• Pat Schultz

I’m 5 years from retirement. Is it too late for me to benefit from the VIP?

In high school I had a buddy, Joe, who always seemed to do the academic bare minimum. He skated through, never really trying, and he seemed fine with it.

Our senior year I noticed a change. Joe started making an effort. He started to care about his grades. He started asking questions in class. He actually did his homework, every day.

It seemed like overnight something had fundamentally shifted.

So I asked him what was going on, and I’ll never forget what he told me.

He didn’t want to be poor.

He decided the only way to avoid it was to go to college and get a good job. That’s why, seemingly overnight, Joe went from being a below average student to making the honor roll.

Joe went on to junior college, then got accepted to a good four-year school.

At that point I’d been Joe’s friend for several years. I can assure you that if he hadn’t turned things around our senior year he was definitely not going to college. Who knows how his life would have turned out.

I lost touch with Joe during college and didn’t know for a long time how his story went. Then, a few years ago, I was hanging out with some buddies and heard that Joe went on to become a successful lawyer.

It’s never too late to change the path you’re on!

Many times when people come to us at IFR they’re only a few years away from retirement. We often find out that they’re federal employees who had access to the VIP plan, but either didn’t realize it or never got around to understanding its benefits. (Click here to find out more about the benefits of the VIP plan)

It’s time consuming and confusing to figure out the different benefits available to you, and it’s understandable that you’ve had a lot of other things on your plate.

So now, a few years away from retirement, it’s easy to think you’ve missed your chance.

But that’s where you’re wrong!

Even if you’re only a few years away from retirement, taking advantage of the VIP plan now could have a huge impact on your future.

How to maximize your VIP plan if you think you’ve waited too long

The best way to take advantage of the VIP plan is to understand how much you can contribute each year. We’ve worked with some federal employees who were able to contribute as much as $40k per year into the VIP plan after they’ve maxed out their TSP contributions.

Think about how impactful that could be. If you’re 5 years from retirement and able to contribute $40k per year, that’s an additional $200k!

Let’s say you invest that $200k in a growth-oriented manner and have an average return of 8%. After 10 years (five years into your retirement) you’d have a tax-free pot of money worth $372k. That’s quite a stash of cash! If all your money is tax deferred that means every dollar you take out in retirement is taxed at ordinary income levels.

Maybe you aren’t in a financial position to put $40k per year into the VIP. What if you could put away $10k? With $10k per year, at the same 8% rate of return, you’d end up with $93k after 10 years.

Think of how much more flexibility and security either of these options could give you!

As my buddy Joe would tell you, it’s never too late to optimize your future.