You’ve probably read a number of articles by financial experts advising how much money you need to save for your retirement. Mainstream advice designed for workers in the private sector can go as high as $1.5-million to socking away 10X your yearly salary in a 401(k) by age 67.
Then again, a good portion of mainstream advice doesn’t apply to federal employees covered under FERS. The reason: you have your FERS pension in addition to your Thrift Savings Plan (TSP) which provides advantages similar to a 401(k).
The Differences Between Federal & Private Sector Retirements
In the private sector, the majority of employers have replaced traditional pensions with 401(k)s and similar plans. In fact, according to the U.S. Bureau of Labor Statistics (BLS), as of March 2022 only 15% of private sector workers reported having access to a pension plan that provides anything close to your lifetime FERS annuity.
As a result, private sector workers only have one source of guaranteed income for life: Social Security. Under FERS, you have two sources of guaranteed lifetime income: your annuity and your Social Security. And both benefits qualify for Cost of Living Adjustments (COLAs).
“Of course, how much you need really comes down to how much is required to achieve the retirement lifestyle you want.”
Calculating Your FERS Annuity & Social Security Income
Before you can determine how much to save in your TSP, you need to get an estimate of your monthly FERS annuity in addition to your monthly Social Security payment. Here’s how to calculate your FERS pension:
Step 1: Determine your High-3 Salary
Step 2: Multiply your High-3 by your years of creditable service
Step 3: Multiply the above number by 1% (if you retire at 62, multiply the above number by 1.1%)
For Social Security, you can use this calculator: https://www.ssa.gov/OACT/quickcalc/
How Much To Save In Your TSP For A 30-Year Long Retirement
Once you have an idea of your income from your FERS annuity and Social Security, you can decide how much you’ll need to withdraw from your TSP each month to achieve the yearly income you want. For example, if you want your TSP to generate an additional annual income of $10,000, you’ll likely need a TSP balance of around $250,000 when you retire.
Of course, how much you need really comes down to how much is required to achieve the retirement lifestyle you want. Consider working with an FRC® trained advisor who understands your federal benefits. Together, you can crunch the numbers and develop a retirement plan that provides financial security foe the rest of your life.
