Million Dollar TSP!

[VAmanBulls]

It has been my goal for some time to have 1.2 Million in my TSP before retirement. But recently I read that if you had 1 million dollars in 1993, you would need just over 2 million today to have the same spending power due to inflation. I always knew inflation was a thing, but that news was kind of shocking, and a little depressing. I always liked Dave Ramsey's quote that retirement is a number, not an age. So I guess I need to adjust my number. How do you all determine your retirement date? When you hit an age or a number? How are you figuring the number now?

[GPIN]

For me it is age. I can figure out how to make more money if I need to, but I have not figured out how to make more time. I've seen, too many times, folks retire when they got their $$$ number and then have health issues or die. Regarding the $$$ number, if one goes with the 4% rule and has $1.2M in a TSP, in theory that would provide $48K in year one. If one has 30 years in with a high grade the "pension" amount might be another $30K-40K+ totaling $78-88K/year without Social Security figured in. So the really big question is deciding how much one really needs a year to live their best retirement life?

[bloobs]

....So the really big question is deciding how much one really needs a year to live their best retirement life?

What GPIN said.

PS - Have an Excel worksheet that lists your actual annualized total expenses for the past couple of years or more, than map that to another that shows your annual projected line-item expenses in retirement until the year you're statistically likely to buy the farm (be realistic/add a buffer by considering the effects of inflation/COLA/healthcare/divorce/remarriage/whatever, etc.). There should be a column for each row that shows the E-O-Y balances on your TSP and any taxable accounts. Ideally it never goes to zero before the day you meet your maker.

Sound complicated? It is but the insight that projection gives you is priceless.

[VAmanBulls]

Good perspective GPIN and bloobs. But dang that inflation sucks!

[jimmyk]

VAman. What GPIN said also. My goal has been similar to what you outline. I have read similar articles about the new million is now fill in the blank. These articles start getting me nervous about my own retirement plans but then I start thinking about my lifestyle what I actually spend now versus how that will change in retirement (hint: probably not much as I don't intend to buy a yacht; maybe a jon boat for fishing or a few nice trips with the wife we have been wanting to take). Live within your means concept.
Maybe this will help. I came across this spreadsheet calculator at:
https://twosidesoffi.com/toolbox/

It is a bit complex but allows different inflow (pension, social security, etc.) and outflows (mortgage, college) to be inputted by age. Put in a starting balance, age, retirement date, inflation rates and it can give you a Safe Consumption Amounts to target different Failure Rates. You can also enter general rates of returns of equities and if you want to leave an inheritance behind or spend down to 0.

The website has extensive information on the calculations and assumptions. I don't fully understand all the bells and whistles of spreadsheet to verify accuracy but in general it seems to jive with other sources I use to try and pin all this down.
Hopefully, this helps.

[Bubba]

Just for funsies, I calculated the other day the amount I would receive from SS and FERS and found that it'll mostly replace my salary (a bit less, but not much). The TSP would be added on top. I would suggest most to look at SS and FERS (the 2 things you could actually understand well enough ahead of time) and see the TSP as an added bonus. Of course that'll become a question with future policy changes...

[evilanne]

I agree with GPIN & highly encourage retirement.
How much money do you really need in retirement? Investment advisors like to use 80% of your salary but with a pension, I really think that should be less but it really depends on each person's situation. When they rolled out FERS...remember the 3 legged stool analogy with, pension, SS & TSP. When considering early retirement, I looked at my salary minus SS/Medicare & TSP contributions (those things that go away) & actual living expenses and other income sources.

Here is interesting calculator https://www.firecalc.com & here is a list of multiple different calculators https://www.caniretireyet.com/the-best- ... lculators/

[jimcasada]

I guess I'm sitting on a 5 legged stool: gov pension, Navy retirement, VA disability, SS & TSP. My real TSP has gone up about $60k just since last June when I retired, and I still haven't made any withdraws. I've been trying to keep my reportable income down, with my kids starting college and applying for grants & scholarships. Maybe I should have retired sooner...

[Bubba]

I guess I'm sitting on a 5 legged stool: gov pension, Navy retirement, VA disability, SS & TSP. My real TSP has gone up about $60k just since last June when I retired, and I still haven't made any withdraws. I've been trying to keep my reportable income down, with my kids starting college and applying for grants & scholarships. Maybe I should have retired sooner...

Hey Jim! This is an enviable position to find yourself in. Nice going! I hope you enjoy retirement. I'll be on the 3 legged stool...with the hopes of having tons of everything (who doesn't right?).

[Bubba823]

I crossed $900,000 today with two (2) years to go until FERS retirement. TSP up 21% YTD. With FERS pension, VA, SS, IRA and TSP I'll be pulling in more in retirement than while employed.

[Scarfinger]

It has been my goal for some time to have 1.2 Million in my TSP before retirement. But recently I read that if you had 1 million dollars in 1993, you would need just over 2 million today to have the same spending power due to inflation. I always knew inflation was a thing, but that news was kind of shocking, and a little depressing. I always liked Dave Ramsey's quote that retirement is a number, not an age. So I guess I need to adjust my number. How do you all determine your retirement date? When you hit an age or a number? How are you figuring the number now?

