What if You Don’t Have Enough Money When You Retire?

What if you approach retirement age and realize your pension won’t be enough to sustain your current lifestyle? Many financial gurus propose retiring with 80% of your pre-retirement income. This number comes from the fact that, after you retire, payroll taxes will no longer be a part of your life.

There are many reasons why a person may not have adequate savings for retirement. Maybe they started saving later in their career, spent money on their children’s college education, or did not set a budget and spent more than they should have. People just starting their careers typically don’t think about retiring until their forties. This reduces their time to save and compound money.

There are two ways to compensate for the deficit: working longer and living in retirement for a shorter period of time. Neither of these may seem pleasurable, but if they enable you to enjoy your retirement worry-free, they will be beneficial.

A person with a long life expectancy and a job they like or tolerate is more likely to work beyond the typical retirement age.

In a 2018 NBER study titled “The Power of Working Longer,” the authors compare the advantages of working longer with those of raising defined contribution plan contributions to save more for retirement. The results were amazing. Working an extra three to six months is comparable to adding 1% to a defined contribution plan over 30 years. According to the study, if a person waited ten years before retirement to raise their savings, it would take just one month of extra work to match the additional 1% they saved aside, owing to the shorter time for the contributions to grow.

How did working longer succeed? Social Security payouts are rising. Most individuals who read the TSP Investment Report were born in 1960 or later and have reached their Social Security Full Retirement Age (FRA), which is 67. A person’s Social Security payment is reduced by 6.67% (for the first three years before their FRA) or 5% for each year they apply before their FRA (for many years over three). Monthly discounts (one-ninth of one percent, or one-twelfth of one percent). A person’s Social Security pension would be lowered by 30% if they applied at age 62 instead of waiting until full retirement age (FRA). Working beyond FRA leads to an 8% annual increase until age 70 when it levels out. Seventy-year-olds who apply for Social Security earn 24% more than those who retire at full age. Working longer often increases the income base used to compute Social Security benefits.

In an ideal scenario, your FERS annuity, Social Security, and TSP will replace 80% of your retirement income. If you haven’t reached that point already, there’s still a solution and hope in sight. 

Contact Information:
Email: [email protected]
Phone: 9568933225

Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.

In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.

His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.