Retirement Rule #1: Income

Knowing your net retirement income is crucial to a successful retirement plan.

What is the key for federal employees to retire successfully? Is it becoming a TSP millionaire? Is it having all of your debts paid off? 

I want to address the number one thing that federal employees need to look at to be successful in retirement in my opinion, and that is Income, Income, Income.

When I talk about income, I mean net take-home income after deductions, taxes, and health insurance. Net income is the amount that is actually being deposited into your bank during retirement. 

Every Federal Employee’s Situation is Different

Everyone is different and unique in their retirement needs. It ultimately boils down to your income and what you’re taking home.

I’m going to give you a few tips on how to look at your specific situation, to make sure that you have enough income, and how to plan for retirement when you’re looking at it through the lens of income. Looking at income is going to make it a lot easier to plan for retirement, rather than having a certain dollar amount that you’re shooting for.

Stop comparing yourself to your friend who has $1,000,000. I’ve seen people that have $1,000,000 that struggle in retirement and don’t have enough income, and I’ve also seen other people who have maybe $300,000 in their TSP and they’re really comfortable because they have plenty of income and money for emergency discretionary expenses.

Why Income is Important

Income is where the rubber meets the road. It’s what you’re physically living off of each month that matters.

I think we all know those people who have saved millions of dollars in their retirement funds, didn’t know how much to use, they’ve passed away and left it to somebody else who blew all of it. It is all about income. We ask the question, “When’s the appropriate time to retire?” It’s all based on your income needs and what you physically need to live off of.

Some people can afford to retire at 55 or 57 because of the amount of income that they’re looking at, and some people have $1,000,000 at age 55 and they can’t afford to retire because they’re not going to be able to generate enough income from all their income sources in retirement. So it is not a dollar amount; it’s not a certain number of zeroes.

Calculating Your Necessary Retirement Income

Calculating your pension, your supplement, and your Social Security is all well and good, but remember, all those numbers are gross, even when you’re calculating on the Government Retirement and Benefits (GRB) platform.

What you want to look at is your actual take-home pay. When you look at it, especially if you plan ahead, there’s definitely the opportunity to take home the same amount of income that you were taking home while you were working and still have additional assets for emergency discretionary purposes or offset inflation.

The first thing you want to look at when you’re looking at your income is to figure out your gross figures. You want to know what you’re going to get when you’re first eligible for your pension and your supplement income, whatever you’re going to be entitled to when you retire, and then you want to look at your net figures.

You want to figure out what your federal taxes are going to be. Find out if your state going to tax your pension. Does it tax your Social Security?

Are you going to have a survivor benefit? Are you going to have that coming off your check? What’s your Federal Employees Health Benefits (FEHB) deduction? What are your health benefits going to cost you? Will you have dental insurance? Vision insurance? Are you taking those into retirement? And then will you have Federal Employees Group Life Insurance (FEGLI) coverage to have some life insurance in retirement? Figure out what those deductions are.

Now, keep in mind that sounds like a lot of deductions, but it is way less than what you had when you were working. You don’t pay FICA taxes anymore, you don’t pay Medicare taxes, you’re not paying FERS, and you’re not making TSP contributions anymore. 

And for FEHB, if you have a family plan but you’re not retiring for three or four years, keep in mind that your children might be off of it by then. So look ahead and see what your situation is going to be when you’re retired, not necessarily what it is right now. Things can change when you’re retired. If you are on a self-plus one or a self-only plan and you’re going to be on the same plan in retirement, the cost a retired person is paying will most likely be the same as an active employee.

You get these gross numbers if you calculate with the GRB or your human resources (HR) office, and I almost always see that those numbers are actually incorrect. They don’t know what your actual tax bracket is going to be, what your federal taxes are, whether or not you are married and you’re filing jointly, and they don’t know what your joint income is with your spouse. So your net figures sometimes can be hard to figure out, and that’s why it can be good to work with a financial professional who has experience with that.

