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Planning for retirement is a career-long process.

Until the creation of the Federal Employees Retirement System in 1984, employees who were more than a year from retirement eligibility typically didn’t give retirement planning much thought. Some of you might remember a column I wrote about my Uncle Steve and Aunt Helen, who retired from federal service in the 1970s. I once asked Steve, “What did you do to prepare for retirement?” He said, “I filled out my retirement application 30 days before I turned 55.”

Those were the days when all federal employees were covered by the single-benefit Civil Service Retirement System. The only planning required was to work for 30-plus years in federal service. Then you could earn a benefit that, in many cases, could support you for more years than you actually worked.

For today’s federal employee covered under FERS, though, retirement planning is a career-long endeavor. If FERS employees were to wait until 30 days before retirement eligibility, they might find their financial outlook to be grim.

There are three legs to the retirement stool under FERS: a basic benefit, Social Security and the Thrift Savings Plan. Figuring out how these all fit together is not a spectator sport. There is a lot of audience participation. If you are just starting your career or if you are at midcareer, here are some things you need to know to set realistic goals for retirement.

Understand Social Security

  • Even if nothing changes, Social Security retirement might replace only 10 percent to 15 percent of your preretirement income if you begin to receive your benefit when you are first eligible at age 62. To earn a higher replacement of preretirement income, you must delay receiving the benefit until you are older.
  • At the beginning of 2012, the average monthly Social Security benefit for a retired worker was $1,230.
  • If you work at lower wages, the Social Security benefit formula provides a higher replacement of preretirement income. Conversely, if you work at higher wages, the replacement from Social Security is less. The theory is if you have higher wages, then you should have been able to save more for your retirement. According to Social Security, the average U.S. wage in 2010 was $41,673.83.
  • If you delay receiving your benefit until age 70, you’ll get 76 percent more than you would at 62.
  • Bottom line: To retire at a younger age, you can’t count too heavily on Social Security.

FERS Basic Benefit

  • The FERS basic benefit is a defined benefit, like a traditional pension. That’s different from TSP contributions, which are considered a type of defined contribution.
  • After 30 years of federal service, the FERS basic retirement benefit will replace about a third of your high-three average preretirement salary. And the longer you work, the higher the percentage of replacement income. The benefit accrues for most employees at 1 percent per year of federal service (1.1 percent if you retire at 62 or later with at least 20 years of service).
  • If you haven’t spent your entire career in federal service, or if you don’t plan to stay in government until you are eligible to retire, then you may not have a defined benefit such as the FERS basic retirement benefit to supplement all your years of employment. This may mean you have to compensate by either working longer or saving more in your defined contribution plans such as the TSP or a 401(k).

TSP Holds the Key

  • Do you have a strategy for managing your TSP funds? Do you know when you should rebalance your investments? Do you understand how diversification can help you achieve your financial goals? You can begin with the tools that are available at the TSP website.
  • Do you know how much you can safely withdraw from your TSP without running out of money during your retirement years? According to financial planner Deena Katz, answering this question requires projecting the expected rates of return of your investment, estimating how long you will live in retirement (and how long anyone else might live who is counting on your money, such as your spouse) and assessing your tolerance for risk.
  • Here’s a calculator to help you project your future savings based on the magic of compound earnings.
  • As of May, 324,000 FERS employees did not contribute to the TSP. That represents 13.6 percent of all FERS employees. Also, there were 888,000 outstanding TSP loans, totaling nearly $8 billion. This represents employees who are using their TSP to fund something other than retirement. On top of that, 44 percent of TSP investments were in the ultrasafe government securities G Fund. Only around 14 percent of investments were in the life-cycle funds, which encourage diversification and rebalancing throughout an employee’s career.

Tips and Advice

  • If your agency offers any type of retirement planning -- midcareer, new employee orientation or preretirement training -- take advantage of it sooner rather than later.
  • Ideally, you should refresh your retirement knowledge at least every five years, because rules change and your goals may have to adjusted due to life events and unforeseen circumstances.
  • Much more information about retirement benefits is available at the TSP, Social Security Adminstration and Office of Personnel Management websites. Also see the Federal Ballpark Estimator.

Correction: The original version of this column said that there were $7,991,000 in outstanding TSP loans. The correct figure is $7,991,000,000. The column has been updated to correct the error.