Are you considering retirement but not sure if you will have enough money to live on? You could do a detailed budget or you can try a simple three step solution. Lets look at two steps that can help you figure out if you can financially afford to retire.
Step number one is to figure your retirement income from all sources and deduct taxes. Here is an example of typical sources of income for a federal employee.
• FERS annuity
• FERS supplement
• Social Security
• Thrift Savings Plan
• Roth IRA
After figuring the total income you need to deduct your income taxes and you now have your after tax monthly income.
Now on to step two which is a trial run. Yes, I want you to live on the amount that you will be receiving in retirement and see how it works for 6-12 months. Within six months you should be able to figure out if you can afford to retire or if you need to work longer. Wouldn’t it be better to get a handle on this before you retire vs. retiring and then you find out your income isn’t high enough? The second thing this trial run will do for you – help you to save additional funds before retiring.
DONE! Well, almost. One thing that is impossible to experience while you are still working is what your lifestyle will be in retirement. This fact makes it hard to know exactly what your expenses will be when you no longer have a job that occupies 40 hours of your week. This extra free time may lead to additional money spent on hobbies and other interests, but if you can successfully do the two steps listed above you are at least in the ballpark of being able to retire.