I have read that 11x income at retirement is a rough estimate of money need to retire. For me, I took my estimated income of 80,000 at retirement x11 = 880,000. Then I took 4% withdraw rate of that = 35,200. Then I subtracted my annual estimated FERS (1500 x12) of 18,000. $35,200 - $18000 = $17,200 needed from my retirement accounts.

Then divided 17200 by .04 to get my number = 430,000.

Drawing 4% of 430,000 would be 17,200.

So... $430,000 is my number

[Aitrus]

Interesting approach, Scarfinger.

Clarification questions:
Why estimated income x11?
Are these numbers pre- or post-tax?

[Scarfinger]

Interesting approach, Scarfinger.

Clarification questions:
Why estimated income x11?
Are these numbers pre- or post-tax?

Just some rough estimates to give a person a guideline. T-Row Price recommended 11x income. I would guess for me 430,000 would be the minimum needed to retire.

But what I was wondering was how you should account for a pension. As far as I can tell the 11x income doesn't account for a pension. Do you think that I am way off?

[jimmyk]

Scar- I too have been wondering how to properly put a value on a pension that is indexed to inflation.
Financial samurai has a formula that the pension value = ($annual pension/reasonable discount rate of return)* (confidence of pension being paid until death).

So if your pension is $30,000/yr
discount rate = 4% (the higher rate of return you think you could get the lower the value of the pension)
confidence 95%
($30,000/0.04)*0.95 = $712,500

https://www.financialsamurai.com/how-do ... 20promised.

A pension is really a nice part of the stool and takes a lot of pressure of retirement assets.

[Aitrus]

I do think you're probably a bit off.

The way I did it is this (using your above numbers):

Step 1: What's my estimated income level at retirement? $80,000 a year

Step 2: How much of that do I want to live on, with enough buffer to help offset inflation? I want 85%, which is $68,000 a year. I can live on 75%, the rest is to account for cutbacks I'll have to make over the years as inflation eats up the difference. How can I live on 75%? Because I won't have car payments, house payment, TSP contribution, FERS contribution, SSA contribution, not paying for as much gas, etc.

Step 3: How much will my FERS be? According to your number, $18,000 per year. (which is reflective of a 22.5 year retirement prior to age 62).

Step 3.a.: For my personal situation, I will have multiple income streams, and these would be taken into account at this point. Things like VA Disability payments, SS Supplement, National Guard retirement that kicks in at age 60, etc. I won't include these additional income streams for this example, but if you had some this is where they would go.

Step 4: What's the "gap" I have to fill with just TSP until Social Security kicks in whenever I decide to take it? I have to pull $50,000 a year from TSP. That's the number I have to aim for in TSP.

Step 5: How much do I have to have in TSP to be able to pay myself $50,000 a year until I can reduce the amount because of Social Security (and use the common 4% withdraw ratio)? $50,000 / 0.04 = $1,250,000, assuming that the account makes just 4% (plus a little more to cover inflation). Result: the account stays around $1,250,000, and the annual growth is enough for me to pull $50,000 forever.

Step 6: Let's assume that my Social Security will be around $2,000 a month, or $24,000 a year when I hit 62, and I choose to take it. That means my $50,000 pull from TSP drops to $26,000 a year.

Step 7: If I have to pull $26,000 a year from TSP for the rest of my life and I don't want to run the risk of it running dry, how much do I need? $26,000 / 0.04 = $650,000, and it has to earn 4% plus inflation per year to stay at $650,000.

Step 8: The semi-final result is that, barring any other inputs, I will need $1,250,000 at retirement to pull $50,000 a year before age 62, and will need $650,000 after age 62.

Step 9: If I retire at 57 (earliest possible for my age), and opt to pull SS at 62, that's 5 years of withdrawals of $50k a year. That's a total of $250,000. Adding the $250,000 to the $650,000 I need at 62 results in $900,000.

Step 10: If I want to retire at age 57 and keep my TSP money safe in the G Fund (or the L Fund to try and keep up with inflation), I need $900,000 to pay my $50,000 per year from age 57 to 62. After that, the account needs to earn at least 4% plus interest to pay me $26,000 a year for the rest of my life.

Final result: $900,000 is the goal (using the numbers you have above).

Even though you didn't count Social Security in your example, your goal of $430,000 is low because even with accounting for Social Security I still needed $650,000 to reach the 85% replacement rate of my final expected income. As an additional kicker, that's 85% of final income, not the 100% of final income you were calculating for.

Of course, all this changes if you don't care if your TSP runs dry at some point. The problem, however,, is that you don't know how long you'll live. There's calculators that can tell you when your money will run dry at various rats of payout vs earnings. It's quite possible that your $430,000 would be enough, but only the account earns enough to overcome the money you pull out plus inflation. And that's going to be pretty aggressive if you're aiming for a 100% replacement rate.