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▲ 35 r/govfire

Follow-up: I re-ran last week's 4% vs 6% TSP numbers against 10,000 random markets (Monte Carlo simulation) instead of a flat 7%

Follow-up to last week's 4% vs 6% withdrawal post.

That one assumed a flat 7% return every year for 38 years, which is how nearly every retirement projection you will ever be handed is built, including the ones people pick a date off of. A straight line is fine for comparing two options against each other. It is a bad way to find out whether either one actually holds up.

So I stress tested the same two paths. Same ATC retiring at 50 with $720,000, same draw rates, 10,000 runs with the returns shuffled. Every run averages the same 7% with 12% volatility. The only thing that changes between them is the order of the good and bad years.

The 4% draw (first chart). The straight line says it never runs dry and ends at 88 with $2,210,522. Across 10,000 markets it ran dry in 3,129 of them, the median run ends with $1,065,870, and the bottom 10% of runs are empty by 76.

Two things worth pulling out of that. The plan that looked bulletproof fails almost a third of the time. And the median outcome is less than half of what the smooth projection promised, on an identical average return. That gap is what volatility costs you.

The 6% draw (second chart). The straight line says the account dies at 78. Across 10,000 markets, 78% of runs die at some point, and the median run is empty at 75.

So the flat projection wasn't just optimistic about whether the money lasts. It was optimistic about when it ends. Half the runs are dry before the age the smooth chart handed me as the answer.

The reason is sequence. Walk out in January 2000 and you get three down years back to back, then negative 37% in 2008 at 58, selling shares the whole way, and 2021 through 2023 raising your withdrawal because the draw is indexed to inflation. Average all 38 years and you can still land near 7% with an empty account. Walk out in March 2009 instead and the first decade compounds before anything goes wrong, so the bad years land on a balance big enough to absorb them. Same plan, same average, and nobody gets to pick which one they retire into.

Two limits. The simulation covers the TSP only, no RMDs, no taxes, no annuity or Social Security underneath, so "ran dry" means the account hit zero and not that the guy is broke. His 6(c) annuity and SS keep paying in all 10,000 runs, which is the part that makes federal early retirement a different problem from the private sector version. And randomized normal returns still aren't real markets, where crashes cluster and tails are fatter, so this is probably generous to the higher draw.

What I'd actually suggest, and the reason I bothered running this: take whatever drawdown number you're planning around and stress test it before you commit to a date. A projection that only shows you the average is showing you one outcome out of thousands, and it tends to be a flattering one. Doesn't matter what you run it in. Just don't let a straight line be the last word on a 38 year retirement.

A withdrawal rate isn't a number you solve once. It's odds you either accept or manage down as you go, and 4% here is 69/31.

If you see a hole in the method, say so. I'd rather fix it than be wrong quietly.

u/Glittering_Twist_732 — 2 days ago
▲ 10 r/govfire

Non-financial reasons for retiring early or planning on it?

Hello Everyone. As I read through these posts on this subreddit, I see that most of the questions relate to some specific retirement policy or financial benefit. But something that I rarely, if ever, see discussed here is whether there was something about your work environment or your organization's values that no longer aligned with your own values or needs and that driving the desire to want to retire early. Was there something that a boss, colleague, some incident, something that conflicted with your personal or professional values, or some policy from on high somewhere up the chain that made you decide, "I have enough and enough is enough!" ?

I'd really like to hear from different levels of government though I realize this is very heavily skewed towards federal employees. Obviously, you don't want to share overly sensitive information, but I'd like to hear what caused you to say the scales had tilted towards early retirement and not towards sticking it out?

And, how did you come to your decision? If you're not retired yet, what do you think that will be.

Okay, pet peeve time and a simple request- no offense meant: This question is for getting into the weeds about FERS, or TSP, or OPM, or even state pensions or any other alphabet soup. This is not what this question is about and there are plenty of other threads I've seen that get into the weeds on that.

Otherwise, I'd love to hear your thoughts!

Edit: Thanks everyone for the responses so far! I appreciate and have read all of them, trying to respond to each one, but appreciate them all whether you have a direct response from me or not. I will check back periodically to try and respond to future comments.

I've adjusted the question to also include if there was one specific incident or boundary violation with your professional or personal values that pushed you over the line to expedite your retirement?

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u/SCAPPERMAN — 6 days ago
▲ 0 r/govfire

Thinking of splurging for a new vehicle purchase

Greetings all. Looking for some input on a potential new vehicle purchase. For background:

41yo M, Income: 150k annual. No side gigs.

Debts: Zero. Paid off house (350k value), car (2013 - 5k value), and no student loans.

Investments: 50k HYSA emergency fund (including ~20k for planned vehicle purchase), Maxed 401k split between traditional and Roth (~$350k balance). Maxed annual Roth IRA and money market account (~280k balance). Not HSA eligible due to health insurance plan. I’m also a SCE federal employee that will be entitled to a 34% pension when I’m eligible to retire in 12 years.

My true monthly expenses average around 1.5k per month (not having a mortgage is fantastic) after all is said and done and I’m currently investing about 45% of my income. With that said, I’d really like to purchase a newer (2024-2026) used truck for around 40-45k. Ideally something higher than base model with higher mileage as I don’t drive my personal vehicles a ton due to having a take home vehicle for work.

Thoughts? Is this going to put me a rough spot when it comes to trying to retire at 52? While I know I could buy the vehicle tomorrow and still likely be fine, how much of a dent would I really feel? Thanks in advance.

