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3 Ways Federal Employees Can Make the Most of Their Benefits Before Retirement

Heather Knight
March 3, 2025

Key Takeaways:

You can optimize your federal benefits before retirement by planning your pension, healthcare, and savings well in advance.
Understanding how your benefits work now ensures you maximize your financial security and avoid surprises in retirement.

Making the Most of Your Federal Benefits Before Retirement

Retirement might feel like a distant event, but if you’re a federal employee, planning early is crucial. The benefits you’ve earned throughout your career can provide financial security in retirement—if you use them wisely. Whether you’re approaching your Minimum Retirement Age (MRA)

or still have years to go, taking proactive steps can ensure you maximize what’s available to you. Let’s break down three key areas where you can make the most of your benefits before stepping into retirement.

1. Maximize Your Federal Pension and Retirement Savings

Your pension and Thrift Savings Plan (TSP) are the foundation of your retirement income. Making smart decisions now can help you get the most out of both.

Understanding Your FERS Pension

If you’re covered under the Federal Employees Retirement System (FERS), your pension is based on your High-3 average salary and years of service. The more you work and the higher your salary, the better your annuity. But there are ways to increase your pension benefits before retirement:

Work longer if possible. Your annuity formula rewards additional years of service, especially if you’re near a milestone like 20 or 30 years.
Plan around your High-3. Your pension is based on the highest average salary over any consecutive 36-month period. If you’re close to a promotion or a raise, staying in your position a little longer can make a significant difference.
Consider the MRA+10 option carefully. If you retire before 62 under Minimum Retirement Age (MRA) + 10 rules, your pension will be permanently reduced unless you postpone benefits.

Making the Most of Your TSP

The Thrift Savings Plan (TSP) is a powerful tool for federal employees. Here’s how you can maximize it before retirement:

Max out contributions. The elective deferral limit for 2025 is $23,500, with an additional $7,500 catch-up contribution if you’re 50 or older. Contributing more while you’re still earning can grow your savings significantly.
Rebalance your allocations. As you get closer to retirement, shifting to a more conservative investment mix can protect your savings from market fluctuations.
Take advantage of matching. If you’re still employed, ensure you’re contributing enough to get the full government match—free money that boosts your savings.

2. Optimize Your Federal Healthcare and Insurance Benefits

Healthcare and insurance can be some of your biggest expenses in retirement, so making strategic choices now can save you money later.

Choosing the Right FEHB Plan Before Retirement

Federal Employees Health Benefits (FEHB) coverage continues into retirement if you’ve been enrolled for at least 5 years before retiring. To make the most of your options:

Compare your plan to retirement needs. Your medical costs may change in retirement, so evaluate whether you need a lower-cost plan or more comprehensive coverage.
Coordinate with Medicare. If you’ll be 65 soon, understanding how FEHB works with Medicare Part B can help you choose the right balance of coverage.
Keep an eye on premiums. Premiums for retirees can increase, so budgeting ahead for potential cost hikes is essential.

Understanding Federal Employees’ Group Life Insurance (FEGLI)

Your life insurance needs may change as you transition into retirement. Before you make a decision:

Evaluate your coverage. FEGLI premiums increase significantly as you age, so you might need to decide whether to continue, reduce, or drop coverage.
Consider alternatives. If you no longer need employer-sponsored life insurance, comparing other financial protections can be a cost-effective solution.

3. Plan for Survivor and Social Security Benefits

Ensuring your loved ones are protected and understanding how Social Security integrates with your federal benefits are key final steps before retirement.

Survivor Benefits and Your Pension

If you have a spouse or dependent, planning for survivor benefits is essential. FERS retirees can elect a survivor annuity, but it comes with a cost:

Full Survivor Annuity: Provides your spouse with 50% of your annuity but reduces your pension by 10%.
Reduced Survivor Annuity: Offers 25% to your spouse but costs you 5% of your annuity.
No Survivor Annuity: Your pension is higher, but your spouse won’t receive continued benefits if you pass away.

Deciding on survivor benefits requires careful thought about your spouse’s financial security and whether alternative life insurance or savings could replace the annuity option.

Timing Your Social Security Benefits

Federal retirees can start collecting Social Security at 62, but delaying until 67 (full retirement age) or even 70 increases your monthly check. Consider these factors:

If you retire early, your Social Security benefit is permanently reduced.
If you delay, your monthly check grows by about 8% per year up to age 70.
WEP no longer applies. The 2025 repeal of the Windfall Elimination Provision (WEP) means federal retirees can now receive their full Social Security benefits without reductions.

Making Your Benefits Work for You Before You Retire

Your federal benefits are designed to support you in retirement, but making the most of them requires proactive planning. Here’s a final checklist to ensure you’re on track:

Confirm your retirement eligibility and pension calculation.
Maximize your TSP contributions and investment strategy.
Review your healthcare options and plan for Medicare integration.
Decide on life insurance and survivor benefits.
Plan your Social Security filing strategy for maximum benefits.

Taking these steps before retirement can help you avoid financial surprises and ensure a smooth transition into your next chapter.

For personalized guidance on your retirement options, get in touch with a licensed agent listed on this website. They can help you navigate your benefits and ensure you make the best decisions for your financial future.