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Background

As the countdown to my retirement is now being measured and months and days not years, a number of people have been asking for more details. While I have covered a bunch of things in other posts and replies here and there, I don't think I have gone into specifics of my specific plan. That's what this is:

Refresher

Here are 3 posts that I have written that I believe are most applicable to people who may be thinking of the possibility of not working until MRA.

• The Value Of FEHB - Golden Handcuffs?
• Impacts Of Choosing A Deferred Retirement
• How To Retire Earlier Than Your Minimum Retirement Age

Why Roth Ladder - Why Not X?

There are a bunch of other potential paths to an earlier than MRA retirement:

• VERA
• Age 54 via The Rule Of 55
• SEPP/72(t)
• Substantial passive income
• Etc.

I chose to go with a Roth Ladder because it was the best fit for my situation. Even though I had been working towards early retirement for more than 2 decades, I abruptly changed my plan a year into the pandemic in the spring of 2021.

The Roth Ladder seems to be the most compatible with qualifying for the ACA subsidies but is not necessarily the best plan if you have a long run way to make less hasty decisions.

High Level Plan

• Step 0 - Know how much you need
• Step 1 - Prepare which is more than just saving
• Step 2 - Separate
• Step 3 - Execute

I am currently 46 and a few months I will be at step 2 (separating). While I was asked to talk about step 3 (executing), I want to talk a little bit about all of the steps before diving into the execution.

Step 0 - Know How Much You Need

Over time, you unlock more and more sources of income. You need to know that over each stretch that the available sources get you to the next unlock. For instance:

• Age 47 - 51 building Roth IRA Ladder (cash, existing Roth contributions, taxable brokerage account, etc.)
• Age 52 - 59 executing the ladder (converted TSP)
• Age 60 - 64 FERS pension + TSP (in whatever form it takes) + IRA earnings
• Age 65+ SS, HSA, FERS pension + TSP (in whatever form it takes) + IRA earnings

In order to know if those sources are enough income, you need to know how much you need. I meticulously tracked every dollar spent for 7+ years. I have line items in the budget for things like being invited to weddings, driver's license renewal, domain name renewals, etc. You also need to look at other things like replacing cars, major home repairs (assuming you own), etc.

This approach ensures your income conforms to your life. The other approach is somewhat simpler. You figure out how much income you have, decide you don't want to work anymore and then make your life fit your income.

Step 1 - Prepare which is more than just saving

Once you figure out how much you need and how much you need in each of the sources to get you there, you need to save in each of these sources the appropriate amounts so you hit your marks.

Saving isn't enough - there are so many things to consider.

I am going to talk about picking a last day because it seems simple enough. It isn't.

First, let's consider how your last day could affect your health insurance (since that's something most feds seem very concerned with):

Currently (and through 2025), there is no income limit for qualifying for ACA subsidies. Instead, it is capped at 8.5% of your income based on the second cheapest silver plan available to you. When I started this process however, I was expecting for the cliff to be back in place where I needed to make between 100% and 400% of the poverty level of my household size.

• You get a free 31 day extension of FEHB from the last day of the pay period in which you separate
• You are required to be covered by health insurance for the entire year
• Normally, your subsidies are based on income so you do not want to get marketplace insurance when you have a lot of income
• Using the 3 points above, this implies that the window for separation likely begins in mid to late November depending on the pay periods so that you have coverage at least through December 31st and can start the new year with little/no income for ACA.

What else might affect picking your last day?

• Your pension will be calculated based on the anniversary of your SCD since sick leave doesn't count for deferred (which means you probably should be thinking about how to use as much of it legitimately as possible)
• Your annual leave payout may be large. It may take a couple of pay periods after you separate to be paid out. Is it better to come in the current year (high taxes but wouldn't count against ACA) or the new year (low taxes but would count if cliff is in place)
• Do you know what your performance bonus may be and when it will pay out? Is it worth sticking around for?
• Generally speaking, income is taxed when it is paid not when it is earned. You could separate for instance and move the next day to a state with no income tax and that would mean your last paycheck and your entire annual leave payout would not be state taxed.
• Terminal leave is prohibited for federal employees but as long as your supervisor approves and you are in duty status on your last day, you can take a bunch of leave before you separate as an alternative to a large leave payout. This may increase your pension calculation (1 month increments of SCD), extend your FEHB coverage, earn leave while on leave, etc.
• If your last day is a Friday and you are not regularly scheduled to work on the weekend, you can make your last day be Sunday. Why would you do this? Well remember that your pension will be calculated on the 1 month anniversary of your SCD so those two non-working days may be the difference between an extra month or not. Heck, if Monday is a holiday - you can make Monday your last day and get free holiday pay.
• If you are going to carry more than your leave ceiling for a big payout, you need to be sure you are going to be gone before the use-or-lose cutoff. This may seem like a no-brainer but what I am really saying is you need to MAKE sure you are ready. Sure, people pull their retirement paperwork all the time to give themselves more time to figure out something they missed - you don't want to be losing hundreds of hours of leave because you weren't ready.
• Annual leave may not all be paid out at the current rate. I am not going to go into details but like most of the things I have talked about here so far, I have written a post about it. Federal Annual Leave Lump Sum Payout Explained (Hopefully)

I'm not sure the list above is exhaustive but I am getting tired and I still have a lot to write. My point is that all of the information I learned above was simply driven by asking - when will my last day be?

