Solving the FERS Retirement Puzzle by David Fielder
I’ve had the privilege of counseling over 10,000 postal employees over my career. Each one of these employees had different situations and circumstances that influenced when they should retire. Notice I said SHOULD retire and not when they COULD retire. As you approach retirement its important to know your numbers so you can determine when you SHOULD retire and not just when you are eligible.
The best way I can illustrate my point is to use some actual employee scenarios.
Dale was a FERS employee who had 30 years and had met his Minimum Retirement Age of 57. He was eligible to retire and called me to make sure he knew his numbers. Here were his numbers:
Net pension would be $1,100
FERS Supplement $900
Total Fixed Income: $2,000
Dale was bringing home $1,500 every two weeks working and his budget was based on making that much per month. As you can see he was $1,000 a month short of what he needed. Dale had an option to draw the money he needed from the TSP but he only had $200,000 in the TSP. As a general rule employees should not draw more than 3% of their TSP balance annually to lessen the chances of running out of money. If Dale took out the 3% he was still going to be short on what he needed.
Dale and I discussed his specific situation and both came the conclusion that he didn’t want to retire and feel broke. He asked my opinion of when he should retire and I suggest age 62. Look at how his numbers changed by working until 62:
Net Pension would be $1,350
SSI at 62 $1,550
Total Fixed Income: $2,900
Not only did Dale increase his monthly income by $900/month for life, but he also contributed an additional $50,000 to his TSP. Now Dale has $250,000 in his TSP and the 3% he can draw per year from the TSP will bring his retirement income per month to over $3,500 a month.
Paula has worked 20 years for the postal service and is eligible to retire because she has reached the age of 60. She wasn’t sure if she could afford to retire so she called me to run her numbers.
Net pension: $900
FERS Supplement: $750
Total Fixed Income: $1,650
Paula’s pension and supplement were not enough for her to retire. She needed about $3,000 a month to live comfortably in retirement. Paula’s case is a good example of how the TSP can compensate for working a shorter career. Paula had accumulated over $325,000 in her TSP. We looked at her risk tolerance and found a program where she could draw 4% of the balance for the rest of her life and never worry about running out of money. This program gave Paula another $1,083/month which more than covered what she needed for retirement.
Every employee has unique circumstances that must be considered when considering retirement. There is no “one-size-fits-all” when it comes to retirement. The first thing you must do is know your numbers. How much will you make a month (factoring in all deductions) based on a given retirement date. Second you have to know how much you need in retirement. For most people, they need just as much per month as they do working unless homes are being paid off. Last, you have to factor in the TSP and determine YOUR best date to retire.
If the idea of retirement and running all these numbers intimidates you we are here to help. We have been offering retirement seminars through postal unions for years and we are confident we can get you the answers you need.
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The figures mentioned in the article are hypothetical and for illustrative purposes only. The formula and calculations have not been verified or reviewed for accuracy by PSRetirement.com or any of its affiliates. Please contact your financial professional with any questions. The opinions in this article do not necessarily represent those of PSRetirement.com.