How much is optimal to have in 401K when retiring?

[bdcp]

Actually, there is a special retirement supplement for those who retire before age 62 to help them bridge the gap before you can receive SS benefits. So like DH is currently 52 and can retire at age 56 and 4 months and receive the special retirement supplement until age 62. DH keeps hoping Congress doesn’t do away with it before he is eligible. http://www.fedweek.com/reg-jones-experts-view/the-fers-special-retirement-supplement-3/

I know that, but I hope you know it's nowhere near what a full SS benefit is (like 1/4-1/3). The "gap" is only partially bridged until age 62 (or whenever you choose to take SS). I "could" retire tomorrow because I'm past 56, but I plan to wait til I'm 60 as I said above. My post above had to do with the post by that poster saying they don't "need" their 401K and I was just pointing out the benefit of waiting and trying to figure out how they could state what they did.

There are calculators (my agency has one online) that show you close to what you will receive. I don't know any Federal retiree who thinks they can live on FERS retirement alone and I'm talking GS-15 and Senior Executive levels whose retirements are higher than mine. Here's an example of what someone who retires at age 56 with 30 years and an annual salary of 100K.

100,000x.01= 1,000
1,000x30= 30,000/yr
SS offset ~ $900/mo (just a generous guess, but close) so $10,800
Annual: $40,800
TSP adds an addtional amount, but you can't draw on that until 59 1/2 without a penalty

Can you see why most people would need their 401K (TSP) and full SS?

 

[AquamarineSteph]

DH & I would like to retire in 15 years. Well, actually, I'd like to retire today, but thats another story. Anyway, what do you think an optimal amount is to have in a 401K at retirement time? I know it will depend on standard of living, etc, but just looking for some rough estimates.

Long story short - as much as you can.

 

[Dakota731]

Actually, there is a special retirement supplement for those who retire before age 62 to help them bridge the gap before you can receive SS benefits.

That’s only for federal employees! Most of the rest of us pay 100% of our own retirement! Gone are the days of pensions in the real “non/government” world.

 

[Friendlyadvice2]

I know that, but I hope you know it's nowhere near what a full SS benefit is (like 1/4-1/3). The "gap" is only partially bridged until age 62 (or whenever you choose to take SS). I "could" retire tomorrow because I'm past 56, but I plan to wait til I'm 60 as I said above. My post above had to do with the post by that poster saying they don't "need" their 401K and I was just pointing out the benefit of waiting and trying to figure out how they could state what they did.

There are calculators (my agency has one online) that show you close to what you will receive. I don't know any Federal retiree who thinks they can live on FERS retirement alone and I'm talking GS-15 and Senior Executive levels whose retirements are higher than mine. Here's an example of what someone who retires at age 56 with 30 years and an annual salary of 100K.

100,000x.01= 1,000
1,000x30= 30,000/yr
SS offset ~ $900/mo (just a generous guess, but close) so $10,800
Annual: $40,800
TSP adds an addtional amount, but you can't draw on that until 59 1/2 without a penalty

Can you see why most people would need their 401K (TSP) and full SS?

I disagree.

I realize that your posts were in response to another member and I applaud you for your in-depth understanding of your retirement variables, but it's important to remember that everyone's retirement equation is different. As the other poster mentioned, they will have two government pensions coming in during their retirement and to be honest, I see this scenario everyday and would NOT expect them to "need" their TSP funds at all. As I mentioned, everyone has different variables in their retirement equation. Keep in mind that most people won't need to replace their entire pre-retirement gross salary and most people with dual incomes aren't living check-to-check, so they don't need their entire take home salary either. In addition, many have planned to have no debt at retirement thereby reducing their monthly spending/expense amounts even further. I suspect some of these or all of these factors may play a part in that poster's equation.

