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Are You Financially Prepared for Retirement?

Estate Planning Guide (Part 3)



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Updated 9/28/2016

 

Most feds obtain annuity estimates prior to retiring and have a sense of what they need to live on after they leave. It is advisable to evaluate your expenses and income, pre and post retirement, in depth so that you and your spouse will know how much you will actually have to live on after retirement. This article will help you analyze your personal situation and determine what you will have left after paying for the necessities of life. You will be able to determine if your lifestyle will change dramatically or if you will need to work part time to supplement your income.

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Financial Planning - Are Your Prepared?

 

To start the process locate all of your household receipts, pay statements, utility costs, insurance policies, loans and bank account information. There are many things to consider for both CSRS and FERS federal employees and the sample spreadsheet included on this page will help you see the value of completing this form. You can download a copy of this Microsoft Excel Retirement Cost analysis spreadsheet. Save the spreadsheet to your computer and work on it off line. This spreadsheet shows approximately what you will have left over after you pay all of your bills before and after retirement. The last column represents what your survivor will have remaining from their reduced annuity after you die. This exercise provides an opportunity for you to review and make changes to increase you retirement income and reduce your expenses.

The table listed below is not all inclusive and you can add or remove expenses as you see fit on the form that you download. The sample here is for a federal employee who will soon retire at age 55. He is a CSRS employee and worked 35 years for Uncle Sam. His top grade was a GS-11, step 6.

All expenses are listed on the chart for pre retirement per year and month and again for post retirement per year and month. The last column is for calculating what your spouse will have to live on with current expenses after you pass on. This is a very revealing analysis. You may want to consider running the numbers through a free budget calculator also. Note that in retirement this person will be living on an annuity of approximately $36,985. His total expenses after retirement are $33,835 leaving him with a buffer of just over $3,000 for emergencies. If there are unanticipated expenses or increased costs this person will need to be able to tap other retirement savings such as savings bonds, his Thrift Savings plan, or other investment income. The other option, if you don't have much in your other savings plans, is to continue to work at least part time some where.

After completing this chart you may determine that it is not feasible for you to retire if you were depending 100% on annuity income. Most in the federal sector have the Thrift savings plan which can substantially augment your retirement income. Others purchase savings bonds through payroll deduction and you and your spouse may be eligible for social security when you reach age 62 or older if you worked over 40 quarters, 10 years, in the private sector. If you are in the FERS system and retire at or after your eligibility date social security offset will help you make ends meet if you are under age 62.

The last column is significant to the surviving spouse. In this example, the surviving spouse's annuity reduces to 55 percent of the retiree's annuity, or $20,341. The survivor has expenses totaling $19,680, way to close for comfort. Ideally, insurance would add a blanket of security for the survivor along with social security, Thrift Savings and other investment income. The survivor may have to change their lifestyle considerably to live comfortably in retirement. This analysis will also help you decide whether or not you can risk reducing your FEGLI life insurance coverage when you retire.

The above discussion along with this spreadsheet should get you thinking about where you need to go from here. You can cut unnecessary expenses, possibly move to a less expensive home, sell the second car. There are lots of options. Also, in the survivor's case, there are a number of cost cutting things they can do immediately such as change their health insurance from a family plan to self only. This one action alone can save thousands each year.

Sample Retirement Cost Analysis Spreadsheet

 

Pre/year = Before retirement per year costs
Pre/mo = Before retirement per month costs
Post/year = After retirement per year costs
Post/mo = After retirement per month costs

 

EXPENSE Pre/year Pre/mo Post/year Post/mo Survivor  Comments
Mortgage 13800 1150 0 0 0 Paid off mortgage at retirement
Mtg Taxes 3800 317 3800 316 3800  
Gas 1050 87.5 1050 87.5 1050  
Light 1100 92 1100 92 900  
Phone 500 42 360 30 360  
Water/Sewage 720 60 720 60 432  
Security 0 0 0 0 0  
Garbage 116 10 116 10 116  
Lawn Service 0 0 0 0 0  
Cable 540 45 540 45 540  
Internet Access 363.4 21.95 363.4 21.95 363.4  
Other            
Other            
SUBTOTALS 21989.4 1825.45 8049.4 662.45 7561.4  
             
INSURANCE            
Employee             
FEGLI         59K 237.74 19.81 237.74 19.81 0 With 75% reduction to $0 at 65
Policy 1       25K 265 22 265 22 0  
Policy 2                   
Home Care 457 39 457 38 0  
Other                
Spouse            
Policy 1       25K 216 18 216 18 216  
Policy 2        3K 0 0 0 0 0  
Home Care 444 37 444 37 444  
Other                
Home 490 40.83 490 40.83 490  
Umbrella 0 0 0 0 0  
Car #1 585 48.75 585 48.75 0  
Car #2 600 50 600 50 600  
Mobile Home            
Motor Cycle            
Health Ins 3692 307.66 3692 307.66 1113.6 Survivor must change to self only
SUBTOTALS 6986.74 583.05 6986.74 582.05 2863.6  
             
PAY            
Gross Pay 56,900 4,741 36,985 3,082 20,341  
Deductions            
Social Security            
CSRS Ret  (7%) 3,983 331.87 0 0    
State Tax   (3%) 1707 142 0 0   PA does not tax retirement
Fed Tax     7,567 630 3,500 291 1500 Varies per exemptions, etc.
Medicare 804 67 0 0    
TSP 3,983 367 0 0   No contributions after retirement
CFC 26 2 0 0                        "
Savings Bond 1,300 108 0 0                        "
SUBTOTALS 19369.53 1647.87 3500 291 1500  
             
AUTOs            
Car 1 1200 100 600 50 0 Check Ins Co for rate reductions
Car 2 600 50 500 41 400  
Maint 1 200 17 200 17 0 Survivor sells a car
Maint 2 200 17 200 17 300  
Loan 2592 216 0 0 0  
SUBTOTALS 4792 400 1500 125 700  
             
FOOD/MISC            
Groceries 8500 704 7000 583 4000  
Clothing 1500 125 1000 83 1000 Depends on habits/etc.
SUBTOTALS 10000 829 8000 666 5000  
             
ENTERTAIN            
Eat Out 1800 150 2400 200 1000  
Misc 1200 100 2400 200 1000  
Other            
SUBTOTALS 3000 250 4800 400 2000  
             
EXPENSES 21989 1825 8049 662 7561  
INSURANCE 8557 721.23 7986.2 664.9 2919  
PAY WITHHOLD 19,367 1697 3500 291 1500  
AUTOS 4192 400 1500 125 700  
FOOD/MISC 10000 829 8000 666 5000  
ENTERTAIN 3000 250 4800 400 2000  
             
TOTAL ALL 67105 5722.23 33835.2 2808.9 19680  

 

To prepare your personal retirement cost spreadsheet download the Microsoft Excel spreadsheet located at http://federaljobs.net/retire/retirecosts.htm. It will help you evaluate your personal situation.

Go to Part 4 - Up in the Heir — Basic Estate Planning For Feds
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