The Foreign Service Journal, May 2016

the Foreign Service journal | may 2016 21 because most Foreign Service members qualify to retire before age 62, federal law affords FSPS members an annuity supplement until that milestone. This supplement is calculated by dividing your years of federal service by 40 and thenmultiplying that by the Social Security benefit you would receive at age 62. You can use the Social Security Administration website at www.ssa.gov to generate an individualized estimate of your own figure. Thrift Savings Plan. As you can see, no matter how many years you serve, your FSPS annuity plus Social Security will not come close to replacing your pre-retirement income. Thus, the Thrift Savings Plan must be a key part of your retirement plan- ning. Contribute up to 5 percent of your salary and Uncle Sam will match it—“free” money that no one should pass up. To posi- tion yourself well for retirement, you should contribute at least 10 percent of your salary to TSP. Those who can afford it should contribute an amount as close as possible to the annual maximum ($18,000 in 2016) and take advantage of post-age 50 “make up” contributions (up to $6,000 in 2016). You can use calculators on the TSP website at www.tsp. gov to generate estimates of your TSP account growth and post- retirement withdrawals under different scenarios. Reality Check How much money will you need to retire comfortably? Experts say that most people can continue their current life- styles into retirement on 85 percent of their pre-retirement gross income. One reason for that reduced need is that deductions for Social Security, Medicare, TSP and FSPS contributions can consume at least 15 percent of pre-retirement gross income, and those deductions end at retirement. Of course, your retire- ment income needs may be higher or lower, depending on your desired retirement lifestyle and continuing financial commit- ments such as children’s college expenses. You can judge your financial trajectory for retirement by estimating your annuity, Social Security and TSP income as of a target retirement date. If you have no idea when you might retire, then run your numbers based on first eligibility—which, for most FSPS employees, is at age 50 with at least 20 years of service, as established by the Foreign Service Act of 1980. If the calculations fall short of how much money you desire, then you need to adjust plans. For example, staying in the Foreign Service longer will increase your annuity by raising the multiplication factor and the “high three” average salary. Post- retirement employment is an option exercised by many Foreign Service retirees, but your annuity supplement and Social Secu- rity payments are subject to reduction if you go back to work and receive significant wage earnings (in excess of $15,720 per year in 2016). Other options are to invest more of your take-home pay in the stock market, rental property and/or an Individual Retire- ment Account. Feathering Your Nest As you plan your future finances, there are several things to keep in mind in order to best position yourself for retirement.