Transcript

Introduction to Retirement Income Needed for Single Mississippi Public Employees (PERS)

If you haven't watched our previous video, video number 76, “How Much Pre-Retirement Income Does a Mississippi PERS Retiree Need?”, I strongly encourage you to pause this video now and watch that overview first. In video number 76, we summarized and identified specific cash flows that increase and decrease in retirement for Mississippi public employees.

We concluded that video with a general rule of thumb that all PERS retirees, single and married, will need between 74% and 92% of their pre-retirement income to maintain their lifestyle in retirement depending on their marital status and household income. 

What to Expect in This Video

Today we are diving deeper into single PERS members specifically.  Here is what you can expect in today's video.

• In section one, we'll walk step by step through a detailed cash flow example for a single PERS employee making $100,000 before retirement. We will review the cash flows that change in retirement showing exact dollar amounts for specific expenses, and finish by calculating the income required by the retiree to maintain their lifestyle both before and after age 65.

• In section two of this video, we will expand the analysis by summarizing the income required to maintain your working lifestyle in retirement by building a table that covers not only those making $100,000 but covers single PERS members earning anywhere from $50,000 all the way up to $500,000 in $50,000 increments.

• And finally, in section three of today's video, we will conclude with three actionable steps single PERS members can take today to help determine their own personal retirement income targets.

How to Get in Touch for Personalized Retirement Planning

As you watch this video, keep in mind that these figures are for illustrative and educational purposes only and are not to be used as personalized tax, legal, or financial advice. However, I am a vested PERS member and financial planner that specializes in retirement planning for Mississippi public employees. If you want to explore your own personalized estimate of what percentage of working income you will need in retirement, you can start the conversation with me by using the link in the show notes below.

Assumptions Used for Single PERS Retiree Income Modeling

Before jumping into the cash flow numbers for our single PERS retiree making $100,000, let's review the assumptions used in the analysis.

• We assume the PERS member is a legacy PERS member who enrolls in the State Employee Health Plan and selects base coverage while working. Upon retiring, we assume the PERS retiree enrolls in the state retiree health plan and transitions at age 65 to Medicare Parts A, B, and Part D based on Madison, Mississippi zip code rates, paired with the state secondary health plan. 

• While working, we assume the single PERS member contributes $4,400 to a health savings account, which is the maximum limit for those with single coverage in 2026 if you exclude the catchup contribution of $1,000 for those age 55 or older. Although you could continue to contribute to the HSA in retirement before enrolling in Medicare, we assumed our PERS retiree would stop their HSA contributions. 

• While working, we assumed 9% of gross wages were contributed to the PERS pension plan and 6% of gross wages were contributed to a deferred comp account. Upon retirement, all retirement contributions drop to zero.

• For FICA taxes, we use 2026 tax rates and wage limits. 6.2% Social Security tax was applied on wages up to the limit of $184,500, and 1.45% Medicare tax was applied on all wages plus an additional Medicare tax of 0.9% on all wages greater than $200,000 for single filers. Upon retirement, we assumed there were no earned wages and hence no FICA taxes.

• For federal income taxes, we assume the standard federal deduction was claimed while under age 65, and the over 65 plus enhanced senior deduction were claimed when over 65, subject to income phaseouts.

• For Mississippi state income taxes, we assumed both the standard deductions and personal exemptions were claimed for single filers while working. Upon retirement, we assumed all PERS pension and retirement income is 100% exempt from state income taxes.

• Finally, local ad valorem property taxes assume a home true value of two and a half times gross income at an estimated millage rate of 100 mills, incorporating the standard homestead credit while under age 65 and the senior homestead credit over 65. 

Retirement Income & Expense Details for Single PERS Retiree Making $100K

Now let's see how these assumptions translate into take home pay for a single PERS member earning $100,000 pre-retirement. Let's walk through this step by step to see how our single employee earning $100,000 gross while working needs only $77,000 before age 65 and $74,000 after age 65 to keep their exact same lifestyle. 

Looking at the second column labeled working under 65, the first row highlighted in green shows the gross income for our single PERS member making $100,000. The rows below that are highlighted in red, outline the cash outflows.

• $4,400 goes to HSA contributions;

• Health insurance is fully subsidized by the employer, resulting in $0 of employee premium for base coverage;

• $9,000 goes to PERS Pension Contributions;

• $6,000 goes to deferred comp contributions;

• $7,313 goes to FICA payroll taxes;

• $8,902 goes to federal income taxes;

• $2,492 goes to Mississippi state income taxes;

• And finally, $2,200 goes to local property taxes.

This leaves a net working take home pay of $59,693 or roughly 60% of their gross income. 

Now let's move to the next column labeled retired under 65. To match that $59,693 of net take home pay while working, our single PERS retiree will need $77,000 in gross retirement income.

