TSP = $1M: is it enough?

FERS, SS, & your TSP

August 02, 2025

Navigating retirement as a federal employee involves more than just hitting a savings target. While a $1 million TSP balance is a monumental achievement, it is not a universal guarantee of a comfortable retirement. The crucial question isn't "is a million enough?" but rather, "what does my retirement lifestyle cost?"

The Federal Retirement Income Triad

Unlike their private sector counterparts, federal employees under the Federal Employees Retirement System (FERS) benefit from a three-tiered retirement structure. This provides a robust financial foundation that significantly reduces the pressure on their personal savings. The three pillars are:

FERS Pension: A lifetime monthly annuity based on your "high-3" average salary and years of service. A common formula for FERS is 1% of your high-3 average salary multiplied by your years of service. This becomes 1.1% if you retire at age 62 or older with at least 20 years of service. This is a crucial, predictable source of income that provides a stable base for your retirement budget.
Social Security: As a FERS employee, you contribute to and are eligible for Social Security benefits. For those who didn't contribute to Social Security for their entire career, there are specific provisions like the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) that may affect spousal or your own benefits. However, for most federal employees, this provides a vital second stream of income. The average Social Security benefit for a retired worker is around $1,976 a month in 2025, but this varies widely based on individual earnings history.
Thrift Savings Plan (TSP): This is your personal savings and investment vehicle. It provides the flexibility to supplement your pension and Social Security benefits and fund the lifestyle you desire in retirement.

Converting Your TSP into a Paycheck: The 4% Rule

To determine how a $1 million TSP translates into retirement income, a common guideline is the 4% Rule. This rule of thumb suggests that you can safely withdraw 4% of your initial retirement portfolio balance in your first year of retirement, and then adjust that amount annually for inflation. This strategy is designed to make your money last for a 30-year retirement with a high probability of success.

For a $1 million TSP, the 4% rule translates to an initial withdrawal of $40,000 per year, or roughly $3,333 per month. However, it's critical to remember that most TSP contributions are pre-tax, meaning these withdrawals will be subject to federal (and in many cases, state) income tax. After accounting for taxes (e.g., a 20% effective tax rate), your net monthly income from the TSP could be closer to $2,667.

The Net Pay Exercise: Your Personal Reality Check

The most effective way to assess if your planned retirement income is sufficient is to compare it to your current spending habits.

Calculate Your Total Retirement Income: Sum up your estimated net FERS pension, net Social Security benefit, and net TSP withdrawals. For example: $2,000 (FERS) + $2,200 (Social Security) + $2,667 (TSP) = $6,867 per month.
Determine Your Current Net Pay: Look at your most recent pay stub. Calculate your monthly take-home pay after all deductions, including taxes, TSP contributions, and health insurance premiums.
Compare and Plan: If your estimated retirement income is greater than your current net pay, you're likely on track for a comfortable retirement. If it's less, you may need to re-evaluate. This could involve increasing your savings rate, delaying retirement to accrue more service time and higher pay, or adjusting your retirement lifestyle expectations.

Important Variables to Consider

A simple calculation is a great starting point, but it's essential to factor in other variables that could impact your financial picture:

Inflation: The rising cost of goods and services, especially healthcare, can erode your purchasing power over a long retirement.
Longevity: People are living longer, healthier lives. Your retirement plan needs to be robust enough to last for 30 years or more.
Healthcare Costs: While FEHB provides excellent coverage, retirees are still responsible for Medicare premiums, deductibles, and other out-of-pocket costs, which can become a significant expense.

Ultimately, a $1 million TSP is a fantastic asset, but its value is entirely personal. Success isn't about reaching an arbitrary number; it's about building a customized financial plan that ensures your income sources—your pension, Social Security, and TSP—are aligned to support the retirement lifestyle you've always envisioned.

TSP = $1M: is it enough?

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