Thank you for your membership, your service and your question. It’s rare that we as financial planners get to tell someone to have a little bit more fun with their money, but given what you have described as your cash flow sources and goals, you may be able to do just that. Now, I would be wrong to just say that without encouraging you to pressure test your cash flow for doomsday scenarios and make sure that you aren’t at risk of outliving your accumulated wealth.
There are a couple of things that I would want to make sure are addressed that weren’t mentioned:
First, your marital status. If you are married, I would have a discussion with your significant other about any survivorship benefits on your pensions, like SBP on your military and federal pensions. If you fast forward a decade, and you are receiving social security in addition to your pensions, at your passing, does your significant other have enough cash flow to maintain their financial well-being?
If you are not married and are not financially supporting someone other than yourself, then this cash flow analysis on survivor benefits need not apply.
Second, your tax liabilities are likely going to increase as you draw Social Security and then further when you draw on your TSP. I typically don’t encourage letting the tax tail wag the dog, however, managing taxes now may help to make your cash flow more stable in the future. It may be appropriate to talk with a tax professional and financial professional about converting traditional IRA and retirement dollars like your TSP towards a ROTH style plan to prevent future tax increases from reducing your spending ability in the future. The trade off is a tax cost today, but the future tax savings could be beneficial.
Additionally, required minimum distributions are not required on your personal ROTH accounts. Deferring distributions from your TSP account indefinitely, if converted to a ROTH IRA for example, could be a reasonable solution assuming that again your lifetime cash flow is stable and not at risk.
Lastly, I would want to know how well your current financial plan is protected from things outside of your control, like your health and wellness in the future. You said that you didn’t save and invest during your life to give it all away to your children, so I assume that you didn’t do all of that in order to spend it all on health care costs either. With your military retirement, you can expect to have TRICARE for life as a Medicare supplement that is best in class, however neither Medicare nor supplemental plans will cover long term care costs.
Consider how you have addressed those potential expenses. If you feel like you have enough assets to cover those potential costs, then determine if that is truly where you want your money to go.
If you keep seeing a surplus and are charitably inclined, it could be worthwhile for you to speak to a legal professional about using some of the assets you have currently in a charitable giving strategy. These can be both emotionally rewarding and beneficial in your tax situation.
I hope that this has been helpful and has given some direction for things to consider. If you feel comfortable with these topics and are equipped to manage them in your financial plan, then I encourage you to have fun, enjoy your wealth, do things that you want to and reap the benefits of your hard work and career!
Sean Scaturro, CFP®, MBA