Recently I was reminded that many FERS employees don't really understand what they're going to get out of their benefits for retirement, and so they're confused about how to make decisions today. My job is to try to help you figure that out so that when you're making a decision about how much money to save, where to save it, and what to expect from your investments, we can make a decision that we know is the right one for today. Then we can review that decision as we go along.
Let's breakdown the components of what you can expect from your benefits:
From a FERS basic annuity; i.e. your pension; as a FERS employee, you should be able to expect somewhere between 20-30% of your high-3 salary average by the time you retire somewhere between the ages of 57 and 61. If you're eligible to do that, then you're probably going to hit somewhere between those two marks 20-30%. Maybe some a little bit more, maybe some a little bit less, but let's think about 20-30%.
Then from Social Security, we're probably going to hit somewhere between 20-40%. Of course the more that we earn, the less that Social Security is going to actually cover. It's kind of a converse relationship. The lower our income for our career, the higher percentage that Social Security benefit is going to be on that income. But, let's let's try to aim for 20-40%
That means that TSP has to supply somewhere between 30-60% of our retirement income, therefore that informs us on what type of contribution am I going to make? What am I going to use for the investment? What funds do I use? What portfolio do I build? These are all decisions that are really important and they become better decisions when you're aware of all the components: what you can expect from FERS basic annuity, what you can expect from Social Security, and, therefore, what you need to have coming from TSP. That's what we're trying to help you think about.
"The whole point is for you to feel good about what you're doing, to know that you are actually taking best shot at building the retirement future that you want."
Remember that this is a decision that we're going to review every 12 months. We're going to see how TSP has done, we're going to see what your salary has been, we're going to see what Social Security is projecting, and what FERS basic annuity is projecting. As we review that every 12 months, we get to review our decisions for TSP, about how much our contribution needs to be, and what our portfolio needs to be.
Because we're doing that every 12 months, it's another opportunity to reassure yourself that you actually are doing the right things; that you actually are on track or that you actually are now finally on track, and you can start to feel good about what you're doing. The whole point is for you to feel good about what you're doing, to know that you are actually taking best shot at building the retirement future that you want. That's why we're here.