Fed Retirement Under FERS

[Anonymous]

Anonymous wrote:Is it worth it? If you can make a ton more money in the private sector and be disciplined enough to save it all, sure. But consider this - if your high 3 average is "just" 136k (gs14 step 10) and you put in 20 years (ignoring the 1.1, just using 1%) you would gets 27,200/year from FERS alone, not counting your tsp. If you live 25 years in retirement that is 680k. If you move to private sector you would have to save an additional (above what you were already saving to your tsp/401K) 17,500/year and earn 6.5% on that money to match the FERS payments you gave up. Sure, it would be nice to be there longer and get 30%, but 20% of your income is pretty sweet compared to the zippy percent you will get in the private sector.

This is not right. If you saved 17,500/year and earned 6.5% you would have a stock of $680,000 at retirement. But that amount would generate much more than 25 multiplied by 27,200, since it would continue to generate a return until it was fully drawn down.
To use your example, if this 680,000 earned a return of 6.5%, you would be able to get 25 payments of 55,700 from it.

But I agree with your larger point: in a low interest environment the guaranteed return of the basic annuity is worth a lot. It is also cola'd.

If the average real return is 2.5 percent you would need to save $13,500 a year for 20 years to generate an amount that would provide an income of 27,200/year for 25 years.