• HSA, PERS, Deferred Comp, FICA, and Mississippi state income taxes all drop to zero in retirement.

• However, looking at health insurance premiums, our retiree will now have unsubsidized state retiree health insurance that costs them $7,080 per year.

• Federal income tax drops slightly to $8,110.

• And local property taxes remain the same at $2,200. 

Adding this all up results in net income of $59,610, achieving 100% of pre-retirement net income. This required gross income of $77,000 represents exactly 77% of pre-retirement gross wages for our single PERS retiree. 

Let's move to the final column labeled retired over 65. After age 65, required gross income drops further to $74,000. Why?

• Health insurance premiums transition to Medicare plus secondary coverage, costing our retiree only $6,600 per year.

• Federal income taxes drop further to $5,982 thanks to the senior standard deduction and a large portion of the enhanced senior deduction with a small phase out for those wages over $75,000 for our single PERS retiree. 

• And local property taxes drop from $2,200 to $1,750 due to the Mississippi over 65 senior homestead exemption. 

Adding this all up, net income equals $59,668, maintaining 100% of pre-retirement net income. The required $74,000 after the age of 65 represents exactly 74% of pre-retirement gross wages for our single PERS retiree.

Retirement Income Replacement Summary for Single PERS Retirees Making $50k-$500k

Now that we've examined the $100,000 income scenario for a single PERS retiree, let me share the results across all income spectrums. Using the exact same assumptions, we modeled single PERS retirees across 10 different gross pre-retirement income tiers, ranging from $50,000 all the way to $500,000 in $50,000 increments. Modeling and summarizing this data reveals six key insights that single PERS members should be aware of. 

1. Pre-retirement wages increase from $50,000 to $200,000, the required pre-65 replacement percentage steadily drops from 83% down to 74%. However, at $200,000 of pre-retirement gross wages, that downward trend flattens out around 74% to 75% and actually reverses increasing to 76% at $450,000 of income and $77% at $500,000 of income. 

2. Across all income tiers, from $50,000 to $500,000, the post-65 replacement percentage bounces around between 74% and 79%. Somewhat surprisingly, a single PERS retiree making $50,000 requires the exact same gross percentage - 79% - as a retiree earning $500,000. 

3. For single retirees earning under $100,000, the required gross income percentage is lower after 65 than before 65. For example, 83% versus 79% at $50,000, or 77% versus 74% at $100,000. However, above $100,000 of income this flips. Retirees need a higher percentage of gross income after 65 compared to before 65. 

4. At gross wages above $100,000, federal income taxes drop significantly upon retirement, both before and after 65, as reduced income requirements pull retirees into lower federal marginal tax brackets. 

5. Health insurance premiums represent a major burden for lower earners. Health insurance eats up 17% of retirement income for a single PERS retiree that made $50,000 while working, compared to just 2-3% of retirement income for high earners that made $500,000 while working.

6. My last insight, for retirees under age 65, federal income taxes as a percentage of retirement income increases from 5% to 7% for those who earned $50,000 up to 25% for those who earned $500,000. 

Action Items for Mississippi Public Employees

So what can you do with this data? Here are three actionable steps single PERS members can take today. 

1. Add up your payroll deductions. Add up your mandatory PERS contribution, FICA taxes, state income tax withholding, and voluntary retirement contributions and savings for deferred comp and HSAs on your pay stub.  Single employees will often find that 25% to 35% of their paycheck is going to items that will no longer be required or needed in retirement. 

2. Evaluate health insurance costs. Compare your current employer subsidized health rate against the unsubsidized state retiree health plan rate. Be sure to look at the right rates for either legacy or horizon, depending on your hire date, as the rates are substantially different, with legacy retirees getting much lower health insurance premiums. 

3. Model your federal income taxes. Estimate the income you'll need in retirement, and then use an online calculator to estimate what your federal income taxes will be in retirement, whether you are under or over 65. The more accurate the data you provide, the more accurate the calculator will be.

Preview of Next Video and Closing Remarks

I hope this video gives you clarity on how much income you'll need to replace in retirement to maintain your lifestyle as a single Mississippi PERS member.  In our next video, we will review the results from the second half of our research, “What percentage of pre-retirement income do married PERS retirees need to sustain their working lifestyle?” 

Please make sure you subscribe so you don't miss this and other upcoming videos in our late career series. If you found this video helpful, you can thank me by hitting the thumbs up button and sharing it with others. 

And finally, if you are looking for a financial planner who specializes in helping Mississippi public employees build comprehensive retirement strategies, including modeling retirement income replacement targets, please visit our website at perspro.ms to learn more about how we help PERS members like you. 

Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Legal Disclaimer

Disclaimer: This video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.