You want to look at your net take-home pay in retirement, and then you want to know what your net take-home pay is right before you retire. If you’re close to retirement, you want to get an idea of what you’re actually taking home and what is deposited into your account every single pay period. Then multiply that by 26 (or the number of pay periods per year) and then divide it by 12, to get your monthly take-home pay.

Computing Your Retirement Income Gap

It sounds really complicated, which is why it’s good to work with a financial professional, but you figure out what your take-home pay is in retirement from your two sources, and then what the difference is from your take-home today. Based on that, you can see what more you will need to make the same amount. That number is called your income gap.

The income gap is the difference between what you have and what you need to maintain the same lifestyle. Let’s say, for example, you calculate the numbers and you figure out you need $1,000 net more per month from your assets to take home the same pay and maintain the same lifestyle going into retirement. Based on that, now you can figure out how much you need in the TSP or retirement assets to be able to generate $1,000 a month. 

This can help you figure out when to retire too. If there’s not enough in the TSP to get you there, maybe that means you need to work a couple of extra years. Maybe being 62 and getting the higher pension computation is going to make all the difference. If you need to retire sooner for health issues or you need to take care of a family member, maybe you’ll need to make some lifestyle changes to lower your monthly expenses, so you don’t need as much monthly income. 

Now you know your income gap and you’re able to decide if you have to work until you’re 65 or maybe you can retire at 57. That income gap helps you figure out how much you need in your TSP to generate that monthly income to close that gap and still have some money left over for emergency discretionary purposes, to offset inflation in the future, if you need long-term care, if you want to buy a vacation home, etc. Not everybody should have $1,000,000 saved in the TSP. It’s specific to you, your goals, your needs, and your income gap. 

If you look at things and you’re barely going to have enough in your TSP, and you have a pretty good chance of running out of money based on your balance and how much you need per month, you still may want to work longer. You have to account for inflation, the fact that you could live a long time, and emergencies that could pop up and cause withdrawals from your TSP. This can make your income gap more of an issue with your balance on your TSP. 

Keep in mind you have three legs of income in your federal retirement benefits. You have your pension, Social Security and TSP. When to start Social Security is a very personal decision. Not everyone should start it when they’re first eligible. If you can delay, there are positives to that. These are all things to keep in mind when it comes to retirement.

Successfully Living Off of Your Retirement Income

So how do you generate enough interest? How do you make sure that you can provide the income to fill that gap and not run out of money?

If you have a very healthy balance and you’re going to have more than enough to fill that income gap, plus emergency discretionary expenses, and you’re going to be pulling that next year, you don’t need to be as risky as somebody who’s 10 years out from retirement and is not going to fill their income gap with their current retirement account balance. They need to “chase double-digit returns” and have more risk in their allocation so they can try to get better returns and have a healthier balance by the time they retire. So again, that income gap ultimately determines when you should retire, when you should take Social Security, and how you should invest your TSP and your retirement assets.


You can see why knowing income is really rule #1. There are a lot of things to consider to help you calculate and approximate your take-home income rather than just have an approximate gross income estimate. In my opinion, the best way to do that is to do this is with a fiduciary financial advisor, someone who is going to act on your best behalf and make financial decisions to help you fulfill that income gap and still have money for emergency discretionary expenses, offset inflation, have money for long term care, or whatever else life might throw at you. It’s important to create a retirement plan specific to you and your income needs in retirement so you don’t risk running out of money.

So Rule #1… Income, Income, Income. That is what allows somebody to live confidently in retirement and maintain the same lifestyle. They have enough income when they first retire and it’s an income that they feel very confident it’s going to last the rest of their life.

Securities and Advisory Services Offered Through Creative One Securities, LLC Member FINRA/SIPC and an Investment Advisor. FedSmart Retirement Planners and Client One Securities, LLC are not affiliated. Not Affiliated with OPM or any federal agency​.

About the Author

Jesse Black has over 18 years of experience assisting Federal Employees with their retirement. He’s a nationally known Federal Retirement Planner. He has assisted thousands of Federal Employees one-on-one and thousands more have attended his webinars and seminars. He Co-hosts FedSmart Podcast and Co-Founded FedSmart Retirement Planners.