) plan through TIAA-CREF. I now have about $700,000 in this account, but I really do not need it. I will probably leave this money to charities and relatives.
Here’s the problem. Many years ago I briefly worked for the Federal government and I contributed to the TSP. After I left the Federal government, I never cashed this in. So the account is still active, although the balance is very small - less than $3,000. About a month ago the Federal TSP said, in a newsletter, that I could transfer other retirement funds, such as my 403(b), into the TSP. TIAA-CREF is a non-profit, and its fees are slightly less than 1/2 of 1 percent, but TSP expenses are much, much lower.
I am tempted to do this, but I am not 100 percent sure. What do you suggest? —M.P., Austin, TX
A. TIAA-CREF is one of the “good guys” out there. It’s also intimidating to consider moving $700,000 from a trusted, long-term account. But it makes great financial sense to move the money. Here are four reasons:
First, you will be moving it to another highly trusted institution, the Federal Thrift Savings Plan.
Second, you’ll enjoy an immediate cost reduction of more than 0.4 percent. That’s a saving of nearly $3,500 a year on a $700,000 account.
Third, you’ll have your money consolidated in one place. So you’ll have a better and more immediate grasp of your finances than with money spread around and your mailbox filling with different statements.
Fourth, more of your money will have access to the “G” fund in the Thrift Savings Plan. This special fund gives you access to intermediate term bond yields without the maturity risk of intermediate bonds. In the current low yield market, this is a very nice protection to have. You won’t want to put all of your money in this fund, but it’s a really nice option for the money you want to be really safe.
Q. I'm a 66-year-old commissioned saleswoman. I earned $72,000 in 2014 and have financial assets of about $780,000. I also own my coop apartment, worth nearly $200,000. I have no dependents, no debts and no mortgage. I am unsure about the best time to start taking my Social Security benefits. If I wait until I'm 67, I would get at least $2,400 a year more. Is there a cap on the maximum I could receive? I'm thinking of retiring in about a year. What would you advise me to do? —MS, Madison, WI
A. There isn’t much point in taking Social Security benefits while you are still working— you’ll only trigger taxation of the benefits. Instead, regard the deferral as an “investment” in higher future benefits. Since you are thinking of working one more year, your “return” would be the 8 percent increase in benefits for 12 months of deferral. That’s a good deal. It’s also inflation adjusted lifetime income. A life annuity from a private insurance company for a 67-year-old woman would pay at about a rate of 6.55 percent (according to www.immediateannuities.com) and would be fixed for life. That makes deferral of Social Security benefits a really good decision for single women.
The deferral has another benefit that few people think about. The increased guaranteed lifetime income will cover more of your living expenses, so you’ll have less pressure (and less anxiety) about investing your $780,000 in financial assets for income. As the yield famine continues, sources of guaranteed income are becoming ever more important.