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John Grobe

How much money do you need to save for retirement? If you follow financial websites, blogs, and publications, I bet you read an article on this topic at least once a month. Well – here’s another one!

• A recent Schwab® poll indicated that, on average, workers think that they will need to save $1.7 million for retirement.


• Fidelity® recommends that you save 10x your income by the time you are age 67.

• CNBC® suggests that you take 80% of your current (or expected) salary, subtract expected permanent income (e.g., FERS, Social Security, etc.) and multiply the result by 25.

How do these three suggestions compare?

In the below comparisons I assumed that a retiree would be able to sustain their pre-retirement lifestyle on 80% of their final salary and would follow a 4% withdrawal rate (adjusted annually for inflation) from their savings. These percentages are often used by financial professionals as guidelines, “rules” if you will, for planning and managing withdrawals in retirement. We’ll look first at the recommendations from Fidelity® and CNBC® and later at the beliefs of the participants in the Schwab® survey and will use as an example an individual whose final salary was $85,000.

If the individual followed Fidelity’s® suggestion, they would amass $850,000 by the time of retirement. At a 4% withdrawal rate, this would result in an annual income of $34,000. The “80% rule” would call for a post retirement income of $68,000, leaving an annual shortfall of $34,000. It is likely that a retired federal employee who earned $85,000 per year would receive more than that amount of money from their FERS annuity and Social Security (I estimate that they would get close to $40,000 from those two sources), so it seems like Fidelity’s® suggestion would cause you to set aside somewhat more than needed.

CNBC’s® calculation is a little different. Once again, our goal is $68,000 per year. If the federal retiree receives $40,000 combined between FERS and Social Security, the shortfall is $28,000 per year which, multiplied by 25 results in a savings goal of $700,000.

Those who took Schwab’s® survey must not have counted on any income from Social Security or a pension or, if they were counting on one or the other, they must have been shooting for a higher annual income. $1.7 million dollars would result in $68,000 from their withdrawals alone if they followed the 4% rule.


Be aware that the examples above assumed a full career (30 or so years) federal retiree, those with less time in federal service would receive less from their FERS annuity.

What are some takeaways from the results above?

• It’s good that retired feds have both Social Security and a FERS annuity

• We have to set aside a lot of money in our Thrift Savings Plan to supplement our other sources of retirement income if we want to reach the 80% goal that financial professionals suggest.

• A lot of articles on retirement savings are written for those who will not have a pension and will rely on Social Security and their savings.

• If we start early, there’s a good chance that we can meet our retirement goals.

When’s the best time to start setting money aside for retirement? When you’re hired.


When’s the next best time? Today!

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