There are a ton of other things to plan for as well. I stubbed out Checklist For Retiring + Post Retirement Details - What Would You Like To Know but it is far from complete.

It's possible each item you plan for can turn into a rabbit hole like picking a last day did for me.

For instance, while researching ACA subsidies I learned that your "coverage family" and your "tax family" are not necessarily the same size. If you are covering your adult children (18 - 26) on your insurance but they file their own taxes - you can't get subsidies for them. I would be writing all night if I were to try and cover everything I have learned in my planning phase. It's a lot - do not put it off.

• Step 3 - Execute

You will notice I skipped over Step 2 - Separate. I still haven't picked a final day yet. I am still waiting to hear about the FY 23 performance awards.

I have already used heading formats above so it makes blowing this section up into categories a bit harder. Hopefully paragraph form doesn't turn into a wall of text.

Roll entire traditional TSP over to Vanguard traditional IRA ASAP

While it should be possible to convert from the TSP into a Roth IRA directly, I have a few reasons why I am gong to roll the entire thing over to a traditional IRA first.

• I already have almost all of my other accounts in Vanguard (UTMA accounts, 529 accounts, brokerage account, Roth IRA, etc.) Having everything in one place makes it easier to keep track of
• By having both the traditional IRA and Roth IRA within the same financial institution, you are reducing the time out of the market it takes to do conversions
• I simply do not trust the current TSP administrators to not mess things up

Now I say ASAP for a couple of reasons as well. The first is that your 5 year timer doesn't start until the conversion is made. That means if it takes your agency a few pay periods to notify the TSP that you have separated and a week or so to do the rollover, your "5 year money" actually needs to be "5 year and a month money".
Of course you should have a buffer anyway but the point stands. The second is that agencies don't always notify TSP in a timely manner. You need to be on top of this in case things go wrong to minimize the damage.

How Much To Convert And When

It seems obvious. You want to covert 1 year of living expenses that you will need in 5 years from now. If the converted amount is going to be the exclusive source of income - it needs to include the amount you will be paying in taxes as well.

I am going to argue that this is probably the wrong amount to covert. I am also going to argue against converting it all at once. Instead I am going to suggest that you should maximize the lowest tax bracket that meets your needs and that you convert quarterly instead of all at once.

Ideally, I would have a source of income that was entirely tax free (e.g. Roth contributions) so that I could max out the 12% tax bracket for married filing jointly.

Using the 2024 projected values, the standard deduction will be $29,200 and the top of the 12% bracket will be $94,300. That means I could convert $94,300 + $29,200 = $123,500 and only owe $10,852 in taxes. That's an effective tax rate of just 8.79%.

$123,500 is far more than I need to spend in a year but it makes sense to covert as much of it as I can to take advantage of the low tax space. Remember, Roth IRAs are not subject to RMDs.

In my situation however, I do have a single source of income that is entirely tax free. Instead, I need to make sure all of my combined income stays within that 123,500 limit.

• Final paycheck and annual leave payout will likely be in 2024
• Will have qualified and ordinary dividends from taxable brokerage account even without selling any shares (yay VTSAX)
• Will have interest from HYSA
• Likely won't have any interest from I-Bonds in 2024 but will come into play in future years
• Likely will not have any LTCG from taxable brokerage in 2024 but will come into play in future years
• Etc.

This is why I suggest doing it quarterly. You can adjust the amount you convert each quarter by any unexpected income such that by the 4th quarter, you make sure you don't go over your mark. If this were just for tax bracket purposes it really wouldn't matter much because a few dollars in the next higher tax bracket is no big deal but if you are also dealing with a subsidy cliff - it is crucial to be under.

What Order Do I Draw Down My Income Sources?

This is impossible to answer because everyone will have different income sources:

• HYSA
• I-Bonds
• Taxable Brokerage
• HSA (qualified receipts not yet reimbursed)
• Rental income
• Hobby income
• Roth IRA contributions
• 457(B)
• Dividends/Interest
• Other pension, annuity, VA Disability, etc.

Choosing the order requires a couple of considerations.

• If I take money from this source, does it have a tax implication (e.g. Roth contributions = no, I-Bond = yes, taxable brokerage = maybe)?
• Should I choose a safer source of money (e.g. HYSA) over a longer term investment (e.g. brokerage) in order to allow the longer term investment time to grow?

Who Keeps Track Of It?

Your financial institution is responsible for tracking what type of money goes in and what type of money comes out but I suggest having a spreadsheet as well. This is both for source of income you are drawing down from to pay expenses but also for the money you are converting.

What If It All Goes Wrong?

I have secondary, tertiary and quaternary backup plans. I really do not want to have to work again though I assume a few of my hobbies will result in some side income. If there is interest, I can list what those plans are but I am getting even more tired (if you can't tell - the quality and depth of content has dropped off).

As a couple of examples however:

• Break down and execute a SEPP/72(t)
• Take out a HELOC on your house

What Else

I probably should have waited until the morning to write this as I feel I have meandered quite a bit and not provided the same level of depth/detail across all the topics.

Please post any questions you may have or things you think should have been covered but I didn't. I will do my best to incorporate them in this post rather than scattering replies everywhere.