My father has about $400k just sitting in his savings account. What are his best options for long term (10-15 year) returns?

Fantastic pension? It's good, but I wouldn't go that far.

Your father is under the FERS retirement system, based on you saying he has been working for 25 years. If he had been working for the government continuously prior to 12/31/1984, he'd be under the more generous CSRS program.

The FERS retirement system is basically a three-legged stool: a Basic Annuity based on the years worked and salary made, Social Security, and the Thrift Savings Plan (basically a 401k).

I know you said your father will work until he dies, but things change, and his health could change, causing him to involuntarily retire. So let's look at his retirement at this time.

If your father has been in the Federal Govt for the last 25 years and is over the age of 60, he is currently eligible for a pension under FERS. He is a proud member of the KMA club, so congrats to him!

For ease of calculation, let's assume your father makes around $100k a year, and has for the last several years. His FERS Basic Annuity is calculated as an average of his highest 3 years of salary (aka High 3) multiplied by the number of years of work, and that multiplied by 1% per year. For your father, 25 years of service will get him a basic annuity of $100,000 * 25 * 1% = $25,000 per year.

Once he gets to 62 years old and is still working for the govt, he will get 1.1% per year instead of 1% per year of work. Nice little benefit for working longer. Assuming he will have 26 years of work then, his pension at age 62 would be $100,000 * 26 * 1.1% = $28,600. Nice money, but nowhere near what he was making while working.

Add to that his Social Security. I'm not that good on estimating SS, and your father can get estimates of his retirement SS benefits on the SS web site. Assume for now he'll get $20,000 per year just for sake of argument.

Then there's his Thrift Savings Plan. Whether he has been putting any money into the TSP or not, the TSP will give him a minimum of 1% of his salary. Over 25 years even at the low G fund rate, that would probably be worth around $25-$50k. Not much to live on annually - 4% of $50k is $2,000 per year. Unless you know everything about your father's finances, I'd bet he isn't just getting the minimum, so that figure could go up significantly.

So right now his FERS retirement of basic annuity plus SS plus TSP is $28,600 + 20,000 + 2,000 = $50,600. Nice money to get when not working, but just about half of what he was making while working.

Apart from his government retirement benefits, he has this big cushion of $400k in savings. At 4%, that's $16,000 per year he can spend in the initial year. If he isn't making 4% on his savings per year (and he likely isn't), that figure will go down as he gets older.

So add his $50,600 plus $16,000, and he'll gross around $66,600 a year when he retires. He'll still have to pay FEHB health benefits (around $4k-$5 a year for self plus 1, depending on plan chosen), Federal taxes, and any applicable state and local taxes. Also, if he is married and wants to leave his wife a survivor benefit (half his basic retirement pension), it will cost 10% of his basic retirement pension, which is $2,800. And as he gets older, he'll likely pay for Medicare part B even with FEHB -- some people don't, but a majority of retirees do. That's around $1,800 per year single, and $3,600 a year married.

So based on these estimates, if your father had to retire within a few years, his monthly budget would be somewhere around $4,500 or so. Nice, but not living the high life, either.

Fortunately, your father loves his job and doesn't want to retire, and that's good. Every year he works adds another 1.1% to his basic retirement, his Social Security benefit will go up and up (until age 70, then it doesn't pay to not receive benefits), he continues to save money wherever (TSP, savings account, etc) and that nest egg gets even bigger.

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