You Can Afford To Retire!

By Tammy Flanagan

March 3, 2006

Some financial planners use a replacement rate of 70 percent to 80 percent of pre-retirement income as a guide for an affordable retirement. You may have more confidence in planning for life after government if you can visualize how much of your pre-retirement income you will have.

Solution

Comparing your salary to your projected retirement income can be a liberating and revealing exercise. You may find out that retirement is more affordable than you think.

Even if you haven't worked in government for 40 years and don't have $1 million in your Thrift Savings Plan account, you can still have a very comfortable retirement.

To gauge your projected income, you will need the following documents (see the Resources section below to learn how to obtain them):

• Estimated retirement computation
• Leave and earnings statement
• TSP statement
• Social Security statement
• Court order or divorce decree (if retirement benefits are affected)

Note: Multiply biweekly numbers on your leave and earnings statement by 26 and monthly numbers on your retirement estimate by 12.

1. Your retirement could be reduced for early retirement, civilian or military service credit unpaid deposits, CSRS Offset and survivor benefit reductions. These numbers can be computed on a retirement estimate prepared by your agency's benefits office.
2. The FERS Supplement is not payable if you are going to work and earn substantial income after retirement (in 2006, the supplement is reduced by $1 for every $2 that you earn over $12,480). If you are retiring at age 62 or later, the supplement is not payable. MRA+10 and deferred retirements are not eligible for the supplement.
3. Depending on the state you live in when you retire, you may not need to pay state income tax or some of your retirement income may be exempt from state income tax.
4. Social Security retirement is payable at age 62 or later. Up to 85 percent of your Social Security benefit may be taxable. In some cases, your spouse (current, former or deceased) may provide Social Security benefits that could be higher than your own.Social Security will assist you to determine the most advantageous benefit.
5. Go to the TSP Web site to explore various withdrawal options. Calculators are available for monthly payout options as well as the annuity option.
6. 
   * Use income after deductions for taxes and other withholdings.

Here's how the form might look if filled out by a FERS employee who has 34 years of service (22 federal and 12 private sector) and is 56 years old:

Here's another example, of a CSRS employee who has 34 years of service and is 55 years old:

So what does all of this mean?

The "net" numbers in the examples above may look almost too good to be true. Remember, they represent employees who got used to living on less by saving for retirement in the TSP plan or other retirement savings program. If you haven't invested much prior to retirement, your numbers may not look as good, and you might need to work longer to accumulate enough wealth to retire. Many factors will determine your retirement readiness. Understanding the value of your benefits is the first step in planning for your retirement.

Resources

• Chapter 40 of the CSRS and FERS Handbook (Planning and Applying for Retirement)
• Mymoney.gov: A good resource to understand more about money management.
• Choose to Save from the Employee Benefit Research Institute: Learn more about saving for retirement and get a ballpark estimate of how much you need to save.
• Request a Social Security Statement
• Apply for Social Security Benefits
• Thrift Savings Plan site: To compute monthly income from your TSP investments and project your balance.

• Office of Human Capital: Request a retirement estimate that reflects reductions for unpaid deposits, survivor elections and insurance withholding.
• Social Security Administration: Make an appointment by calling 1-800-772-1213 to discuss your entitlement to benefits. You can apply up to three months before you are eligible for benefits.
• Pre-Retirement Seminar: Most agencies provide pre-retirement training for employees who are nearing retirement as well as for employees in mid-career. A seminar is a good place to begin to understand your valuable federal benefits and begin planning for life after retirement.

Take the steps necessary to understand and compare your pre-retirement and post-retirement income. It's a worthwhile investment of your time.

By Tammy Flanagan

March 3, 2006

http://www.govexec.com/pay-benefits/retirement-planning/2006/03/you-can-afford-to-retire/21269/