Q. I realize the answer to my question depends on the tax rate of the individual, but assuming their income is exclusively from their pension, how many years would a CSRS retiree need to work (excluding the effect of sick leave) in order to bring home approximately the same pay after retirement? In other words, what deductions will cease at retirement? Medicare? CSRS payments? The other variable is how much they are having deducted for the TSP every year. If it’s 10 percent, and that ceases at retirement, then I can see a person taking home 100 percent at about 40 years with a lower income tax rate.
A. When you’d finally receive 100 percent of the salary you were receiving on the day you retired would depend on several things. For example, the number of years you worked before retiring. If you worked for 30 years, your base annuity would be 55 percent of your high-3; however, if you worked for 41 years and 11 months, it would be 80 percent. In either case, the percent would be higher if you had a substantial amount of unused sick leave on the books when you left. Roughly speaking, every 174 hours of sick leave – plus to any leftover hours of actual service that didn’t add up to a full month – would increase your annuity by 1/6 of 1 percent.
Moving on, if your tax rate is lower – which it probably would be – your spendable income would be greater. And because a portion of your annuity would be tax free, it would be greater still. Then there’s the question of whether you are married and – as required by law – elected a survivor annuity for your spouse. Depending on the amount your spouse agreed to, it could be as little as $1 a year or as much as 55 percent of your unreduced annuity, which would mean your own annuity would be reduced by about 10 percent.
While all of this is fun to play around with, it’s actually a waste of time. All you actually need to figure out is if your annuity – when coupled with other sources of income – will be sufficient for you to have a worry-free retirement.