Can You Retire With Only $250,000 in Your TSP?

hello hello good morning federal employees i hope you had a wonderful thanksgiving if you are listening to this pretty recently after i published it it is the tuesday after thanksgiving so i hope you had a great weekend great thanksgiving you are recharged ready to go ready to have another great week and it we're into the holidays right november december we are right into it and so it can be a busy time so thank you for investing in yourself and being here with me and learning about retirement and your benefits so let's dig right in today we are going to talk about retiring right new topic right retiring but under this context answering this question of can you retire with only 250 000 in your tsp can you retire without the stereotypical one million dollars of retirement savings if you go online if you read lots of things that people say most people say hey you're gonna need at least a million dollars to retire comfortably shoot for that number right well is that truly necessary that's something that you need as a federal employee to make sure you have to retire comfortably okay so let's dig right in so let's let's to use an example i ran some numbers of an average federal employee of what an average federal employee's retirement might look like and say okay for them how much of how much do they need in their tsp to make sure they're going to be okay and then hopefully with that information as i work through it you can put yourself into my numbers that i'm going to be using put your numbers in and kind of see where you're at and obviously i have to really simplify this and i'm really taking a lot of assumptions a lot of things that i don't know about you but hopefully going through this process will give you some information about how to approach retirement and how to approach knowing how much you might need in your tsp in retirement savings moving in to retirement and the next phase of your life okay so let's jump right in so there was a study and they tracked down the average retirement expenses for the average retiree now depending on where you live depending on a lot of things these weight may very well not match with yours at all but i think it can be helpful so let's dig right in the average housing expense in retirement is about thirteen hundred dollars ish now if you have your mortgage paid off maybe less if you don't or if you live just an expensive place and maybe more even if you do have your mortgage paid off between taxes and all those things i don't know make sure you look at your numbers but the average retiree about thirteen hundred okay transportation about six hundred a little less than six hundred dollars health care about 480 now with fehb and if you're on medicare part b it might be more or less than if you have a spouse or not more or less it depends um next food little shy of 500 so about 460 entertainment about 200 a month these are all monthly numbers sorry if i didn't mention that it's all monthly numbers okay next is insurance about 228 and miscellaneous little shy of 500. so if you add all those up on a monthly basis that is a little more than 37 out 3700 sorry 3700 a little more than that so on an annual basis the average retiree not not federal employee this is just average american retirees so it's not perfect but it's the best we got the average retiree has about forty four thousand six hundred sixty four dollars of retirement expenses living expenses in retirement now that number some might argue you know hey if people had more resource they had more resources had more money in retirement than they would use it and that's that may be true who knows so again you have to look at your numbers but again we'll use these numbers to use an example and help you think through it okay so now the next piece the next puzzle piece of this whole equation is on okay this is our expenses the average retiree has about forty four thousand dollars a year of retirement expenses now what is the average income right so let's look at a few numbers according to opm the average federal employee makes about 87 000 per year and if we use that as in a high three let's assume the average retiree from the federal service from federal service has 20 years and they retired 62. let's say so if you run those numbers to find a pension your pension calculation that means your gross annual pension with a high three of about eighty seven thousand dollars with 20 years of service and retiring at 62 your gross pension would be right around 19 000 a little more than that and that's because you got the 10 bonus because you're 62 and you had 20 years okay now things have to come out of that there's reductions there's taxes things like that and so by the time you take all that stuff out you're probably closer to 12 000 13 000 right in there every year from your pension okay now according to aarp the average social security benefit that was paid out in this year 2020 was a little more than fifteen hundred dollars now for you maybe more it may be less i don't know again run your numbers but for averages we're going to use this so let's assume so that's 1500 a month and that comes out to about 18 000 every year now let's take out taxes medicare part b premiums let's assume you're probably around 14 000 a year of net social security let's say okay and let's assume the average federal employee has a spouse and their spouse is eligible for benefits either on their own record or spousal benefit based on your record right so let's assume the spouse is eligible for ten thousand dollars of benefits every year and that's after taxes after medicare okay so if you add all that up your pension your net pension is about twelve thousand dollars and then your net annual social security between yourself and your spouse is about twenty four thousand dollars so that adds up to about thirty six thousand 000 of net benefits after taxes