Also just for informational purposes, keep in mind that there are many different job classifications that fall under FERS. One I'm quite familiar with is the Federal Law Enforcement Officer Series 1811 classification. This job has a mandatory retirement age of 57 and a completely different FERS pension calculation than your calculation above. Most of these employees that I'm familiar with retire between the age of 49-53, although some do stay until 57 if they choose to. They receive 1.7% for the first 20 years of employment and then 1% for each year over 20. Keep in mind they do contribute to their pension just like you; it's not free. A 25 year employee would have 39% of their high-3 and a 30 year employee would have 43%. Any military time can be purchased and added to those percentages. The supplement that was touched on above ranges from $13K-$20K per year depending on the employee's lifetime SS credits and earnings and bridges the gap until actual SS is taken (the supplement is not apart of or funded by SS). I'm quite familiar with many of these employees' TSP accounts and the majority of them will never touch the principal in their TSP at all, but will rather withdraw only the investment yield/earnings from their accounts. Section 72(t)(2) of the IRC will allow them to do this, PENALTY FREE, in what's known as "Substantially Equal Periodic Payments". Without getting too in-depth, the payments are based on a life expectancy table, but for most will average around 3% of their TSP balance. They can do this until they are able to withdrawal penalty free at 59 like everyone else. Most I'm familiar (if they've contributed the max each year and invested wisely) with have a TSP balance of $1MM - $2MM at retirement, so 3% (which should be less than the annual earnings on the account if a proper retirement investment strategy is followed) can be a significant amount of money even though it may not be needed for monthly expenses.

With that being said, please realize that their are many employees in the same job classification I mentioned above that will be nowhere near finding themselves in that retirement boat. Many have not planned properly and have not made wise financial decisions. I'm sure you can think of a few whom your familiar with in your employment.

Again, this is just for informational purposes to illustrate why many, not just FERS employees, will NOT need their 401K (TSP) and full SS. Everyone has different variables in their retirement equation and have implemented different strategies to obtain their goals.

 

[bdcp]

I disagree.

I realize that your posts were in response to another member and I applaud you for your in-depth understanding of your retirement variables, but it's important to remember that everyone's retirement equation is different. As the other poster mentioned, they will have two government pensions coming in during their retirement and to be honest, I see this scenario everyday and would NOT expect them to "need" their TSP funds at all. As I mentioned, everyone has different variables in their retirement equation. Keep in mind that most people won't need to replace their entire pre-retirement gross salary and most people with dual incomes aren't living check-to-check, so they don't need their entire take home salary either. In addition, many have planned to have no debt at retirement thereby reducing their monthly spending/expense amounts even further. I suspect some of these or all of these factors may play a part in that poster's equation.

Also just for informational purposes, keep in mind that there are many different job classifications that fall under FERS. One I'm quite familiar with is the Federal Law Enforcement Officer Series 1811 classification. This job has a mandatory retirement age of 57 and a completely different FERS pension calculation than your calculation above. Most of these employees that I'm familiar with retire between the age of 49-53, although some do stay until 57 if they choose to. They receive 1.7% for the first 20 years of employment and then 1% for each year over 20. Keep in mind they do contribute to their pension just like you; it's not free. A 25 year employee would have 39% of their high-3 and a 30 year employee would have 43%. Any military time can be purchased and added to those percentages. The supplement that was touched on above ranges from $13K-$20K per year depending on the employee's lifetime SS credits and earnings and bridges the gap until actual SS is taken (the supplement is not apart of or funded by SS). I'm quite familiar with many of these employees' TSP accounts and the majority of them will never touch the principal in their TSP at all, but will rather withdraw only the investment yield/earnings from their accounts. Section 72(t)(2) of the IRC will allow them to do this, PENALTY FREE, in what's known as "Substantially Equal Periodic Payments". Without getting too in-depth, the payments are based on a life expectancy table, but for most will average around 3% of their TSP balance. They can do this until they are able to withdrawal penalty free at 59 like everyone else. Most I'm familiar (if they've contributed the max each year and invested wisely) with have a TSP balance of $1MM - $2MM at retirement, so 3% (which should be less than the annual earnings on the account if a proper retirement investment strategy is followed) can be a significant amount of money even though it may not be needed for monthly expenses.

With that being said, please realize that their are many employees in the same job classification I mentioned above that will be nowhere near finding themselves in that retirement boat. Many have not planned properly and have not made wise financial decisions. I'm sure you can think of a few whom your familiar with in your employment.

