In the final years of your federal career, you’re likely putting the focus on saving as much as you can in your Thrift Savings Plan (TSP). While you’re at it, start thinking about how much you’ll need to withdraw from your TSP, in addition to your FERS pension (annuity) and Social Security, to cover all of your monthly expenses.
One rule of thumb is that you’ll need about 80% of your current income because certain deductions from your pay will go away in retirement. These include contributions to your TSP and deductions for your FERS pension and Social Security taxes. However, when you consider the rising cost of living and inflation, your monthly expenses in retirement may not be much different than they are during your working years.
How Much Are Your Monthly Expenses, Right Now?
According to the most recent data available from the Consumer Expenditure Survey conducted by the U.S. Bureau of Labor Statistics (BLS), the average monthly expenses for American households totals $6,081.
This includes everything from mortgage payments, utilities and groceries, to credit cards and other monthly expenditures. When compared to the data collected for 2013, the current average reflects an increase of $1,822. With the 2022 average annual household income coming in at $83,195 after taxes, Americans spend approximately 88% of their post-tax income.
“Don’t forget that taxes on your retirement income may also need to be withdrawn from your TSP.”
Your essential expenses include everything you need to keep your retirement lifestyle on track:
- Housing: mortgage payments, property taxes and homeowners insurance.
- Utilities: gas, electric, water, heating oil, landline/cell phone, internet and TV services.
- Home Maintenance: pool, lawn care and housekeeping services.
- Food: groceries, eating out and food delivery services.
- Transportation: auto insurance, gas and average monthly maintenance.
- Healthcare: healthcare insurance premiums, out-of- pocket costs for prescriptions, medical supplies, dental expenses, and any other costs not covered by insurance.
- Debt: credit cards, car loans/leases, LOC loans, TSP loans and college loans.
Next, Calculate Discretionary Expenses
Discretionary expenses include spending on non-essentials that are within your control:
- Personal Care: clothing, personal care products plus services like gym memberships.
- Pet Care: pet food, supplies, veterinary services and pet sitters.
- Sports, Entertainment & Restaurants: golf/tennis fees, concerts, movies, dining out, etc.
- Travel & Vacation: hotel costs, car rental and airfare.
- Miscellaneous: apps, hobbies, gifts and charitable donations.
Don’t forget that taxes on your retirement income may also need to be withdrawn from your TSP. Connect with an FRC® trained advisor to learn more.
Source: https://www.bls.gov/cex/
