Through numerous conversations with federal employees, we time and again hear a familiar concern, “Will I outlive my retirement funds?” Unfortunately, such a succinct question does not lend itself to a “yes” or “no” answer. At RBI, we would love (or hate) to be able to immediately answer this query. In this case, one size does not fit all. Fortunately, there are a few ways to begin answering this question.
How long will you live?
If we only knew the answer to this question, it would certainly make retirement planning easier! The problem we have in determining if you will outlive your money, is that we don’t know how long you will live. Even though this is the case, you will need to take a realistic approach when planning. If you have a family history of early deaths, you need to at least consider the possibility that you may also pass away sooner rather than later. Someone who plans on living 40 years in retirement certainly has a different strategy than an individual who expects to only live five years. Use the formula below to calculate an estimate of how long you may live in retirement.
Life Expectancy – Age in Retirement= Years in Retirement
For more on this concept, see our video below: “How long am I going to live in retirement?”
How much will you bring in?
FERS employees generally rely on three forms of income in retirement: a FERS pension, a Social Security benefit, and their Thrift Savings Plan (TSP). This three-legged stool of federal retirement may not be your only form of income. Other revenue could be from IRAs, 401(k)s, rental properties, or other investments. If you would like an estimate of what your FERS pension may be in retirement, we recommend your taking advantage of our FERS Calculator. This calculator is a completely free tool, which can help you get an idea of what your pension from federal service could be.
How much will you spend?
The interesting thing about outliving your retirement funds is there is no specific dollar amount that everyone needs to reach. If you bring in $100,000 a year, but spend $200,000, then yes, most likely you will outlive your money in retirement. You play the most important part in determining if your money will last.
We recommend your taking a few moments to gather information on the expenses you already have. Perhaps your list would include the following: house and car payments, credit card debt, utility bills, and even gifts for the grandchildren. If you’re a few years out from retirement, you may redirect funds toward limiting debt or stowing a little extra cash away for Christmas and birthday presents. Even in retirement, grandchildren will still expect gifts—not everything changes!
If you don’t already use one, consider creating a budget. Crafting a budget and sticking to it can be one of the most effective methods to live within your means in retirement.
Next week, we will dig deeper into these questions as we look at how you can calculate your bring home pay in retirement.