spendable money that you can use on your living expenses now basically what we came up with was that your living expenses was a little more than 44 000 okay and your income your total income for the average federal employee is about 36 so let's let's be conservative let's say 9 000 a year is the gap the gap that we're trying to fill now this may be different if you're not gonna take social security right away there's a whole different host of things but let's just simplify it let's simplify and say okay every year of retirement you are going to have 9 000 that has to come from somewhere right it's not we already have your pension and your social security it has to come from somewhere else and generally that's your tsp or some other retirement savings now if we use just a simple four percent rule meaning there's tons of studies out there that say hey if you spend only four percent of your retirement savings a year the odds of you running out of money are very very small there's lots of studies looking up the four percent rule basically so if we use that that very very simple rule and say okay we need nine thousand dollars a year how much of a nest egg how much of a tsp balance am i going to need to provide that nine thousand dollars a year now so basically you take the nine thousand you divide it by point zero sorry point zero four right by four percent and you get let me pull it up here you get 225 000 is what you would need in a investment account in a retirement account to provide the 9 000 a year now that doesn't take into consideration taxes i don't know exactly what tax bracket you're in and i don't know if you have the traditional tsp or the roth tsp so if you have the traditional tsp then you're gonna need a little more than nine thousand because when you take money out you're gonna have to pay taxes right so just keep that in mind there's a ton of assumptions here but just to simplify this person the average federal employee is only going to need about 225 000 in their tsp to be able to retire to provide that extra income that they need above and beyond their social security above and beyond their pension to live how they want to live now i don't know your situation and i'm not saying you should not save as much as you can i'm not trying to say hey take it easy you don't need to say you're good that's not what i'm trying to say all i'm saying is there's nothing magical about a million dollars nothing magical right a million dollars sounds good and it's a great number to shoot for and if you have more than that awesome right that's great but i've seen where people have more than a million dollars and still run out of money i've seen people that have the 225 000 and they are great they're happy in retirement right it depends on a ton of things depends on when you live depends on what type of retirement you want what activities you want to do and just lots of things your health so many different things but i hope this helps you realize that hey there's nothing special about a million dollars it's not it's a matter of finding for you what do your retirement numbers look like what does your pension look like what is your social security look like after all the reductions what can you actually spend and how much do you want to spend what are your expenses going to look like and let's say what if you pay your mortgage off early and get it paid off before retirement what is that going to do right looking at all these things to say okay for me what amount in my tsp do i need and the four percent rule is a simple rule that can be a good rule of thumb it's not perfect no rule is but it can be a good start so feel free to use that in your planning look through your situation and watch this video a couple times to kind of go through okay for me what's a good guesstimate for my benefits you don't have to be exact especially if you have time if you're let's say six seven maybe five years out from retirement you've got a little time your height three is going to change lots of things are going to change get some good estimates get some good numbers so see if you're on the right track and if you are awesome great if you're not you got to pick it up right if you want to retire when you want to retire right and so obviously you should be as saving as much as you possibly can in the tsp but also you want to live life now you don't want to just push all your happiness all your everything until 62 when you retire right that's no fun either you have to find a balance that makes sense for you that first does provide the living that you want for you and your family now you want that but also you don't want to neglect your future self your future family you want to have the benefits and the income that you want down the road and that comes from saving the tsp and knowing your retirement numbers so hopefully that is helpful hopefully that helps all of us realize that there's nothing magical magical about a million dollars obviously it sounds good and it could be a great goal but is that what works for you is that enough for you is 225 000 enough for you or is it too much i don't know look at your situation obviously we want to be prepared for the what ifs when things come up definitely but um we also don't want to kill ourselves into just not even living now just for this future mysterious date of retirement right we want to find a good balance that works for our life to create the best life that we can because it's short and retirement is a great thing but life right now is great too and making both great is kind of the goal that we're all trying to search for to maximize our benefits now and down the road so i'm done i hope you guys have a great rest of your week and i'll see you next time

Channel: Haws Federal Advisors

Views: 51,162

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Id: gLB-dHX7ia8

Length: 12min 31sec (751 seconds)

Published: Tue Dec 01 2020