Image: Zadorozhnyi Viktor/Shutterstock.com
When you plan for retirement, some simple numbers can help you develop an investment strategy. Start by determining how much you spend each year: that’s gross income, minus taxes and investments and exceptional outlays. Your current annual spending should be your target for retirement spending.
Rule of Twenty. Figure how much you’ll need from your portfolio each year. If your goal is to spend $80,000 a year in retirement and you expect $50,000 from your retirement benefits, you’ll need $30,000 from your portfolio. Multiply that $30,000 by 20 to get $600,000: your target for how much to accumulate in your investment portfolio.
Rule of Six. Put six times your projected outlays into fixed income assets such as bonds and bond funds. If you want to take $30,000 from your portfolio each year, multiply by six to get $180,000: the amount you should hold in fixed income. That will provide spending money for six years, regardless of what happens in the stock market. The balance ($420,000 out of $600,000, in this example) should be in a mix of stocks and stock funds, for long-term growth.
Each year, move money from stocks to fixed income to maintain your six-year allocation. Sell losing stocks and stock funds when you can, for capital losses. Those losses can shelter the taxes you’ll owe when you sell stocks at a gain.
Rule of Three. Typically, you’ll increase your spending at 3 percent a year, to keep up with inflation. However, you may want to keep spending constant in years when stocks fall sharply.
Role of a Pension: Having a FERS or CSRS annuity of course can impact retirement account withdrawal strategies. Firstly, a pension provides a consistent stream of income during retirement, which can reduce the reliance on withdrawals from other retirement accounts such as 401(k)s or IRAs.
This steady income can allow for more flexibility in managing investments, enabling individuals to potentially prolong the growth of their retirement savings by leaving these accounts untouched or withdrawing smaller amounts.
Additionally, since pensions often cover basic living expenses, retirees might afford to take more calculated risks with their investment portfolios, potentially leading to higher returns over time. This is one reason in particular it may not make sense to have your entire TSP invested in an L Fund that corresponds to your expected retirement date – the result may be in an overly conservative allocation (too much in the Income Fund versus the C Fund, for example).
Furthermore, having a pension reduces the pressure to withdraw large sums in response to market downturns, allowing retirees to avoid selling investments at a loss. Ultimately, the presence of a pension as part of a comprehensive retirement plan can lead to more strategic and less stressful management of other retirement assets.
Finally – other federal benefits such as FEHB should play into your overall financial picture, such as planning for medical emergencies.
Shutdown Meter Ticking Up a Bit
Judge Backs Suit against Firings of Probationers, but Won’t Order Reinstatements
Focus Turns to Senate on Effort to Block Trump Order against Unions
TSP Adds Detail to Upcoming Roth Conversion Feature
White House to Issue Rules on RIF, Disciplinary Policy Changes
Hill Dems Question OPM on PSHB Program After IG Slams Readiness
See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
The Best Ages for Federal Employees to Retire
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process