How much do you need for Retirement?

From Thrift Savings Plan Highlights, July 2004:

How much do you need for retirement?

If you are looking forward to a long, busy retirement, doing the things that give you pleasure, do you know how much money you will need to make your plan a reality? Many people don't take the time to figure this out until mid-career, or even later. Consequently, at retirement, they find they have to change their expectations because they haven't saved enough. Don't let this happen to you. 

Consider, Calculate, Review and Revise.

CONSIDER the factors that may affect your financial plan. For example:

• Financial experts suggest that you may need between 60% and 100% of your preretirement income, depending on your anticipated expenses in retirement and whether you plan to maintain your current lifestyle. You may need more than you think!
• Most people who retire at 65 can expect to live 20 years or more in retirement. If you plan to retire earlier, you will need even more resources.
• Your health care costs are likely to increase as you get older.
• Do you anticipate any large expenses that need to be considered, such as the purchase of a retirement home?
• Inflation will reduce your spending power. Over a 20- to 30- year retirement, this could be significant. You money should remain invested - even during retirement - so your spending power can keep up with inflation.
• You will have to pay taxes on any tax-deferred amounts that you withdraw from your TSP account.

CALCULATE your anticipated expenses in retirement and your estimated savings. This is a crucial step if you are to make informed decisions about your future. Fortunately, there are many resources available to help you through this process, including:

• The Federal Ballpark Estimate
• The Employee Benefit Research Institute and American Savings Education Council's joint Web site offers over 100 financial planning calculators and interactive tools, including the Ballpark Estimate Calculator.
• The TSP calculator, Projecting Your Account Balance.

First, you should determine your anticipated expenses and calculate the percentage of your current income that you will need in retirement.

Next, review your current savings and other assets to see where you are now and, with your retirement date in mind, calculate the growth of your assets, including your TSP account.

Project the amount of your Federal pension, other pensions, and your Social Security payments (if you're eligible). Then calculate the amount of monthly income you can expect. The TSP withdrawal calculators can help you estimate payments from your TSP account.

Then determine the amount of additional savings you will need to accumulate in order to make up the difference in your monthly income.

When you put all the pieces together, you should be able to determine whether you will have enough money to last for your retirement years. If you need more help, consider using the services of a financial planner.

REVIEW and REVISE your retirement plan at least annually. If the numbers are not what you want them to be, what can you do to make up for a shortfall?

• Save more. The TSP is an important part of your retirement plan. If you are covered by FERS, make sure you are contributing at least 5% so that you receive all of the matching contributions. Make sure you are saving for your other needs also, so you don't need to tap your TSP account for nonretirement purposes.
• Review your investments and decide how much risk you are willing to take.
• If you are over age 50 and already contributing the maximum amount of regular contributions, take advantage of catch up contributions.
• Put additional money into IRAs.
• You may be able to consolidate your investments by moving your other eligible retirement savings into your TSP account to take advantage of the TSP's low administrative expenses.
• Revise your savings plan as needed so that you can reach your goals.

What else can you do? Lean more about planning for retirement. Visit your public library, surf the Internet, and check out the mid-career and preretirement seminars offered by your agency.

Remember, it's better to end up with too much than too little!

Other information:

• Free printed materials, U. S. Department of Labor, including Top Ten Ways to Save for Retirement (1-800-998-7542).
• Social Security Administration
• National Save For Your Future Campaign
• Alliance for Investor Education
• Securities and Exchange Commission