Sin #3 and Your 401(k)

What dangers should you accept to reach your financial objective, if any? What’s the cut-off point? That’s a simple question, but the answer can be complex.

How much is “enough” depends on a myriad of factors. What’s more important to you: your nest egg, your kids, or something else? Additionally, “enough” is a moving target. When you can retire depends on your age and your financial situation, both of which are subject to change as you get older. Yes, it most likely will.

At 25, aiming for a million-dollar nest egg could be a realistic target. But things may have shifted by the time you get to middle age. Possibly there have been one or more severe economic downturns. Or dramatic rises in prices. Like now, for example. There are constant shifts in the world and economy, from gas and baby formula prices to the possibility of a broader war in Europe. So far, changes haven’t been for the better in many situations. So we went to a recently retired fed, Abraham Grungold, to get his take on things. After a lengthy government job and TSP investment, he recently retired with over a million dollars in his bank account. In his own words:

TSP — How much is enough?

Over 100,000 federal workers have become millionaires through the Thrift Savings Plan (TSP). How much money in a TSP would be enough to live comfortably in retirement? Is there a magic number for a secure retirement? Various elements, some of which are unique to each person’s personal and financial circumstances, determine the answer. Note that federal and state tax rates are subject to change. Thus, the numbers in the following two scenarios should be treated as approximations.

An Individual

If you retire at age 62 after 30 years in the federal government and receive an annuity of $30,000, a Social Security payment of $20,000, and a total of $500,000 in your Thrift Savings Plan, you can expect to receive $20,000 year for the next 25 years. Your yearly gross salary is $70,000; once taxes are taken out, you’ll be left with about $55,000. Will your current standard of living be supported by this income?

A Couple

Consider a relationship in which one partner is a federal employee, and both are 62 years old. Furthermore, they have $1,000,000 in their TSP and other retirement accounts.

An annuity of $30,000 is paid to Spouse 1, while Spouse 2 receives $20,000 from Social Security. They plan to spend $40,000 a year, or 4% of their $1,000,000 nest egg, for the next 25 years. They make a combined $110,000 annually before taxes, which amounts to about $85,000. Could they maintain their current standard of living on this salary?

Before retiring, government employees should put as much money as they can into savings and invest aggressively to ensure that they will have sufficient funds to have a comfortable retirement and some funds left aside for unexpected expenses. When I asked several former government employees, they all assured me that they were able to retire comfortably on $2 million. But do you think that’s enough?

Some unexpected events will arise in your life. The following are examples of unforeseen challenges that retirees may face:

Everything’s getting more expensive due to inflation.

• Financing for a vacation or secondary residence
• Meeting medical and pharmaceutical costs
• Spending on grandkids’ higher education
• Nursing homes or other facilities providing long-term care

After you have retired, you need to be watchful and keep a close eye on how much money you are spending. Even if they take money out of their tax-deferred savings plans (TSPs), investors still need to make significant investments to ensure they have money set aside for unexpected expenses and that their accounts continue to grow.

Many federal workers have reached out to me as a financial coach with questions about their retirement, TSP, and assets outside the TSP. I think it’s essential for them to have a backup plan in place for when they retire. The best way to prepare for these challenges as a senior is to save as much as possible in a TSP.

Contact Information:
Email: [email protected]
Phone: 7735026467

Bio:
Todd Carmack grew up in Dubuque, Iowa, where he learned the concepts of hard work and the value of a dollar. Todd spent years in Boy Scouts and achieved the honor of Eagle Scout. Todd graduated from Iowa State University, moved to Chicago, spent a few years managing restaurants, and started working in financial services and insurance, helping families prepare for the high cost of college for their children. After spending years in the insurance industry, Todd moved to Arizona and started working with Federal Employees, offing education and options on their benefits. Becoming a Financial Advisor / Fiduciary can help people properly plan for the future. Todd also enjoys cooking and traveling in his free time.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.