how much money do you need to have a fantastic and comfortable retirement is it the $2 million that that one article set online is it 600,000 it's somewhere in between today we're going to dive into this question so you can know for you regardless of what your tsp balance is that you can go into retirement knowing with confidence that you are ready to go or are not ready to go whatever it may be today we're going to dive into how you can figure it out for yourself now if you're new to the Channel and you're a federal employee welcome so good to have you my name is dalon hos I'm a financial planner who serves federal employees every day and I absolutely love it so let's dive in again let's start out with 600,000 as our starting example okay let's say you have 600,000 in your tsp and you want to figure out if that's enough now one thing I will say is that if you're reading articles online about how much do I need to have to retire that whole sort of thing number one federal employees are not the average American so if an article is just written to the average American that's probably not tailored for you because you as a federal employee you have a pension you have social security you may have the first supplement you may have a military retirement if you had now you may have these other income sources which is going to change the math and change how much you're going to actually need so keep that in mind but again let's use 600,000 but this example this video will work regardless of what your tsp balance is but we're going to use 600 ,000 as our example here okay so there's two sides of this number one we got to know how much money can 600,000 provide for you in income right how do we change 600 Grand to a paycheck in retirement and how big is that paycheck going to be okay that's a that's the first starting point there next is what other income sources do you have right again like I said as a federal employee you may have pension you may have social security you may have first supplement but but for this example let's say you're retiring 62 and Beyond and you're going to have pension and social security at retirement just to keep things relatively simple for now okay so again you've got your 600k tsp your pension Social Security Now if you have other Investments out outside the tsp whether an IRA spous of 401k whatever it is just add everything together and put it in your investment bucket and add everything together get that balance okay so let's start with the easy side first let's Let's do let's say let's say between your pension and social security let's say your pension is about $2,000 let's say your Social Security is $1,000 again these numbers are going to vary widely depending on your career what you made all those things but let's just say that those are the numbers now let's make another assumption is let's say these are the numbers you're going to give from pension Social Security net after deductions after taxes cuz out of your pension I've got videos on this but out of your pension you got to pay for survivor benefits federal taxes health insurance any other insurance that you're going to take in retirement you got to pay for so let's assume after all those things are paid for you're left with $2,000 per month net same with Social Security you potentially pay for two things you pay for taxes federal taxes and if you are on Medicare you pay for Medicare Part B premiums out of Social Security as well so again let's assume that you get $11,000 net after all those things come out okay so the total the total from your fixed income pension and soci security would be $3,000 per month in this example so the missing link we have right here is of course your investment how do we change that into an amount that we actually are comfortable with knowing that you can retire so long story short a great way to estimate this is using the 4% Rule now I've got whole videos on the 4% rule but let me give you the short summary if if you multiply your balance of whatever retirement Investments you have at retirement if you multiply that that total balance by 4% by 4% that is what you're left with so for example in this example if we multiply 600,000 by 4% 4% we get $24,000 $24,000 now what is that $24,000 what does that mean in in this example what it means is the 4% rule says this it says Hey in year one of retirement you can spend this $24,000 you can withdraw it you can spend it you can enjoy it in year two you can take out again $24,000 plus whatever inflation was so if inflation was 5% you take out 24,000 raised by 5% okay and again year year three you take out the previous year's amount raised by inflation so long story short if we multiply the balance you have at retirement that's going to give you the amount you can withdraw increase by inflation for the rest of your life every single year every single year so we though we do need to though change this into a monthly number because this is an annual number 24,000 is annual so let's divide it by 12 if we divide it by 12 of course we get $2,000 $2,000 per month from your tsp okay that's how much you'd be able to withdraw from your tsp assuming you have 600,000 and again the reason we use 4% here is because the 4% rule says hey if you follow this rule the odds of you running out of money is very very slim over a normal retirement okay if you spend more than 4% then you may get into more risky risky territory right if you spend less then it's it's it's even safer okay but 4% you could look it up the 4% rule is a very very common way to estimate how much your money can produce for you in retirement okay so again it's $2,000 per month however if this $ 600,000 is traditional pre-tax retirement dollars that means traditional tsp traditional IRA those sort of accounts then that means this 2,000 a month is actually taxable so we have to take out a chunk for taxes so let's assume let's say 20% goes to taxes again it it'll depend on your tax bracket but let's assume 20% goes to taxes okay so you'd be left with $1,600 net from this tsp withdrawal or investment withdrawal after taxes okay so you've got about $3,000 from your fixed income Social Security and your pension you got 1,600 from your tsp or your Investments so total after tax after everything comes out we've got 4,600 4,600 so the magical question of the day is this enough is this enough right we know 600k can produ $1,600 net after taxes in this example and in this example pension and social security is 3,000 total of $4,600 is that enough money for you to retire comfortably and the answer is I have absolutely no clue I have absolutely no clue if it's enough for you to retire comfortably however hopefully you have an idea of how much it's going to take for you to retire comfortably and some of you know exactly what you spend every month know exactly what your bills are so you'll look at a number that when you run your numbers you'll look at your number like oh yeah that's comfortable or you'll say nah maybe that's not so comfortable but for those that don't aren't familiar with your numbers as much not everyone's a numbers person not not everyone tracks or expenses as as closely as others a great way to see if this number is in the ballpark of being enough for you whatever your number is whether it's 4,600 or whatever it is is go pull out your leave-in earning statement from your job pull it out right now and the number you want to find is your net pay your net pay okay because again your gross pay right your salary may be 150 Grand or 80 grand or whatever it is gross but you have there's a lot of things that come out of it before you actually get paid what is your net pay number okay so let's say your your net pay is 2,000 or 5,000 or 10,000 whatever it is whatever that is if you get paid every 2 weeks what we have to do is you take your every twoe number let's say it's $22,000 $2,000 and you multiply it by 26 and we're going to do that because you get paid 26 times every single year okay so you take whatever your net pay is every two weeks you multiply it by 26 to get what you actually take home in a year and then you divide that by 12 you divide that by 12 to figure out how much you actually take home on a normal month and then you can compare that to what you're going to take home in retirement between your pension Social Security tsp whatever it may be that is the secret sauce to figure out if you have enough in your tsp and between your pension and social security for you to feel comfortable in retirement there's no magic here I wish there was there's no magic balance in your tsp a million doar isn't Magic 600,000 isn't Magic it just depends on how much you're spending right now how much you want to spend in retirement and again a great way to gauge that is compare what you take home now actually take home that you actually live off of compared to what you're going to take home in retirement that'll be a great way to get you on the right track to make sure you can go into retirement comfortably so I can't do them do it magically for you right it's up to you to run your numbers to make sure that you are comfortable now if you want help with this if you're looking for help from a financial planner with your numbers to make making sure you're comfortable to retirement check out the description there's a bunch of helpful things that we help clients with and I hope that's helpful have a great rest of your day I'll see you guys next time
