FERS + Social Security + TSP: Is That Enough for Retirement?


Question: I am contributing 5% to my TSP, getting the maximum agency match, and I’m also paying into Social Security and the Federal Employee Retirement System (FERS).  Is that going to be enough to retire on?

Answer: I want to answer this question on two levels.

The first level will be addressing the “average Joe.”  Meaning, without knowing who you are and without personalizing your retirement plans and financial goals, I will try to address you as a statistical one-size-fits-all reality.

The second level is more personalized and thus more realistic.  It recognizes that you are not just a collection of “rule of thumbs.”  You have your wants and your goals.  The compiled data of other people’s retirement, and the resulting statistical stick-figure reality it creates has little bearing on your personal and financial plans.

The “Average Joe”

Before I go into my first level answer, I want to show you how the above person compares to other American employees.

  • Contributions into Social Security equals 6.2% of one’s wages.
  • FERS retirement contributions range between 0.8% – 4.4% of salary (depending upon year hired).
  • A 5% contribution to the TSP gets a 5% agency match for a total of 10%.

Doing the math, this FERS person is saving between 17% – 20.6% of their salary towards retirement!  Whoa!

Compare that with other Americans that are employed by “major employers” (see HERE):

  • Contributions into Social Security are also 6.2%.
  • Less than 20% of Americans have a pension through their employer (see HERE).  So that doesn’t match up at all.
  • Average Employee 401(k) (or other employer sponsored retirement plans) contribution rate equals 6.8%
  • Average Employer Contributions into retirement accounts equals 4.5%

Add it up and the total is about 17.5%.

So, in our question above, we are really dealing with the “average Joe,” or slightly above average.  Is our “average Joe” going to have enough to retire?

Calculating Replacement Income:

Just based on the above math, if you subtract out the 17% – 20.6% retirement savings, our “average Joe” is living on 79.4 – 83% of his salary.  Will his retirement income generate a comparable replacement of 79.4% – 83% of his salary?

How much will FERS provide?

A FERS employee will have a FERS pension that is determined by their highest average salary and their total years of creditable service.  The formula is typically 1% per year of service.  This means, someone with 30 years of service will have a pension that equals 30% (30 years x 1%) of their highest average salary.

A FERS person retiring with more than 20 years of service and above the age of 62 will receive 1.1% per year of creditable service.  In our example of 30 years of service, the FERS pension will equal 33% (30 years x 1.1%).

How much will Social Security provide?

(I am not going to address the stability of the Social Security system here.)

Studies (see HERE for an example) have pointed out that the percent of your salary that your Social Security benefit replaces depends upon your level of income.  For lower income earners, their Social Security benefit can replace over 50% of their salary.  For upper income earners, Social Security may only replace 20% of your salary.  So, if you’re middle of the road, you can possibly expect Social Security to replace around 35% of your salary.

How much will your Thrift Savings Plan provide?

If you spend 30 years saving 10% of your salary each year (your 5% + your agency’s matching 5%), and your TSP grows at the rate of inflation, you will have saved 300% of your salary.  A 5% distribution from that 300% will yield 15% of your salary.  (If your TSP growth outpaces inflation, you’ll have even more!)

Add them all up:

  • FERS = 30% – 33%
  • Social Security = 35%
  • TSP = 15%

TOTAL = 80% – 83%.  That pretty much is a direct replacement income!

The “Non-Average Joe”

Up until now we haven’t even looked at YOU.  We’ve been dealing with stats, assuming you fit into everybody else’s cumulative reality.  Do you really want your HR (or your financial advisor) to superimpose someone else’s image onto your life?  That’s like asking a seamstress to tailor your clothing when it’s being worn by a mannequin!  It may look great on someone, but that someone may not be you!

To responsibly answer the above question, we need to understand YOU.  Where are you right now and where are you trying to get to?  What are your retirement goals?  What are your risk sensitivities?  Do you want to save “just enough” for retirement?  Do you want to maximize your financial potential? By asking enough of the right questions, we can develop and define goals.  Without goals, we can’t answer the above question.  With goals, we can.

Planning Resources for Federal Employees:

The best financial plans are the ones with the clearest goals.  Here are a couple of good  resources to help Federal Employees define and stick to their retirement goals:

  • “Ready, Aim, Retire!”  This is a free ebook that contains retirement planning worksheets.  The book helps you define your retirement plans and convert those plans into dollars and cents, so you have a clear picture of what you will be doing in retirement and what it will cost you.  This is real number-crunching.  Those who feel they are very close to retirement will benefit the most from this book.
  • TSP Goals Calculator: Even for someone 10, 20, or 30 years from retirement, they may not understand the whole retirement mentality but they can appreciate the idea of saving for the future.  The TSP Goals Calculator helps Federal Employees project their income vs. expenses in retirement.  By defining income & expenses, the calculator will also show how much you need to save in your TSP, and what rate of growth you will need to reach your savings goals.

These resources were created specifically for Federal Employees.  By using these resources you will see major improvements in your financial life, but the most immediate benefit will be your defined goals which sets a framework for answering all your financial questions, including “Will I have enough to retire?”

I wish you much success!

Stephen Zelcer is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.


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