If you’re a federal employee approaching retirement, chances are you have requested a FERS pension estimate from your agency. It’s exciting to finally see some numbers on paper and get a glimpse of that monthly pension you’ve worked so hard for! But before you start celebrating, there’s something important you need to know. That estimate may not be telling you the full story.
At Christy Capital Management, we specialize in helping federal employees prepare for retirement with confidence. Over the years, we’ve seen how misleading pension estimates can be, not because they’re wrong, but because they’re incomplete.
What your FERS estimate does show and what it doesn’t
When your agency sends you a retirement estimate, you’ll usually see several key figures. You’ll see your years of creditable service and your high three average salary, which form the foundation of how your pension is calculated.
You will see the FERS formula applied, typically one percent of your high three salary times your years of service, or one point one percent if you retire at age sixty-two with at least twenty years of service.
You will also see deductions for survivor benefit elections, FEHB health insurance, FEGLI life insurance, and possibly even taxes (although the tax figure is usually just an estimate). In some cases, unused sick leave credit is included, which can slightly increase your service time. All of this information is helpful. But the big monthly pension number you see is your gross amount. That is before taxes, before withholdings, and before real-life expenses. It is a starting point, not the finish line.
There are several important pieces of your financial picture that your pension estimate does not include.
- Social Security: Your estimate doesn’t show what you will receive from Social Security or how the timing of your claim at age sixty-two, full retirement age, or age seventy will affect your overall income. This is a major part of your retirement plan that often gets overlooked.
- Your TSP and Other Savings: Your Thrift Savings Plan is likely one of your largest assets, but your FERS estimate doesn’t show how to integrate that income with your pension or how long your TSP could last once withdrawals begin.
- Taxes: This one surprises many people. Your pension estimate does not show how much of your total retirement income will actually be taxable. If most of your TSP is in the Traditional bucket, those withdrawals will be taxed as ordinary income. If you have Roth funds, those withdrawals can be tax free as long as you are over age fifty-nine and a half and have had a Roth IRA for at least five years. Timing matters. Two retirees with the same pension can end up with very different take home pay depending on how their accounts are structured and when they take income.
- Inflation and Cost of Living Adjustments: COLAs under FERS are not guaranteed to keep up with inflation, especially if you retire before age sixty two. Your estimate does not project how inflation could reduce your purchasing power over time.
- Spouse and Survivor Benefits: If you are married, your retirement plan affects both of you, yet your estimate usually reflects only your income and not the full household picture. It also does not show what happens at the death of the federal retiree and whether the surviving spouse would be able to maintain the same lifestyle.
Your pension estimate is a helpful snapshot, but it is not a full financial plan. We’ve seen federal employees make major decisions based solely on those numbers. Some retire earlier than they should. Others underestimate their tax burden or later discover their income doesn’t go as far as they expected.
That’s why it’s so important to build a comprehensive federal retirement income plan that brings together your pension, TSP, Social Security, and taxes to show your real take-home income in retirement.
If you’re within a year of retirement or over the age of fifty-nine and a half, and you want to see your real numbers and not just the ones your agency provides, we would love to help. Visit christycapital.com and click the Talk to an Advisor button to reach out to our team. We will help you understand how all your benefits, savings, and taxes work together so you can retire with confidence and peace of mind.
At Christy Capital Management, we help federal employees take the mystery out of retirement because when you see the whole picture, you make better decisions.
