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“The Federal Employee Retirement 80% Rule”
By Vincent J. Bono, J.D.
Most of your fellow federal employees understand that there are no guarantees as to whether they will have enough money to retire when they want to, or more importantly, that they will not run out of money during their retirement.
Yes, we understand that you have a wonderful pension and if you are under FERS, the Annuity Supplement until you are age 62, and on top of that, a Social Security check but will that really be enough?
According to the highly regarded EBRI Retirement Security Projection Model, an estimated 40.6% of Americans will run out of money during their retirement and this study was done long before the Corona Virus invaded our country. Those numbers will certainly increase in time especially in light of the fact that Social Security is on target to be significantly reduced in 2029.
FERS Federal Employees are also facing the risk that their “Annuity Supplement” will either be significantly reduced or totally eliminated.
Below is a chart that shows you how close to the 80% mark you will be, based solely on your pension. A FERS federal employee with 30 years of service at retirement will be at either 30% or 33%, depending on their age at retirement. If you add in approximately 25% for Social Security, that federal employee is only at 55% or 58% towards the 80%, leaving quite a gap in their financial safety at retirement. While CSRS federal employees seem to have a big advantage, most CSRS don’t have Social Security, so it’s pretty close if you add in the 25% Social Security unless of course you are CSRS with over 35 years of service at retirement.
|Years of Service||CSRS||FERS|
|20||36.25%||20% or 22%|
|25||46.25%||25% or 27.5%|
|30||56.25%||30% or 33%|
|35||66.25%||35% or 38.5%|
|40||76.25%||40 or 44%|
|42||80.00%||Will never reach 80%|
Life expectancy is a very important element in planning for your retirement, if you want to retire and stay retired. If you are only at 56% towards that 80%, then your savings and TSP have to last you for as long as you live. At age 65, that number is 16 years for a male and 19 years for a female. That’s a long time for your savings and TSP money to last, and if you keep your money in the C, S, I, F or L Funds after retirement, that money could go down significantly with just one stock market correction. And of course yes, there is a way to protect yourself from that ever happening.
There are tax-qualified solutions for federal employees that can help augment their federal retirement, especially for federal employees under the age of XX.