As a federal employee nearing retirement, the excitement of a new chapter is often accompanied by a significant question: Do I have enough money in my Thrift Savings Plan (TSP) and other assets to afford the retirement I truly want?
It’s one thing to retire; it’s quite another to retire and spend your golden years constantly “pinching pennies” and worrying about every expense. No one wants to experience or witness that kind of struggle. The key is ensuring you are in a financially sound position before you take that final step.
Let’s dive into how you can assess your readiness and find the right answer for you.
The Myth of the Magic Number
Before getting into the specifics, it’s crucial to address a common misconception. There is no single “magic number” you must have in your TSP to guarantee a comfortable retirement.
I speak with a vast range of federal employees—some with very modest TSP balances, and others with investments well over $10 million. You might be surprised to learn that a high balance doesn’t automatically mean a comfortable retirement.
Some individuals with millions of dollars can’t afford to retire comfortably because of their high-cost lifestyle. They are used to a certain standard of living, and the thought of drastically cutting back on retirement is simply unappealing, leading them to continue working.
Conversely, I’ve seen many people with very little in their TSP who are perfectly fine. Why? Because they have a substantial fixed income foundation from other sources, such as a generous FERS pension, military retirement, or VA disability benefits. These stable income streams can make retirement not just possible, but super comfortable, even with a small investment balance.
The lesson is clear: your retirement readiness is determined by your total financial picture, not just the single dollar figure in your TSP account.
Step 1: Laying the Foundation with Fixed Income
The very first step in determining if your TSP is “enough” is to put a pin in your investments and focus entirely on your fixed income sources. These are the income streams that will act as the reliable, bedrock foundation of your retirement plan.
What fixed income sources do you have lined up?
- Your FERS Pension: This is often the largest component.
- The FERS Supplement: If you retire before age 62 and meet certain criteria.
- Social Security: Your projected benefit starting at your chosen age.
- VA Disability or Military Retirement: If applicable.
- Other Fixed Pensions: From a previous job, for example.
The absolute first step is to get an accurate estimate of what these benefits will be—specifically, the gross monthly amount. If you don’t know what your pension or Social Security will be, you can’t possibly determine if your TSP is enough.
Let’s create a hypothetical example:
| Source | Estimated Gross Monthly Income |
| FERS Pension | $4,000 |
| Social Security | $3,000 |
| Total Fixed Monthly Income | $7,000 |
This $7,000 is your foundation. This is what’s guaranteed to come in every single month (before taxes and deductions).
Step 2: The TSP’s Sustainable Contribution (The 4% Rule)
Once you know what your fixed income will be, the next question is: How much can the TSP reliably produce for me on a regular, sustainable basis?
This is where you need a simple tool to estimate a safe withdrawal rate, accounting for factors like your life expectancy, retirement age, and market performance. While there are many complex models, a great starting point for estimation is the 4% Rule.
Understanding the 4% Rule
The 4% Rule, in a nutshell, suggests that if you withdraw 4% of your total retirement balance in your first year of retirement, and then adjust that dollar amount for inflation in subsequent years, your portfolio has a very high probability of lasting 30 years or more.
Here is how you apply it:
- Determine your TSP Balance: Let’s assume you have $1,000,000 in your TSP.
- Multiply by 4%:
$1,000,000 times 0.04 = $40,000
This means you could safely spend roughly $40,000 per year from your TSP.
- Account for Taxes (Crucial Step): The $40,000 is a gross amount. Since TSP withdrawals (other than Roth TSP) are taxed as ordinary income, you must estimate the tax hit. If you estimate 20% for taxes, the net annual amount is:
$40,000 times (1 – 0.20) = $32,000
- Convert to a Net Monthly Amount: To compare this to your fixed income foundation, convert the net annual amount to a net monthly amount:
$32,000 / 12 = $2,667
In this example, your TSP can safely produce approximately $2,667 per month.
Step 3: Comparing Income to Expenses
Crucially, you must now deduct all taxes, healthcare premiums (FEHB, dental, vision), and other deductions that will come out of your gross fixed income. Let’s say those deductions total $1,500 per month.
$7,000 – $1,500 = $5,500
Now, you combine your foundation with your TSP’s sustainable output to get your projected total monthly retirement income:
- Fixed Monthly Income (Net): $5,500
- TSP Monthly Withdrawal (Net): $2,667
- Total Projected Monthly Income: $8,167
Now that you have your estimated net monthly income, you must compare it directly to your estimated monthly retirement expenses.
- If your estimated expenses are $7,000 per month, you are likely in a strong position.
- If your estimated expenses are $10,000 per month, you have a shortfall of $1,833 and likely need to adjust either your lifestyle, your retirement date, or find other income sources.
The Danger Zone: Withdrawing Too Much
While the 4% Rule is a conservative estimate, it highlights a crucial point about sustainability. If your expenses require you to pull out 8%, 10%, or even 12% of your TSP balance every single year, you are in the danger zone.
A withdrawal rate that high is rough. Unless you are planning for a very short retirement, you will likely run out of money too soon. The math has to be done for you to have genuine confidence about your retirement. While retirement has an emotional and life-planning side, the financial side is the necessary bedrock.
Ultimately, by knowing your fixed income foundation and using a conservative rate like the 4% rule to determine the sustainable contribution of your TSP, you can confidently answer the question, “Do I have enough?”
