Recently, I met with a federal employee who was within a few years of retirement. He had done a great job saving and had built up a solid balance in his Thrift Savings Plan.
But he was concerned.
He kept coming back to one number.
“I just don’t think I’m there yet,” he said. “I’ve always heard I need a million dollars.”
As we walked through his situation, something became clear.
The issue wasn’t that he didn’t have enough.
It was that he was measuring his retirement against a number that didn’t actually apply to him.
Federal Retirement Is Different
For years, many people have heard the same message about retirement:
“You need a million dollars.”
It sounds simple. It sounds responsible. And for many, it feels like a safe target to aim for.
But for federal employees, that number can be misleading.
One of the biggest reasons is that federal employees do not rely on a single source of retirement income.
Most retirees outside the federal system depend heavily on their savings.
Federal employees, however, typically retire with three income sources:
- A FERS pension
- Social Security
- Thrift Savings Plan (TSP) assets
That combination creates a very different planning scenario.
When a generic number like $1 million is used as a benchmark, it often ignores the income already being provided by the pension and Social Security.
It Is Not About Replacing Income. It Is About Filling the Gap
A more practical way to think about retirement is not “How much do I need total?” but rather:
“What is the gap I need to cover?”
For example, consider a retiree with:
- A pension of $30,000 per year
- Social Security of $25,000 per year
That is $55,000 of annual income before drawing from TSP.
If their annual expenses are $65,000, the actual gap is only $10,000.
That is a very different problem to solve than replacing the full $65,000.
Using a general withdrawal rate of 4% to 5%, a $10,000 income need might require approximately $200,000 to $250,000 in savings—not $1 million.
This is where many people go wrong. They focus on hitting a large number rather than understanding their actual income need.
Spending Often Changes in Retirement
Another important factor is how spending evolves over time.
Early in retirement, expenses may include travel and activities that were postponed during working years. However, over time, spending often decreases.
Many retirees find that:
- Travel slows down
- Dining and discretionary spending decline
- Overall expenses stabilize or decrease
While certain costs, such as healthcare, may rise, total spending does not always increase over time.
This can further reduce the amount of income needed from retirement savings.
A Different Risk: Not Spending Enough
In working with federal employees, a common pattern emerges.
The concern is often centered on running out of money.
In reality, many retirees take only what they need and leave the rest of their TSP untouched.
As a result, their accounts may continue to grow over time.
While this may seem like a positive outcome, it can introduce another challenge.
The Tax Consequences of Growth
Traditional TSP accounts are tax-deferred. Contributions and earnings have not yet been taxed.
As those accounts grow, they represent a future tax obligation.
At a certain point, required minimum distributions (RMDs) begin, forcing withdrawals from these accounts whether the retiree needs the income or not.
This can lead to:
- Higher taxable income than expected
- Larger required distributions than anticipated
- Increased Medicare premiums tied to higher income levels
In some cases, retirees who did not need to draw heavily from their accounts earlier may face larger tax consequences later.
This is one example of how having “more money” does not always result in a better outcome without proper planning.
The Importance of Coordinated Planning
Retirement decisions are interconnected.
Factors such as:
- When to retire
- When to begin Social Security
- How to withdraw from TSP
- Whether to consider Roth conversions
- How much income to recognize each year
All play a role in the long-term outcome.
Rather than focusing solely on reaching a specific savings target, it is often more effective to evaluate how these pieces work together.
Asking Better Questions
Instead of asking, “Do I have $1 million?” federal employees may benefit from asking:
- What are my expected expenses in retirement?
- How much income will my pension and Social Security provide?
- What gap remains?
- How can that gap be filled in a tax-efficient way?
These questions can lead to more informed decisions and a clearer understanding of retirement readiness.
A Different Perspective on Risk
The traditional concern around retirement is running out of money.
For many federal employees, a different risk may exist.
It may involve:
- Working longer than necessary
- Saving more than required for their situation
- Paying more in taxes due to a lack of planning
Understanding how income sources, spending patterns, and tax considerations interact can help address these risks more effectively.
Final Thoughts
Retirement for federal employees is not simply about reaching a number.
It is about building a coordinated strategy that aligns income sources, expenses, and tax considerations over time.
Taking the time to evaluate these factors can provide greater clarity and help ensure that decisions made today support long-term goals.
For those who are unsure how these pieces fit together, it may be helpful to have a conversation with someone who regularly works with federal retirement systems and understands the unique decisions involved.
If you would like assistance, you can learn more or reach out at ChristyCapital.com.