Again, this is just for informational purposes to illustrate why many, not just FERS employees, will NOT need their 401K (TSP) and full SS. Everyone has different variables in their retirement equation and have implemented different strategies to obtain their goals.

The poster who said they didn't need their 401K (TSP) never said they "had" to retire, but that they "could". Nowhere did they say they are Fed Law Enforcement or qualify for the early retirement. I was basing my response entirely on the info they gave. Most Fed retirees do not fall under the Fed Law Enforcement classification. BTW, my BIL retired last year at age 47 from the US Secret Service and went back to work doing consulting so I know how that works. Also, if you notice, the pp who said they didn't "need" theit 401Ks was pretty rude about their entire post and I'm not entirely sure they are Fed Gov. There was just something about their post and I wanted to point out the reality of what most Fed employees are getting in retirement. It's nice to have the pension, but CSRS was a much better deal. My DF and DFIL both retired with 30 years and over 60% of their pre-retirement income, plus some TSP. FERS just doesn't match that.

In the DC area, most people don't retire with no mortgage. Homes are just too expensive for most to pay off, even on two salaries. A lot end up moving out of the area or downsizing homes (still with a smaller mortgage usually) just to make up any difference in pre and post retirement. So, yes, I know a lot of Fed retirees and most go back to work for contractors after retirement to put away more so they can have a good retirement. And, some do it because they love the work they do.

 

[Friendlyadvice2]

The poster who said they didn't need their 401K (TSP) never said they "had" to retire, but that they "could". Nowhere did they say they are Fed Law Enforcement or qualify for the early retirement. I was basing my response entirely on the info they gave. Most Fed retirees do not fall under the Fed Law Enforcement classification. BTW, my BIL retired last year at age 47 from the US Secret Service and went back to work doing consulting so I know how that works. Also, if you notice, the pp who said they didn't "need" theit 401Ks was pretty rude about their entire post and I'm not entirely sure they are Fed Gov. There was just something about their post and I wanted to point out the reality of what most Fed employees are getting in retirement. It's nice to have the pension, but CSRS was a much better deal. My DF and DFIL both retired with 30 years and over 60% of their pre-retirement income, plus some TSP. FERS just doesn't match that.

Being quite familiar with the federal retirement system(s), I was simply just trying to offer a different perspective and my response was based entirely on the info given as well. I don't find it remarkable that the poster with two pensions does not need to access their 401k and offered support of my opinion. I will also have to STRONGLY DISAGREE that CSRS is a "better deal" than FERS. I've written many times about this myth, but won't get into here.

 

[DVCcurious]

So, your retirement is FERS? That doesn't even get you 1/2 of your current salary, closer to 1/3.

All the stuff below is in today’s dollars.

36% to be exact. We started at 22 out of college and will retire at 58. We live in NY so we have high cost of living salaries. 250 combined income x .36 = 90,000. Then adjust again because FICA isn’t being taken out of the pension so it’s like wages of 90,000 / .9235 = 97,500. We sell our condo for 1.2 and then using the 4% rule will equal income from that for another 50k and our income will be like 150 without touching our TSP. However you have to consider SS. We’re delaying until 70 when we’ll start SS at about 3k a month each. So that’s 70k. After we’re 70 we have guaranteed income of 90k pension +70k social for 160k total. We’re moving to Florida when we retire. I feel pretty confident we can live on 160 in Florida. Even if we have to withdraw more than 4% from the 1.2 condo equity for the 12 years before we start SS we’ll still have more than enough. So, no, we won’t be touching our TSPs.

And my friends who laughed at me for working for the government are gonna work for at least 7 years longer than I will.

 

[TwoMisfits]

36% to be exact. We started at 22 out of college and will retire at 58. We live in NY so we have high cost of living salaries. 250 x .36 = 90,000. Then adjust again because FICA isn’t being taken out of the pension so it’s like wages of 90,000 / .9235 = 97,500. We sell our condo for 1.2 and then using the 4% rule will equal income from that for another 50k and our income will be like 150 without touching our TSP. However you have to consider SS. We’re delaying until 70 when we’ll start SS at about 3k a month each. So that’s 70k. After we’re 70 we have guaranteed income of 90k pension +70k social for 160k total. We’re moving to Florida when we retire. I feel pretty confident we can live on 160 in Florida. Even if we have to withdraw more than 4% from the 1.2 condo equity for the 12 years before we start SS we’ll still have more than enough. So, no, we won’t be touching our TSPs.

