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Originally published Saturday, October 27, 2012 at 8:47 AM

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Avoiding a shock with IRA rollover

Syndicated columnist

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Q: I retired a year ago last June from the federal government. With my Civil Service Retirement System retirement and my husband’s Social Security, we have enough money to live on. I also saved in the Thrift Savings Plan, expecting to use this money for travel.

The problem is, you can only take a one-time partial withdrawal. I took that withdrawal for travel this year.

Now I have a decision to make. What is the wise thing to do at this point?

Should I roll the remaining money over into an IRA, or take a monthly payment until it is used up?

If I roll it over to an IRA, can I take withdrawals before I am 65? Do you have any suggestions about an IRA that would be fairly safe?

A: Your Thrift Savings Plan (TSP) assets are what many call “the third leg” of retirement security — liquid financial assets that supplement your Social Security and pension income.

You are correct in your concern about converting your TSP assets into a lifetime income. You already have that.

What you need is flexibility, so rolling to an IRA is a good alternative. And after age 59½, you can take withdrawals without penalty or limit.

You will be hard pressed to find an IRA rollover with investment choices that will be as inexpensive to run as the choices in the TSP plan, but you can avoid a major shock (and waste of money) by using low-cost index funds.

If you want to keep it simple and do one-stop shopping — the choice many people prefer — then Vanguard Balanced Index Fund Admiral Shares (Ticker: VBIAX) are a good choice. Admiral shares require a minimum investment of $10,000.

Will it perform so well forever? Probably not, but history suggests that it will do better than about 75 percent of the alternatives you might choose.

Q: With the recent droughts and continuous population expansion, do you think that water, or water rights, should be considered to be a precious commodity, similar to that of oil and gas resources or gold?

Do you have any suggestions of how to efficiently invest now in this asset class?

A: We face a major collision between water supplies and population growth in the Southwest, witness Philip L. Fradkin’s “A River No More: The Colorado River and the West” (paperback edition, University of California Press, 1996).

Water is in short supply in Florida, and I have been in Rockport, Mass., during a water shortage when neighbors with views of miles of ocean reported on other neighbors who watered during a ban.

PowerShares, for instance, offers two exchange-traded funds that focus on water.

PowerShares Water Resources Portfolio ETF (ticker PHO) and PowerShares Global Water Portfolio ETF (ticker PIO) have expense ratios of 0.66 percent and 0.75 percent, respectively, which makes them relatively expensive for ETF shares, but a good indication that lots of people are thinking about water scarcity.


Copyright 2012, Universal Press Syndicate

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