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NO, Federal Retirees Should Not Run Out of Money

Brad Bobb CFP® | June 28, 2021

Why? Federal employees have a large amount of guaranteed income they can count on as a steady stream of cash flow in retirement. Although it is possible for federal employees to run out of money, it is much less of an issue than it is for the private sector.

But here’s the catch: although federal employees have a larger amount of guaranteed income, it doesn’t mean they are immune to the risk of running out of money. We can look at studies on sustainable withdrawal rates to get an idea of how to distribute a portfolio.

Most sustainable withdrawal rate studies are based on a number of factors such as:

  • the best investment mix of stocks and bonds,
  • how markets have performed in the past,
  • inflation, and
  • the sequence of market returns.

The analysis is designed to provide a percentage to be safely withdrawn from an investment portfolio without running out of money. Studies are also done based on a person getting all of their income from investments, not a federal retiree with 2/3 of their income coming from Federal Employees Retirement System (FERS) and Social Security. This article discusses more about a federal employee’s asset allocation related to their FERS annuity.

A common withdrawal amount that studies come up with is 4%. This would mean a retiree with a portfolio of $500,000 can withdraw $20,000 in the first year of retirement and increase that amount by approximately 3% yearly to adjust for inflation. This number isn’t an “end all be all” number, but rather a helpful guideline to use.

How does a federal retiree make sure they don’t run out of money?

The answer is simple – control your expenses and spending! The only time I have seen federal retirees come close to running out of money is when they can’t control their spending. Here are a number of things you can do prior to retirement to help with this:

  • Eliminate all or most of your debt.
  • Know exactly what your expenses are.
  • Consider downsizing your home to an energy efficient and newer one to eliminate high home maintenance costs.
  • Get all major purchases done prior to retiring, or have funds set aside to cover them.

Once you have addressed these issues, the next step is to be flexible. That may mean postponing a $10,000 trip to Alaska, or only eating out at a fancy restaurant once a month instead of once a week (or any other cut back in spending).

If the average federal retiree has a FERS Annuity of around $2,000 a month and Social Security of $1,500 or higher, That’s a total of $3,500 a month which should be enough to cover fixed monthly costs if there is no debt to service. If that $3,500 ends up being $3,000 a month after taxes, it should still be enough to cover fixed monthly costs. Then, any discretionary spending could be money withdrawn from investments. The big factor in the scenario would be control of a person’s discretionary spending.

What Is the Real Risk for Federal Employees?

  • The real risk for federal employees should be a reduction in income.
  • With 67% of preretirement income coming from guaranteed sources, the risk of running out of money should be significantly lower in the absence of a major catastrophe or a spouse needing long term care.
  • The real risk is a lifestyle adjustment. A lifestyle adjustment, or a change in spending could be necessary to avoid running out of money. This is definitely a retirement risk.


Everyone has heard the definition of insanity as doing the same thing over and over and expecting a different result. If you retire and spend the same amount of money year after year and see your portfolio decrease every year, you are definitely risking running out of money. Stop the insanity! Here are three ways to help make your money last.

  • Adjust your spending. This can be hard to do on your own and is an element that an advisor can help with. Do you need to adjust your spending after one down year? What about two? Maybe five? These are questions you may need to answer at some point.
  • Control Your Expenses. Controlling your expenses in retirement gives you the ability to adjust spending when needed. If you can eliminate debt payments before entering retirement, a substantial portion of your spending will be discretionary which should make it relatively easy to adjust if needed.
  • Adjust Your Withdrawals. Going back to the question above, research has proven there are times when it is in your best interest to adjust your withdrawals.


Retirement and distribution planning are a completely different world than what people have grown accustomed to. It is no longer about building a nest egg, but instead drawing income from your nest egg or depleting it. Retirees need to do their due diligence when it comes to distribution planning. There may be times that a reduction in income is necessary in order to preserve assets, yet there also may be times that a retiree can afford an increase in retirement income.

Knowing when to do these things, as well as from where to draw the income can help prevent a retiree from running out of assets in retirement.

If you would like a partner to assist you in the distribution phase of life, you are welcome to set up an introductory call with Brad.

Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.