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.
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.
Another excellent resource for listing your costs and expenses is Kiplinger's free Household Budget Worksheet. You can add rows for expenses and income plus download the final results.
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.
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, 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.
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
|Mortgage||13800||1150||0||0||0||Paid off mortgage at retirement|
|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 1 25K||216||18||216||18||216|
|Policy 2 3K||0||0||0||0||0|
|Health Ins||3692||307.66||3692||307.66||1113.6||Survivor must change to self only|
|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.|
|TSP||3,983||367||0||0||No contributions after retirement|
|Car 1||1200||100||600||50||0||Check Ins Co for rate reductions|
|Maint 1||200||17||200||17||0||Survivor sells a car|
|Clothing||1500||125||1000||83||1000||Depends on habits/etc.|
To prepare your personal retirement cost spreadsheet download the Microsoft Excel spreadsheet located at https://federaljobs.net/retire/retirecosts.htm. It will help you evaluate your personal situation.