Planning to retire soon? It isn’t just a matter of picking a date and filling out your federal retirement application. Before you make any decisions, you need to be sure you’ll have enough income to cover all of your expenses over a 25-plus-year retirement. So, roll up your sleeves and get out your calculator because it’s time to crunch some numbers.
Calculate Your Net FERS Annuity (Pension) After Taxes
Start with your gross FERS annuity (pension) by using the Federal Ballpark E$timate® calculator. Next, determine the amount withheld from your monthly payment for federal income taxes. Since you paid into your FERS pension with post-tax dollars, the portion you contributed is tax-free. However, as much as 90% or more of your annuity is taxable because it’s comprised of the government’s untaxed contributions and accrued earnings. Unless you specify a withholding status, OPM uses the default IRS withholding amount of single status with zero allowances.
Subtract Other Deductions From Your Net FERS Annuity (Pension)
Now that you’ve calculated your net FERS annuity, subtract other deductions that apply:
- The survivor benefit you elected: a 10% deduction for the 50% spousal annuity or a 5% deduction for the 25% annuity.
- Your portion of your FEHB premium and your FEDVIP premiums.
- If you keep FEGLI and FLTCIP in retirement, deduct the premiums.
“Of course, the distributions you take from your Thrift Savings Plan (TSP) each month are up to you but withdrawals from your traditional balance are 100% taxable.”
Calculate Your Net Social Security Income After Taxes
Create your online “my Social Security account.” This gives you access to personalized information based on your birth date and earnings record. It includes a chart that shows your estimated, monthly benefit starting at age 62 and every year thereafter through age 70. Then deduct income taxes on your Social Security. Of course, the distributions you take from your Thrift Savings Plan (TSP) each month are up to you but withdrawals from your traditional balance are 100% taxable.
Calculate & Subtract Your Monthly Expenses
Your expenses in retirement may not be much different than they are right now. Check your bank statements to estimate your average monthly spending on essentials and non-essentials then subtract the total from your net monthly retirement income. Note: according to recent data available from the Consumer Expenditure Survey, the average monthly expenses for American households total $6,440.
Lastly, Do The Math
Now that you have an estimate of your net income after deductions and expenses, is it enough to live comfortably in retirement? If not, connect with an FRC® trained advisor who can help you close any retirement income gaps before it’s too late.
