How Much You'll Get In Retirement Income Under FERS
Check out my courses here: https://planyourfederalbenefits.com/courses-main-page/
Check out my articles on FedSmith here: https://www.fedsmith.com/author/dallen-haws/
The question that we all want to know the answer to is: How much money will be coming my way once I retire? And is it enough?
These questions have been asked by millions of Feds and getting the right answers can be a deal breaker in planning your retirement.
As an employee under the FERS, you will have income from three main sources.
1. Federal Pension/Annuity
2. Social Security
3. Your TSP
These are commonly called the 3 legs of your retirement stool.
A great place to start is with your fixed income or your pension and Social Security. Once you have a ballpark on your monthly fixed income, you’ll know how much you’ll need from your TSP to cover your standard of living.
Federal Pension/Annuity
If you have some years before retirement, a good estimate of your pension is a great start. If you are eligible for an immediate annuity, you can estimate your pension with the following formula:
High 3 x Years of Creditable Service x Your Multiplier
Your multiplier will be 1% unless you retire at age 62 or older with at least 20 years of service, at which point your multiplier would be 1.1% (a 10% raise!).
For example, if you are have 20 years of service, a high three of $100,000, and retire at age 63, your calculation would look like this:
$100,000 x 20 x 1.1% = $22,000
This means that your gross pension would be $22,000 every year or about $1,833.33 every month. Your gross pension would then be decreased by any of your insurance premiums (FEHB, FEGLi, ect) and other things like taxes and your survivor annuity if you elect it. Make sure you do the math for your situation to know what your net pension will be.
Once you get about a year out of retirement, you should request an annuity estimate from your agency to make sure their records match yours. It is not uncommon for them to make mistakes.
Social Security
The equation to calculate your Social Security benefits is very complex so the best thing to do is to go to ssa.gov and request a copy of your Social Security statement. On the top right hand corner will be an estimate of your monthly benefit at full retirement age. Your full retirement will be somewhere between 65-67 depending on your birth year.
The challenging part about Social Security is knowing when to turn it on. The earliest you can start benefits is 62 and the latest is 70. For every month you start your benefits before your full retirement age, your benefits will be decreased. However, for every month you wait to start your benefits after your full retirement age, your monthly benefit will be increased. There is no cut and dry answer on when is the best time to to start but the things to consider are your life expectancy, financial needs, and your personal situation.
If you retire early, you may find it difficult to wait until your full retirement age to start your benefits. You will want to be careful to not deplete your TSP too much in the meantime. The best case scenario is to make these decisions long before you retire. This way you have plenty of time to know how you are going to handle every stage of retirement without stressing your finances.
Note: If you retire before age 62 with an immediate retirement, you will be eligible for the Social Security supplement or FERS supplement. While this benefit only lasts until age 62, it can help to bridge the gap between retirement time and when it makes sense to start Social Security.
Your TSP
Everyone wants to know how much they need in their TSP in retirement. Again, there is no perfect answer for everyone. If there was, it would make my job as a financial planner much easier.
Once you