Retirement risks: Running out of money

Years ago the TV critic of our newspaper retired. He had worked for more than 30 years at top salary. The company had started a pension plan 12 years before he retired. He told me his starting pension was something like $231 per month, which even back in the day wasn’t much. Years later we were talking and he mentioned his monthly pension was still $231 per month.

Although I was too young (I thought) to even think about retirement, I started thinking about retirement.

Next day, I called our HR department. Got the top person. She was an expert on our pension plan. I told her I was doing a story on different pension systems and asked about our company’s COLA (cost of living adjustment) benefit. Her reply: “What’s a COLA?” That said a lot. As in a lot, lot!

What it meant was that whatever pension you got when you retired would be the same monthly benefit you got 10, 20 or 30 years down the road. Since then, the newspaper and lots of other employers have dropped its pension plan altogether. Too expensive. Old-timers were grandfathered in, but new employees must depend on investments they make in their 401k plan and Social Security.

Many, maybe most, current American workers don’t have a company-defined benefits pension plan. And for many, their number-one fear is that, if they live long enough, they will run out of money. That inflation will outpace any benefit they get from Social Security and eat up their savings. That’s something federal workers and retirees don’t have to worry about. Or do they?

Financial planner Arthur Stein says that “federal retirees will never run out of income…they will always have Social Security and the federal annuity.” FERS retirees get a reduced civil service annuity, Social Security and a 401k plan (the Thrift Savings Plan) which includes a government match of up to 5 percent. Most current federal retirees are under the more generous Civil Service Retirement System (CSRS) which doesn’t include Social Security but provides a larger indexed-to-inflation annuity for life. But the vast majority of current federal workers about 96 percent — are under the FERS program. And Stein says those FERS employees and retirees will “at some point” find that “expenses may exceed guaranteed payments (Social Security and FERS annuity).” In fact, the 2017 COLA for retirees will be a record low 0.3 percent.

Once the outgo is more than the income, Stein says, FERS retirees “will be forced to begin withdrawing money from the TSP and other investments to cover the difference. Income from those investments must last as long as the retiree is alive, which is the good news-bad news. What if your retirement lasts 30 years?

Stein will be on our Your Turn radio show today to talk about asset allocation. Should you have all your retirement savings in the TSP? And if so, where do you invest it? Do you stick with the super-safe, low yield treasury securities G-fund? What about the stock market C, S and I funds? They have traditionally produced the highest yields, but are also subject to market downturns as we all learned in 2008-9.

A key question is what percentage of investments should be in the TSP stock, bond and treasury funds. Equally important is should your percentages (allocations) change over time? And if so, how.

The show runs from 10 a.m. to 11 a.m. here on FederalNewsRadio.com or, in the D.C. area, on 1500 AM. It will also be archived on our homepage so you, or a friend, can listen anytime. If you want to speak directly Art Stein during the show you can call 202.465.3080. Or if you want to e-mail a question send it to me, mcausey@federalnewsradio.com before the show starts.

Listen if you can today, or later. It could help you map out a much happier, less stressful retirement. Hope so.

Nearly Useless Factoid

By Jory Heckman

Before the invention of the modern rubber eraser in the 1770s, people used soft bread to erase markings.

Source: History of Pencils

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