And my friends who laughed at me for working for the government are gonna work for at least 7 years longer than I will.

Few folks will have dual high income fed spots with drastically appreciated real estate to sell to retire on, so you are a very unique situation...one which does give you a lot more options than the normal retiree...

As someone previously mentioned, a normal FERS retiree is probably looking at $100K for a top salary, 40 years of service and a retirement between 62-67, and so about $40K in a pension with whatever TSP and SS they will receive for their family...not nothing, but not enough to avoid needing some SS and/or TSP funds to help aid their retirement (unless they will live very, very cheaply)...the pension now will not make anyone rich, and is a worse "deal", getting paid into by employees at a much higher rate than previous employees paid (now up to 4.4% out of their salary for anyone hired 2014 on, where previous feds paid almost nothing)...

 

[bdcp]

All the stuff below is in today’s dollars.

36% to be exact. We started at 22 out of college and will retire at 58. We live in NY so we have high cost of living salaries. 250 combined income x .36 = 90,000. Then adjust again because FICA isn’t being taken out of the pension so it’s like wages of 90,000 / .9235 = 97,500. We sell our condo for 1.2 and then using the 4% rule will equal income from that for another 50k and our income will be like 150 without touching our TSP. However you have to consider SS. We’re delaying until 70 when we’ll start SS at about 3k a month each. So that’s 70k. After we’re 70 we have guaranteed income of 90k pension +70k social for 160k total. We’re moving to Florida when we retire. I feel pretty confident we can live on 160 in Florida. Even if we have to withdraw more than 4% from the 1.2 condo equity for the 12 years before we start SS we’ll still have more than enough. So, no, we won’t be touching our TSPs.

And my friends who laughed at me for working for the government are gonna work for at least 7 years longer than I will.

You kind of left out the condo in your original post. That's no different than a 401K so that's not exactly living just on your pension, but ok. DC is a high cost of living area too and our combined salaries are higher than yours. All the details you provide in this post paint a very different picture than your original post. Hope it works for you the way you want.

 

[Colleen27]

This is one of those things I honestly just don't like to think about.

I know we're not saving enough. We could give up every extra in our lives and still not save enough to hit the "magic numbers" we see thrown around! We'll be able to up the savings some in the future as the kids start leaving the nest and our tuition bills shrink (currently have one in college and two in private K-12 schools - tuition eats up about 25% of our household income), but we'll never have a million dollars in a 401k/IRA and neither of us has an employer match to make the saving easier. We have also committed to rolling any inheritance we may receive in the future into our retirement plans rather than treating it as a windfall/"found" money, which may provide a bit of a boost because I will likely have a modest inheritance from my mom.

 

[Dakota731]

I wouldn’t count on an inheritance. I’ve had too many friends whose parents had to go into a nursing home and ate up every cent of their sizable savings.

 

[Colleen27]

I wouldn’t count on an inheritance. I’ve had too many friends whose parents had to go into a nursing home and ate up every cent of their sizable savings.

Personally, I don't count on any dollar not already in hand. Between working as a freelancer myself and helping run the office side of DH's business when he was self-employed, I've had enough experience with slow- and non-paying customers that even pay for work already performed isn't something I see as 100% reliable. It is a "plan for the worst, hope for the best" sort of thing - I know my mother's situation well enough to know that her planning includes leaving something behind for me because she worries about how I'll fare in retirement after spending so many years out of the workforce in my 20s and 30s, and since she is one of the fortunate few to have a government pension and social security and a 401k and good retiree health/long term care insurance (plus a paid-off house), she should be in a position to do that. So I save as much as I can just in case plans go awry, but at the same time, I know if things go more or less according to plan I will have a modest lump-sum boost to my retirement fund at some point.