Thread: How much in TSP to get 80% of High 3

Wonder Woman,

You can handle this one - it is multifaceted in requiring an answer. Maybe I'll come back after some of the gaps have been filled. First, Dooper, do you like paying your current tax bill? That will more than likely continue even in retirement if you concentrate only on income. The TSP doesn't really produce income - oh maybe in the G fund - but otherwise you are tied to the economy. There will be a required minimum distribution you'll have to take - your Uncle will want some of that deferred income in taxes. You have some planning to do - provide more information. Thanx

Dennis

Dooper wrote:

80% of final income is often cited as a goal for retirement. Assuming FERS retirement after 30 years, includingthe SS leg, how much will you need in TSP (as a % of High 3) to generate inflation adjusted pre-tax income equal to 80% of your High 3? Feel free to guess if you haven't crunched the numbers.

Dooper,

This might help. It's a pretty nifty tool.

· Go to TSP homepage that can be accessed from this site.

· Go to calculators

· Go to retirement planning

· Go to Ballpark Estimate Calculator

· Once you are in Ballpark, go to interactive ballpark

You can put indifferent kinds of scenarios based on your personal data.

Let me know what you think.:^

D, as your basic FERS annuity you will get 1% of your high-3 multiplied by years of service. (This is the 1% they take out every check.) After 30 years, you have 30%. You will get SS which will be about 20-25%. Adding, we get 50-55% from these two sources.

To get to 80%, we need 80 minus 50=30% from your TSP. Assuming you want to leave the principle amount intact, and use only the interest or earnings, and that thiswill be about 5% annually,that gives us the equation 5% of TSP = 30% of your high-3. Thus, TSP = 6 times high-3.

That means if you have six years income in your TSP on the date you retire, you will have reached your goal. If you think earnings will be better, say 8% rather than 5%, then four years income will suffice.

Right now I have twotimes my base pay in my TSP. My goal is to get that up to four, but my income keeps increasing!

Dave

PS -- If you are contributing 15% of your base pay now, and then maybe some additional catch-up contributions later on, you already AREliving on 80% of your pay, and thus will suffer no diminution of life style.

Dave: Your calculation makes sense; however, I think that the current literature recommends a withdrawal rate of about 4% to insure that the withdrawals can rise with inflation and won't dissipate the fund. Also, since SS must have an upper limit, the higher the high 3, the more you will need in the TSP. I get about 5 times the high 3 for a $50M High 3 and 10 times for a $100M High 3.

Do you think the 5-10 times High 3 is achievable with a 5% employee contribution and 5% match?

There are ways to manipulate the result.For example, if you plan to retire at age 60, or when first eligible, then your service credit is 1 year per year. But if you wait untilage 62, your service credit goes up to 1.1 years per year. Thus if youwait until 62 with 32, to retire, then your service credit would jump from 30 to 32+3.2=35.2, a 17% increase. In those two years, your high-3 would advance by 5-6% due to COLA's, turning the17% into18%.

So by working two more years you can increase your basic FERS annuity by 18%. As well, during those two years -- peak earning years -- your TSP account willincrease by the amount of your contributions and internal growth, say 10-12%. In my case, when I do the numbers it works out to a 25% increase in my bottom line,by staying just two more years. Very tempting.

Currently the maximum benefit under SS is around $1800 per month. What it will be in 30 years is anyone's guess. As I plan to retire in5-7 years, I believe I can count on that 1800 going up to maybe 2000 which will work out to 25% of my gross at that time. This is where I got the 20-25% figure I used earlier. You should probably use a smaller number for SS, like 15%; that seems to be the direction we are going, long-term.

You are right regarding inflation protection. You will need to include some growth-type assets in your mix, along with the income-producing assets. However, I think you are being too conservative with your 4%. Think about it -- in times of inflation, interest rates rise and thus yields also. And besides, would it be wise to leave the ENTIRE kitty to your heirs and assigns? You earned it, you should be the one using and enjoying it. I would be comfortable eating into the principleby a small amount each year if I had to, say 1/20th or 5%. If I did that, my income from the TSP would increase from 5% to 10%.

So as I say, there are ways. But there is only one way to get there and that is by contributing. It takes money to make money. You should be doing much more than 5%.If that is where you stand at present,increase that to 10% as soon as you can, like after the first of the year when your COLA comes through, and after your anniversary date when you get a step increase. Then next year do the same. Keep going higher as fast and as long as you can; if you get into an emergency you can always reduce that figure (temporarily!).

For my part 4xhigh-3 is about the best I can do. Good luck!

Dave

Yeesh. If I worked for the gov't until I'm 62, that'd be 38 years of service (with 37 1/2 years at max witholding). :shock:

If Congress has its way it will be age 69 or 70 :shock:.

Congress can bite me. :P

Dave M wrote:

D, as your basic FERS annuity you will get 1% of your high-3 multiplied by years of service. (This is the 1% they take out every check.) After 30 years, you have 30%. You will get SS which will be about 20-25%. Adding, we get 50-55% from these two sources.

To get to 80%, we need 80 minus 50=30% from your TSP. Assuming you want to leave the principle amount intact, and use only the interest or earnings, and that thiswill be about 5% annually,that gives us the equation 5% of TSP = 30% of your high-3. Thus, TSP = 6 times high-3.

That means if you have six years income in your TSP on the date you retire, you will have reached your goal. If you think earnings will be better, say 8% rather than 5%, then four years income will suffice.

Right now I have twotimes my base pay in my TSP. My goal is to get that up to four, but my income keeps increasing!

Dave

PS -- If you are contributing 15% of your base pay now, and then maybe some additional catch-up contributions later on, you already AREliving on 80% of your pay, and thus will suffer no diminution of life style.

This is great advise. But it is assuming that you will taxed when you take it out at recent tax rates (they may be at 78% in the future).

Dooper wrote:

80% of final income is often cited as a goal for retirement. Assuming FERS retirement after 30 years, includingthe SS leg, how much will you need in TSP (as a % of High 3) to generate inflation adjusted pre-tax income equal to 80% of your High 3?

I drool with envy at people in CSRS, but I think even they have to work 40 years to get a retirement of 80% of final income.

Dooper wrote:

Dave: Your calculation makes sense; however, I think that the current literature recommends a withdrawal rate of about 4% to insure that the withdrawals can rise with inflation and won't dissipate the fund.

The major problem in planning for retirement is not knowing exactly when you are going to die.