What Is the Federal Employee Retirement 80% Rule?

Retirement planning is a topic of great importance, whether you are just starting out in the workforce or nearing the end of your federal career. One factor to consider when it comes to retirement planning is the Federal Employee Retirement 80% Rule. 

This rule can have a large impact on how and when you can begin collecting benefits from your retirement plan. It is important to understand precisely how this rule works and its implications for your retirement plans. Let’s dive in. 

Deciphering the Complexities of the 80% Rule

The biggest fear on many Federal employees’ minds as they near retirement is running out of money during their golden years. You may have a fantastic pension, plus a monthly Social Security check if you are under the Federal employee retirement system, most referred to as FERS. But is this enough? 

According to the “80% Retirement Rule,” a federal employee should plan to have a minimum of 80% of their pre-retirement income available to them on the day after they leave their position and retire. 

We often get asked, “Why not 100%?” and that answer is simple. Once retired, you will no longer be contributing to Medicare or Social Security, which is about 9% of the 20% in question. This, in addition to the 5% to 8% that you won’t be contributing to your Thrift Savings Plan (TSP), calculates to about 20%. 

Generally, how close you will be to the 80% mark is based on the number of years you have worked as a Federal employee. 

For example:

If you have worked as a Federal employee for 30 years at retirement, you will be at 30% or 33% towards that 80% mark. If you add 25% of your Social Security benefits, you are still only at around 55% or 58% towards the 80% rule. This is why it is so important to plan for retirement early on in your career. 

Is the 80% Rule Just a Guideline? 

Remember that the 80% Rule applies to a retiree’s final annual gross income, not net pay. After taxes and other deductions, gross income and earnings differ significantly. This is important because a retiree must think about how to replace their paycheck, not their total income. 

The 80% Rule disregards the following four factors:

• Retirees no longer need to put money from their income into their retirement accounts. 
• They also no longer contribute to Medicare or Social Security.
• Most retirees do not have a daily commute or expenses like gas and car maintenance. 
• Many people are part of a lower tax bracket when they retire.

That being said, a federal retiree could most likely maintain their standard of living with no more than 77% of their final salary, or 60% of their average yearly lifetime income, in considering all of these variables.

Preparing Wisely for Retirement 

Planning for retirement as a federal employee can be complicated, but the 80% Rule is a great place to start. Not only does it provide an estimate of what one’s income should look like after retirement, but it also allows for more flexible budgeting and potential savings opportunities. 

It is important to remember, however, that everyone’s financial circumstances are unique and may require additional guidance from experts or consultants like our team at Federal Educators. We will help you plan for retirement, no matter where you are in your federal career. 

Don’t hesitate to contact us at (813)755-7037 if you have any questions about the 80% Rule. After all, planning for retirement is one of the most important things you can do to secure your future.