How much should one save?

[Smitty_]

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Pete1 wrote:

It's a myth to believe that you will be broke if you stay with the Federal government for as long as you are suggesting.FERS employees,will receive a modest pension (about 1% for each year of service) and Social Security (or the Social Security offset if you retire prior to age 62). This should amount to around 50% of your current income (assuming 30 years of service). Okay, so that leave's a 50% gap as compared to your current salary and so, you definately need contribute a decent chunk to TSP tocome close to your current salarybut how much? The government gives you an additional 5%plusearnings from the market assuming that you put in at least 5% to TSP. So between the FERS pension, government matching, and social security/FERS offset, the government contribution plus earnings should come in around 60-70% of your current income.Let's assume you put in 10% plus earnings. Now we're up to 70-80%. You will not need to contribute to TSP when you retireso the gap isabout 10-20%assuming only a 10% rate of savings.Not rich but not broke.

Very good post, Pete.

I've been battling this math in my head for months now. Just found this site, and am I a happy guy?!

Well, I'm in the position where I want to make sure I'm doing the right thing now, because I'm "lazy" when it comes to this stuff. I'm a "hold" guy on my allocations (G-10%, F-10%, C-33%, S-26%, I-21%), and I don't do any other sort of investing.

(Note: I've never been shy about discussing finances, as I firmly believe "How can someone give you advice, if they have no idea where you're coming from?")

Here's my situation:

28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

I am currentlycontributing 10% to TSP(Currently $26K).Have a Roth, but haven't contributed to it in 5 years.

Not yet started a family yet, but the wife has indicated my time is running out She is an RN now, and does pretty well. But, once thelittle onescome, she would like to be a stay-at-home Mom. So her salary (or future salary) shouldn't be considered.

As far as the 70%-80% number, this is the first I've heard of it, and frankly sounds good to me.

My current plan is, to up my contribution to %14 in February (when I get my GS-12), and see if I can function on that. Is that going overboard?

But the Roth? Should I get that thing going again? What else should I be looking into? Ugggh.

Alright, I'm getting a headache now

TIA and GREAT THREAD!!!

Smitty

 

[azanon]

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28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

The MRA in FERS is 55, not 50. Early outs are sometimes offered if you are at least 50, with 20 years of service, but they are not a common option available to you. They're not the best deal either. I think one's better off waiting until full MRA (55 for you).

My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

At 55 yrs old, it would be approximately 30%, not 45%. As pete said, its roughly 1% per year of federal service, and since you started at 25, you'd have 30 years at 55, MRA. I think its actually a bit less than 1%/year of service, from what i recall of the examples they had at OPM.

Not yet started a family yet, but the wife has indicated my time is running out She is an RN now, and does pretty well. But, once thelittle onescome, she would like to be a stay-at-home Mom. So her salary (or future salary) shouldn't be considered.

After a couple of years, she'll want to go back. Trust me.

My current plan is, to up my contribution to %14 in February (when I get my GS-12), and see if I can function on that. Is that going overboard?

No its not. I'd shoot for 15% (what i do). You get used to it. Since its tax deductible, it doesnt hurt the full 15% in reality.

But the Roth? Should I get that thing going again? What else should I be looking into? Ugggh.

I do Roths in addition to 15% of my TSP, butmy Roth contributions are totally based off my wife's income. My personal opinion is 15% of gross household income strictly saved for retirement is the sweet spot. I'm not sure how much this differed from my original opinion ~ 1.5 years ago (I think i was the thread starter).

 

[Smitty_]

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azanon wrote:

28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

The MRA in FERS is 55, not 50. Early outs are sometimes offered if you are at least 50, with 20 years of service, but they are not a common option available to you. They're not the best deal either. I think one's better off waiting until full MRA (55 for you).

My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

At 55 yrs old, it would be approximately 30%, not 45%. As pete said, its roughly 1% per year of federal service, and since you started at 25, you'd have 30 years at 55, MRA. I think its actually a bit less than 1%/year of service, from what i recall of the examples they had at OPM.

I believe our programs differ. My plan is specific to law enforcement.

I recieve 2% every year of service for the first 20 years, and 1% for every year after that up to age 57. You MUST retire by your 57th bday. (If I leave at 50, it would be 45% of my "high 3")

I am eligible to retire at age 50, and can begin"collecting" at age 50.

That being said, 15% still seems like a good target number. Agreed?

 

[Wimpy]

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[azanon]

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That being said, 15% still seems like a good target number. Agreed?

Well, if you're really looking at retiring at 50, which is pretty young, you might want to work towards 20% or more of gross. That would be a possibly 35-40 year retirement period, which is a really long time.

