Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Ready . . . or Not?

I heard someone say recently that the reason people spend less money in retirement is because they have less money to spend. It may seem tempting to plan to retire at age 55 or 60. That way, you can have a life after retirement that could last as many years as your working career -- or even longer. But if the numbers don't add up it could mean that those retirement years are the poorest years of your life. This week, let's look at some realistic retirement scenarios. Then next week, we'll explore the option of staying in the workforce longer so you can afford the retirement of your dreams.

A good rule of thumb is that you'll need around the same net income in retirement as you had while you were working. Since you will no longer be making contributions to your Thrift Savings Plan or other retirement investments and your Social Security, Medicare and federal retirement deductions will no longer be withheld from your pay, you'll have to replace about 75 percent of your current salary. Keep in mind that having less income also will mean you'll have lower federal income taxes. And depending on where you live, you may not have to pay state income taxes on your federal retirement and Social Security benefits.

There are a lot of moving parts to any retirement scenario, so in the examples below I have erred on the side of simplicity. My examples assume a withdrawal of savings of 4 percent per year with post-retirement returns on investments averaging 6 percent. Civil Service Retirement System

Here are some scenarios under which you could hit or exceed the 75 percent replacement income level if you're covered under CSRS:

  • Service of 39 years under CSRS will provide a retirement that equals 76.25 percent of your high-three average salary, regardless of whether that salary is $50,000 or $150,000 per year. You'd have no need for Social Security or investment income (such as Thrift Savings Plan funds) to hit the 75 percent target.
  • Service of 33 years will provide a retirement that equals 62.25 percent of your high-three salary. On top of that, $200,000 in investment income could provide an additional $8,000 a year in retirement income. If your high-three was $65,000, that would be enough to hit the 75 percent goal.
  • Service of 20 years will provide a retirement that equals 36.25 percent of your high-three salary. An additional 20 years of military service or 20 years of Social Security coverage would provide an additional replacement of income. If you have substantial retirement savings, the 75 percent goal would be within reach.

Federal Employees Retirement System

For a FERS employee, the replacement of 75 percent of working wages will have to come from at least three sources: Thrift Savings Plan investments, Social Security benefits and the FERS basic retirement benefit.

The FERS basic retirement benefit works much like the one under CSRS, only smaller. Regardless of your income, your benefit will replace a percentage of your high-three average salary based on your length of service.

Social Security provides a greater replacement of income for those who have worked at lower wages than for those at the higher end of the pay scale. This is in keeping with its purpose to serve as a form of social insurance.

Thrift Savings Plan investments will be more important to those with less service and higher salaries and slightly less important to those who have lower salaries and more service.

Let's look at a couple of examples:

  • Joanie has worked her way up the career ladder from GS-5 to GS-14, Step 10, in Washington, so her current salary is $136,771. She will have spent 37 years under FERS by the time she is eligible to retire at age 57. Her FERS retirement will replace 37 percent of her high-three average salary, or a little more than $50,000 per year. Her Social Security supplement (or after she turns 62, her Social Security benefit), will provide another $1,200 to $1,500 a month, or a little less than 20 percent of her preretirement income. She will still have to replace another 18 percent of income to retire at 57. To do that, she would need to have saved $500,000 to $600,000 in her TSP account.
  • Sarah was widowed at age 52. She didn't always work outside the home while she was raising her children and didn't enter federal service until she was 45. She plans to work until she reaches her full Social Security retirement age of 66. She will have a GS-9, Step 7 salary at retirement ($61,952). Her FERS benefit will be computed at 1.1 percent of her high-three since she will be retiring at 62 or older with 20 or more years of service. So her FERS benefit will replace 23 percent of her high-three, or approximately $14,000. Her Social Security will be either her own unreduced benefit or the full amount of her deceased husband's benefit, whichever is higher. This will replace at least another 30 percent to 35 percent of her preretirement income. But she still will need another 17 percent to 20 percent of income to hit her target. That could come from the TSP account she has been investing in since the beginning of her federal career, and money left from her husband's life insurance that she has been investing for the past 14 years.

Examine Your Expenses

Everyone has different spending habits and financial needs, so it's important to take a realistic look at how much you think you'll spend in retirement. Be sure to allow for expenses that won't change when you retire, such as homeowners' insurance and property taxes. (Unless you're downsizing to a smaller home, these will remain the same and in fact likely will increase over time to time.) There are also utilities, home maintenance, food, transportation, vacations, gifts and charitable contributions to consider. Also, remember you might encounter new expenses for such things as health care, long-term care insurance, and assistance with tasks like mowing the lawn and cleaning your house.

On the other hand, some of your expenses likely will go down in retirement. These could include housing costs (if you pay off your mortgage or move to a less expensive home) and work-related expenses such as commuting costs, dues, lunches and expensive clothing. In addition, if your children are grown and don't require college tuition payments or expenses for a "royal" wedding, this will help keep your nest egg intact.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area.


Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on

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