The third deadly sin and your TSP

What part does greed play when you are investing for your future? How much is enough? And what risks should you take or avoid in getting to your financial goal? So how much is enough? Easy question. Tricky answer. Enough depends on who’s asking, who is being asked and what it — the subject — is. Is it children, potato chips, suits in the closet or your retirement nest egg? And it is a moving target. If we’re talking about when you will have enough to retire, it’s an age and money thing that can change as you do. Probably will.

A million dollar nest egg may be a reasonable goal at age 25. But that could change by the time you are 50 or 60. Maybe been through a major recession or two. Or seen inflation skyrocket. Like, well, now. Nobody is getting any younger.  But the world and the economy — from gasoline and infant formula to the threat of an expanding war in Europe — are changing daily. So far, in many cases, not for the better. So we asked a recently retired fed, Abraham Grungold, for his thoughts. He recently left government after a long-career and long-time TSP investor who became a millionaire plus by careful and steady investing. Here’s what he said:

TSP — How much is enough?

There are approximately four million federal employees in the Thrift Savings Plan (TSP) and there are over 100k TSP millionaires. So how much TSP savings are enough for a successful retirement? What is the amount needed for someone to retire comfortably? It depends on many factors which are different for every individual’s personal and financial needs. The figures in the following two scenarios are estimates and federal and state taxes may vary.

Single Person

After 30 years of federal service and at age 62 years of age you have a 30,000 annuity, a 20,000 SSA benefit, and you have 500,000 in your TSP withdrawing 4% for the next 25 years which is 20,000 per year. Your total is 70,000 per year and after taxes it comes to approximately 55,000 per year. Will this level of income satisfy his/her lifestyle?

Married Couple

Let’s apply the scenario to a married couple both are at age 62 with one spouse being a federal employee. And they have $1 million in their TSP and combined retirement savings.

Spouse #1 has a $30,000 annuity, $20,000 SSA and spouse #2 has a $20,000 SSA. They are withdrawing 4% of their $1,000,000 over 25 years which is $40,000 per year. Their total is $110,000 per year and after taxes it comes to approximately $85,000 per year. Will this level of income satisfy your lifestyle?

Prior to retirement, it is very important for federal employees to maximize their contributions and invest aggressively in order to achieve the level of retirement income that they desire as well as to consider a plan for the unforeseen life events. I have heard from several federal employees that $2 million is enough for them in retirement. But, is it really enough?

Life can throw you some curve balls.  Here are a few of unplanned events that can pop up in retirement:

  1. Inflation and the rising cost of everything.
  2. Mortgage for a second home/vacation home.
  3. Medical and pharmaceutical needs.
  4. Grandchildren’s college education.
  5. Long term care/nursing home.

In retirement, you need to take a conservative approach and to monitor your expenses very closely.  TSP investors still need to invest somewhat aggressively in order to plan for these unforeseen events and to continue building their TSP even though they are making withdrawals.

As a financial coach, many federal employees contact me regarding their retirement, their TSP and their assets outside of the TSP.  I suggest that they need to have a contingency plan in retirement to address any possible situations.  Saving as much as possible in your TSP is the solution to these senior life events.

Nearly Useless Factoid

By Robert O’Shaughnessy

It takes 90 days for a drop of water to travel the entire length of the Mississippi River.

Source: National Wildlife Federation

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