Transcript

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

If you haven't watched our previous video, video number 76, titled "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 that video, we summarized and identified specific cash flows that increase and decrease in retirement for Mississippi public employees.  We concluded the 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 depending on their marital status and household income.

What to Expect in This Video

In today's video, we are diving deeper into married couples specifically. Here's what you can expect in this video.

• In section one, we'll walk step by step through a detailed cash flow example for a married PERS couple making $200,000 before retirement. We will review the retirees' cash flows that change in retirement, showing exact dollar amounts, and finish by calculating the income required by these retirees to maintain their lifestyle both before and after the age of 65.

• In section two, 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 $200,000 but covers married PERS couples earning anywhere from $50,000 all the way up to $500,000 in $50,000 increments.

• In section three, we will conclude with three actionable steps married PERS members can take today to help determine their own 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 Married PERS Retiree Income Modeling

Before jumping into the cash flow numbers, let me disclose the specific assumptions used in this analysis for married PERS retirees.

• We assume both spouses are legacy PERS members who enrolled in the state employee health plan and selected base coverage while working. Upon retiring, we assume the PERS couple enrolls in the state retiree health plan and transitions at age 65 to Medicare Part A, B, and preferred Part D (based on Madison, Mississippi rates) paired with the state secondary health plan. 

• While working, we assume the married PERS couple contributes $8,750 to a health savings account, which is the maximum limit for those with family coverage in 2026, if you exclude the catch-up contribution of $1,000 for those age 55 or older.  Although our couple could continue to contribute to the HSA in retirement before enrolling in Medicare, we assumed our PERS retirees would stop their HSA contributions. 

• While working, we assumed both spouses earned the same amount. 9% of gross wages were contributed to the PERS pension plan, and 6% of gross wages were contributed to the deferred comp plan. Upon retirement, all retirement contributions dropped to zero.

• For FICA taxes, we use 2026 tax rates and wage limits. 6.2% Social Security tax on wages up to $184,500 and 1.45% Medicare tax on all wages, plus an additional Medicare tax of 0.9% on all wages greater than $250,000 for our married couple. 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 additional standard deduction and enhanced senior deduction were claimed when over 65, if eligible and subject to income phase outs. 

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

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

Retirement Income & Expense Details for Married PERS Retirees Making $200,000

Now let's see how these assumptions translate into take home pay for a married PERS couple each earning $100,000 pre-retirement. Let's walk through this step by step to see how a married PERS couple earning $200,000 of income while working needs only $157,500 in retirement before age 65 and only $151,500 in retirement after age 65 to maintain their lifestyle.

While working from $200,000 in gross wages:

• $8,750 goes to the HSA contributions;

• Health insurance is fully subsidized by the employers, resulting in $0 of health insurance premiums;

• $18,000 goes to PERS pension contributions;

• $12,000 goes to deferred comp contributions;

• $14,631 goes to FICA payroll taxes;

• $17,815 goes to federal income tax;

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

• $5,700 goes to local property taxes.

This leaves a net take-home pay of $120,613. 

To replace 100% of that $120,613 net income lifestyle, the income in retirement, while under 65 drops from $200,000 to $157,500. Why?

• HSA, PERS, Deferred Comp, FICA, and Mississippi State Income Taxes all drop to zero;

• Unsubsidized state retiree health insurance increases from $0 year to $14,160 a year for our couple;

• Federal income tax drops slightly to $16,990;

• Property taxes remain the same at $5,700;

And net income equals $120,650, achieving 100% of pre-retirement net income after all taxes are accounted for. The required $157,500 of retirement income needed is only 79% of pre-retirement gross wages. 

After age 65, the income required to maintain the same lifestyle drops further from $157,500 to $151,500:

• Health insurance transitions to Medicare plus secondary coverage, decreasing the cost to $13,200 per year for both spouses;

• Federal income tax drops further to $12,323 due to senior tax deductions.;

• And local property tax drops from $5,700 to $5,250 thanks to the senior homestead exemption;

Net income equals $120,727, maintaining 100% of pre-retirement net income after all taxes are accounted for. The required $151,500 of retirement income needed after age 65 is only 76% of pre-retirement gross wages. 

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

Now that we've examined the $200,000 household income scenario let me share the results across all income spectrums. Using the exact same assumptions, we modeled married PERS retirees across 10 pre-retirement household income tiers from $50,000 to $500,000 in $50,000 increments.

Modeling and summarizing this data reveals six key insights that married PERS members should be aware of:

1. First, as household gross wages increase, from $50,000 to $200,000, the pre-65 target percentage decreases from 92% down to 77%. However, that downward trend stops at $300,000 of household income, stays flat at 77% through $450,000 of income, and begins increasing at $500,000. 

2. Second, as household gross wages increase from $50,000 to $500,000, the post-65 target percentage decreases from 87% down to 76% at $250,000. It then flattens at $300,000 and begins increasing up to 80% at $450,000. 

3. Third, in general, married PERS retirees need a lower percentage of pre-retirement gross income after age 65 compared to before 65 up until $250,000 of household income. For example, 79% pre-65 versus 76% post-65 at $200,000 of income. Between $300,000 and $350,000, the targets are virtually identical at 77%. At $400,000 of income, this relationship flips with more income required after 65 than before 65, for example, 78% pre-65 versus 80% post-65 at $500,000 of income. 

4. Fourth, at gross wages over $200,000, federal income taxes drop significantly in retirement, both before and after age 65. 

5. Fifth, health insurance premiums during retirement range from 31% of retirement income for couples who earned $50,000 down to 4-6% of retirement income for couples who earned $500,000. 

6. Sixth and finally, federal income taxes during retirement can range from 0% of retirement income (meaning no federal income taxes due) for couples who earned $50,000, up to 18% of retirement income for couples who earned $500,000.

Action Items for Mississippi Public Employees

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

1. Calculate your combined payroll deductions. Sit down with your spouse and total your mandatory PERS contributions, FICA taxes, state tax withholdings, and voluntary savings, both deferred comp and HSA, on your pay stubs. Married couples often find 25 to 35% of their combined gross pay goes to items that won't exist in retirement.

2. Compare spousal health care coverage options. Audit your pre-65 and post-65 health coverage costs. Evaluate the unsubsidized state retiree health plan rates for two spouses versus individual plans and account for Medicare Part B, Part D, and secondary coverage costs after age 65.

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 data you provide and enter, the more accurate the projection will be.

Preview of Next Video and Closing Remarks

I hope this video gives you clarity on how much income you and your spouse need to replace in retirement to sustain your working lifestyle as married Mississippi PERS members. In our next video titled "How Active PERS Members Can Use Special Ketchup Contributions to Boost Their Retirement Income", we will cover strategies to maximize your 457(b) deferred comp savings as you approach retirement. 

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 targets, please visit our website at www.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.