My MRA is 58, so i believe i would be just fine with 15% of gross, the match, pension, and 2 social securities. But the compounding i would get from 50 (the age you want to retire) to 58 would be tremendous.

I think 50s a bityoung to quit, but if you really dont like working, then try to cut those expenses even more, and max your Roths and TSP every year at a minimum.

 

[Dave M]

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Here is the calculation I used in a recent staff presentation.

FERS basic benefit is an annuity worth 1% of your high-3 for each year of service. If you go for 25 years then you will have about 25%.

The max benefit from Social Security is about $1200 a month. In 25 years this ought to rise a little, so figure $1500 a month or $18,000 a year. Believe it or not, as a GS12 or 13 you will be making around $100,000 a year when you retire 25 years from now, so SS is about 18% of that.

Add these and you get 30+18 = 48% of your high-3. Assuming you need 80% then you are left with 32% to come up with out of your TSP. Assuming that you can withdraw 5% of your TSP balance each year without diminishing the "principle" then you arrive at the equation:

5%(TSP) = 32% high-3.

This means TSP should be about 6 times your high-3. Since we estimate high-3 at $100,000 this means $600,000 is what you should shoot for.

Picking an average salary of $75000 over the 25 years we can use the calculator to show that if real earnings are 5% then a contribution of 15%is needed.To get 5% real earnings you need 7-8% nominal earnings. That means at least some participation in the CSI funds, say 60G40CSI at a minimum, more like 40G60CSI.

I like to divide my current TSP balance by my current base salary. I do this each year and plot the ratio on a piece of graph paper as a time series. My balance goes up but I keep getting raises! I'm shooting for 6.0 but 4.0 will do.

Dave

 

[Birchtree]

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DaveM,

The name of the game is the more you have in the more you can make. And after many years of accumulation and dollar cost averaging one will arrive. Then what? Most prudent, conservative approach is to pull back into the G fund - and that is a tragic error because now TSP offers the ability to concentrate and make lots of extra money per year with minimal risk. Diversification is still fine, but concentration is the game. When you can achieve 30,000 to 40,000 shares per a fund, then you are ready to rock and roll. The longer a participant is involved with the TSP board, the more comfortable one becomes with the minimal inherent risk - it's worth the price of admission. Make a dollar and you are up $40K.

Dennis

 

[Shaggy]

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Most financial calculators I use show SOC at about $25,000 20 years from now. This is for a single person. Married shows $37,000. Of course who knows what will happen with SOC in the future. In addition a salary of $70,000 today with average increases of 3% a year which I believe is conservative, puts you at $126,000 a year, 20 years from now. You also need to consider if you are contributing 15% then upon retirement you no longer contribute. So in essence 85% of income is 100% of take home (not including tax benefits). So if you start at 85% and your gov annuity is 25% then you need 60% to make up the difference. SOC will be about 20% of$126,000. So 60-20= 40% that your TSP will need to contribute to get you to 100% of take home pay. Assuming 10% gains a year on TSP and 8% in retirementand a $0 beginning balance you would need to contribute 6% + the gov 5% match for a total of 11% to reach your goal. Of course this doesn't work because in the begining we assumed 15% employee contribution, but you get the idea.

I believe the idea is to plan as if the TSP is the only retirement. If in retirement you think you can live on 60% of income then you should save in TSP and/or IRA's to the extent that it will provide the 60%. this way if SOC fails or your gov annuity drops or you don't earn the expected 10% in TSP, then your not dead in the water. Of course if all those things happen were all in trouble.

 

[Wimpy]

How much should one save? Much more!!!

http://www.npr.org/search.php?text=Underfunded+Federal+Pensions

Click on the Underfunded Federal Pension link for the audio...

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[Wimpy]

Retiree benefits grow into 'monster'
Posted 5/24/2006 11:21 PM ET

By Dennis Cauchon, USA TODAY
Taxpayers owe more than a half-million dollars per household for financial promises made by government, mostly to cover the cost of retirement benefits for baby boomers, a USA TODAY analysis shows.

Federal, state and local governments have added nearly $10 trillion to taxpayer liabilities in the past two years, bringing the total of government's unfunded obligations to an unprecedented $57.8 trillion.

That is the equivalent of a $510,678 credit card debt for every American household. Payments on this delinquent tax bill must start soon if financial promises to the elderly are to be kept.

http://www.usatoday.com/news/washington/2006-05-24-retiree-taxpayers_x.htm

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There are four ways to deal with this problem: 1) Reduce entitlements; 2) Raise taxes; 3) Print more money (hidden tax); 4) A combination of any of the above. What do you think is the most politically acceptable solution? My guess would be number (3) if the Republicans are in power and a combination of (2) and (3) if the Democrats are in power. So, when it comes time to vote it appears we have an equivalent choice of a broken arm or a broken leg.