One of the top reasons why people choose to work for Uncle Sam is to take advantage of the government benefits. As a federal worker, you can count on your FERS annuity (pension) and Social Security for guaranteed, lifetime retirement income. Even better — your FEHB plan covers your medical needs while Uncle Sam continues to pay up to 75% of your premiums when you separate from service.
Compared to private-sector workers, you may feel like you have nothing to worry about except for planning your retirement party. Then again, in survey after survey, current federal retirees consistently repeat their number one regret is not saving enough in their Thrift Savings Plan (TSP). Why is that?
The FERS 3-Legged Stool
Your FERS retirement is often described as a three-legged stool. The first leg is your FERS annuity (pension), the second is Social Security and the third is the balance in your TSP. The assumption is that all three legs will create a sturdy stool to financially support your retirement. Unless you actually crunch the numbers to determine how much future income you can count on, you may end up with a shortfall when it’s too late to fix it.
“When you do the math, the average income for FERS retirees still lags behind CSRS retirees by more than $1,500 per month — a shortfall of over $18,000 per year.”
How The FERS Annuity Compares To CSRS Pension
According to the Congressional Research Service, the average monthly annuity for FERS retirees is less than half the pension of CSRS retirees. That’s right – while CSRS retirees clock in with an average pension of $5,447 per month, FERS retirees lag behind with an average of $2,126 per month. Of course, FERS workers can also collect Social Security. However, according to the latest statistics from the Social Security Administration, the average monthly retirement benefit comes in at $1,767. When you do the math, the average income for FERS retirees still lags behind CSRS retirees by more than $1,500 per month — a shortfall of over $18,000 per year. This is where your TSP comes in.
Will Your TSP Be Enough?
How much will you need in your TSP to close that $18,000 yearly income gap in retirement? In general, for your TSP account to generate an inflation-indexed annual income of $10,000 per year, you’d need to have a balance of around $250,000 at retirement. This means you’d need closer to $500,000 saved in your TSP for your total FERS income to equal the average CSRS pension.
If you crunch the numbers and find your TSP is coming up short, it’s time to get serious about your retirement plan. Connect with an FRC® trained advisor before it’s too late.
Sources:
https://sgp.fas.org/crs/misc/98-972.pdf
https://www.bankrate.com/retirement/average-monthly-social-security-check/