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u/Suey13 — 7 days ago
▲ 128 r/govfire

An ATC retiring at 50 asked me if he could pull 6% from his TSP instead of 4%.

https://preview.redd.it/0edp9wqq3tih1.png?width=2400&format=png&auto=webp&s=f105d96de2523fc20904b9d0c229f8093ca48191

6c Retirement discussion of the week:

Ran the numbers for a guy I'll call Dave. ATC, walking out the tower at 50 with 25 years of good time under 6(c). High-3 of $155,000, about 1,040 hours of sick leave on the books, married, Virginia, taking the full survivor benefit. He's got $720,000 in the TSP.

The pension side is the same no matter what he does with the TSP: $4,592 a month from the annuity, plus a $1,425 a month supplement until it shuts off at 62, then Social Security at 62 of $2,275 a month.

The whole question was the TSP. Everybody quotes the 4% rule. Dave's argument was that the 4% rule got built for people retiring at 65 with a 30 year horizon, and he's got a pension floor underneath him that a private sector guy doesn't, so why not pull 6% and enjoy his 50s.

Honestly, fair question. So I ran it both ways, planning to 88, 7% return, 2.5% inflation, 2% COLA on the pension.

Year one At 4%: $2,400 a month out of the TSP. Total take-home $6,984 a month. At 6%: $3,600 a month out of the TSP. Total take-home $7,971 a month.

So 6% is $987 a month better right out of the gate, at exactly the age he actually wants the money. That's real and I'm not going to wave it away. Cumulatively, through age 77, the 6% path has put $447,920 more in his pocket.

Then it stops. The 6% account runs dry at 78.

Decade averages say it better than I can. Average monthly take-home:

Decade 4% 6%
50 to 59 $7,469 $8,574
60s $9,389 $10,805
70s $11,384 $11,644
80s $14,045 $6,989

The year it breaks: at 77 the 6% path is taking home $13,199 a month. At 78 it's $7,995. At 79 it's $7,408. The pension and Social Security keep right on paying (that's the good thing about a 6(c) annuity, it does not run out), but the TSP is gone and it isn't coming back.

Cumulative take-home crosses over at 84. Ride it out to 88 and the 4% path is $428,329 ahead, with $1,714,697 still sitting in the account. The 6% path ends at zero.

A few honest catches, because this is messier than "4% good, 6% bad":

  1. These are all nominal dollars. That $6,989 a month in his 80s is 2050s and 2060s money, not today's money. Cuts both ways though: the 4% path's $14,045 isn't as rich as it looks either.
  2. The 4% path pays MORE tax, not less. $661,448 vs $570,302 over the lifetime. That's what a big balance buys you: RMDs. From 73 on, Dave isn't really pulling 4% anymore, the RMD takes over and forces more out than he asked for. By 88 it's yanking $126,183 a year whether he wants it or not. If the idea of the IRS setting your withdrawal schedule bugs you, that's a legitimate mark against hoarding it.
  3. Flat 7% every single year, which is not how markets work. A rough first decade would hurt the 6% path a lot worse than the 4% one, and my model can't show that. If anything these numbers are generous to 6%.
  4. Nobody ends up broke here. Even with the TSP at zero, the pension and SS have the 6% path at $6,381 a month at 88. It's a big step down, not a catastrophe. Worth saying out loud, because the usual version of this post makes it sound like you end up eating cat food.

My read: the interesting part isn't which number is "right." It's that 6% buys you 27 good years and then hands you a cliff at 78 that you can see coming from a mile off and can't do much about once you're standing on it. If Dave genuinely values money at 52 more than money at 82, that is a defensible choice. He just ought to pick it on purpose instead of finding out at 77.

Curious how others weighed this, especially anyone who went out in their early 50s. Did you set a rate and hold it, or do you flex year to year based on what the market did? And if you see a hole in my math, call it out, I'd rather fix it than be wrong quietly.

Full worked report for each path if anyone wants to pick through the year by year:
4% path vs  6% path

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u/Glittering_Twist_732 — 9 days ago
▲ 7 r/govfire+1 crossposts

Partial month for FERS supplement when hitting MRA after VERA?

Trying to nail down how OPM credits (or does not credit) a retiree for having hit their MRA mid-month.

I was fortunate to be able to retire prior to my MRA under VERA. So, no FERS supplement until this point. But now I'm hitting my MRA and it's my understanding the supplement will soon be activated automatically. (yay!) Not to look a gift horse in the mouth, but I've seen conflicting information about how the supplement is applied for partial months.

Some places I read that a partial month can be prorated and that amount is added to the first full month. But an OPM phone support person told me that partial months are simply ignored/dropped (similar to how a partial month is dropped when calculating years of service). Can anyone point me to a published law or regulation that specifies which it is?

As an example, let's say that I hit my MRA on October 10. One version of events is that my November 1 check will be unchanged, but my December 1 check will contain a full month Supplement. The other version of events is that my November 1 check would still be unchanged, but my December 1 check will include one month plus 21 days of the Supplement. Then my January 1 check and onward would just include the monthly Supplement.

Presumably the same question arises regarding the month I turn 62. But I don't assume it would have the same answer.

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u/novanon7 — 9 days ago
▲ 71 r/govfire

Stage IV Breast Cancer + 22yrs

I’m a 46 year old GS-14 Federal employee who was just diagnosed with metastatic breast cancer. As much as that sucks, I very likely have lots of life left as I’m healthy and there are good treatment options. I likely don’t have 30 more years of life though and I figure I could possibly doing medical retirement, keep my benefits and collect my pension. I’d likely still work, just a less stressful job.
I have $780k in my TSP.

Does that make sense to medically retire?

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u/cheesyride — 13 days ago