“Federal Retirement 80% Rule” (FR 80)
by Vincent J. Bono, JD
The premise of the Federal Retirement 80% Rule (FR 80) is quite simple; if the day after their retirement, a federal employee has a retirement income of at least 80% of what it was on the day before they retired, they have a “Bullet-Proof Federal Retirement”. But as you will see, getting to that 80% is easier said than done!
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.
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.
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 42 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, or if you have an emergency that requires a lump sum of cash such as a Nursing Home stay ($50,000-$100,000 a year).
There are tax-qualified solutions for federal employees that can help them supplement their federal retirement income, and get them closer to their 80% goal, especially for federal employees under the age of 55. A Roth IRA is one of those solutions and your approved FBX Advisor will help you better understand if the Roth IRA solution is right for your retirement goals.