In 2020, the Bureau of Labor and Statistics’ data showed that someone between age 58 and 76 is expected to spend approximately $59,131 each year on expenses. Of course, this is a couple of years before inflation hit an historic high of nearly 10% in 2022 thanks to the COVID-19 pandemic.
Though economists say the rate of inflation will continue to come down over the next few years, the sudden spike we experienced goes to show we must be prepared for the unexpected when we retire.
How Much You Spend Depends On Your Retirement Lifestyle
If you’ve been reading information on retirement planning, you’ve likely heard about the 80% rule that claims a retiree only needs to replace 80% of their pre-retirement income. Let’s crunch the numbers: if you make $100,000 per year, under the 80% rule, you’ll only need $80,000 per year to live comfortably in retirement. That’s $20,000 less to pay all of your living expenses plus your bucket list plans like travel and recreation. Will it be enough? Before you can answer that question you need to start running some numbers.
“Don’t forget taxes: as much as 95% or more of your annuity is taxable as income and 100% of distributions from your traditional TSP are taxable.”
Calculate Deductions From Your Retirement Income
Deductions from your retirement income include premiums for your Federal Employee Health Benefits Plan (FEHB), Federal Employees Dental and Vision Insurance Program (FEDVIP), Federal Employee Life Insurance (FEGLI) and the Federal Long Term Care Insurance Program (FLTCIP).
Don’t forget taxes: as much as 95% or more of your annuity is taxable as income and 100% of distributions from your traditional TSP are taxable. Also calculate how much will be deducted from your monthly annuity if you elect a FERS survivor benefit.
Will Your Mortgage & Debt Be Paid Off When You Retire?
The 80% rule is based the huge assumption that your mortgage and debts from loans and credit cards will be paid off by the time you retire. Not likely. According to an article on CNBC.com, recent retirees carry an average credit card balance of $6,747 and $25,812 in other debt like store cards and personal loans. And those who own homes carry an average mortgage debt of $191,650.
When you add in your other living expenses, only you can know for certain if you can accomplish your retirement goals with only 80% of the net income you and your spouse have coming in, now. Consider working with an FRC® trained advisor who understands your federal benefits and can help you get an accurate estimate of how much you’ll be spending in retirement.
