Through numerous conversations with federal employees, I 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 Retirement Benefits Institute, we would love (or hate) to be able to immediately answer this query. In this case, one size does not fit all.
Fortunately, however, 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
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 Retirement Benefits Institute’s 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.
I recommend that you take 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.
A lot goes into planning a successful retirement, but asking yourself these three questions can help you get started with laying out your plan.
Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.
