If you are on the road to retirement, one roadblock you might run into is deciphering how your current net income will compare to your net income in retirement. While it may not be true for every case, many don’t realize that their retirement net income can be equal, if not more, than their net income while employed. To get a sense of how this may be possible, we’ll take a look at how income and deductions change from employment to retirement, which ultimately affects your net income.
INCOME SOURCES IN RETIREMENT
Your income will primarily consist of three different sources – your FERS pension, FERS Supplement or Social Security, and your Thrift Savings Plan (TSP). These income sources combined will create your monthly gross income. However, like an active employee, as a retiree, you can expect deductions. Once those deductions are taken from your gross income, you are left with your net take-home pay. To understand how your deductions shift from employee to retirement, let’s look at monthly deductions you are familiar with as an active employee.
MONTHLY DEDUCTIONS WHILE EMPLOYED
You are probably familiar with several deductions on your Earnings and Leave Statement. First, you have your standard federal and state taxes. Health care deductions usually include Federal Employees Health Benefits (FEHB), dental and vision, and Medicare tax. Retirement fund deductions would include TSP, FERS pension, and the OASDI (Old Age, Survivors, and Disability Insurance program) tax, also known as the Social Security tax. Completing the list of general deductions would be the Federal Employees’ Group Life Insurance (FEGLI).
WHAT DEDUCTIONS GO AWAY IN RETIREMENT?
Some of the deductions that you have while employed will not leave you in retirement. Those are federal and state taxes, costs related to healthcare (FEHB and dental/vision), and your FEGLI life insurance (if you choose to keep it). However, you can look forward to waving farewell to deductions for TSP, FERS pension, Social Security, and Medicare tax.
ANALYZING THE NUMBERS
When contemplating retirement, the question we hear is, “Will I make the same, more, or less net income as being employed?” There’s no better way to see how your net monthly income will look than running a net income analysis. That net income analysis helps you visualize how your gross and net income compares from employment to retirement. Benchmark Financial will prepare a Net Income Comparison and review it with you. Retirement may be closer than you think!
READY FOR THE NEXT STEP?
If you are starting to wonder how your financial situation is looking, Benchmark Financial Group is here to help. It all starts with gathering your information, discussing your goals, and preparing a plan so that we can help you maximize your income in retirement. To get started, schedule an appointment today with Benchmark Financial Group by filling out the form online or calling David Raetz at 913-534-8256 to discuss your financial needs. Benchmark Financial Group is happy to help you navigate your options and determine the best path to move toward your financial goals.
*Securities and Advisory Services Offered Through CreativeOne Securities, LLC Member FINRA/SIPC and an Investment Advisor. Benchmark Financial Group, LLC and CreativeOne Securities, LLC are not affiliated.
9300 W. 110th Street, Ste 160
Overland Park, KS 66210