Common FERS Misunderstandings That Could Shrink Your Annuity

Missy E
November 14, 2025

Key Takeaways

Misunderstandings about FERS rules in 2025 can cause significant reductions in your retirement annuity if you are not careful.
Knowing the correct information about your service credit, retirement age, and survivor elections can help protect your long-term retirement income.

Many FERS Retirees Lose Out Due to Misunderstandings

You might assume that once you hit retirement eligibility under the Federal Employees Retirement System (FERS), everything falls into place smoothly. But small misunderstandings in 2025 are still leading many public sector employees to receive much smaller annuities than they anticipated. Understanding how FERS calculations really work is critical if you want to retire with the income you are counting on.

Misunderstanding Service Credit Rules

One of the biggest mistakes happens when you miscalculate how much service credit you have. Not all federal work counts the same way.

Temporary service before 1989: If you had temporary federal work before 1989, it may not automatically count toward your FERS annuity unless you made a deposit to buy that time.
Part-time service: Part-time work is prorated, meaning it reduces your annuity compared to full-time work over the same period.
Military service: Unless you make a deposit for your active-duty military service, it will not count toward your civilian FERS pension.

If you do not confirm your service credit well before retirement, your annuity could be hundreds of dollars lower every month.

Confusing Minimum Retirement Age (MRA) Requirements

In 2025, the MRA for FERS employees is still based on your birth year. It ranges between age 55 and 57. Many employees assume that reaching the MRA automatically means you can retire with an unreduced pension. That is not true.

Without 30 years of service, retiring at your MRA results in a 5% permanent reduction for every year you are under age 62.
With 10-29 years of service, you can use “MRA+10” retirement, but you will face a reduction unless you postpone receiving your pension.

Failing to understand the impact of MRA rules can leave you with a lifetime of lower payments.

Believing You Automatically Qualify for the FERS Supplement

The FERS Annuity Supplement is designed to bridge the gap between your retirement and age 62 when Social Security becomes available. However, not everyone who retires under FERS gets the supplement.

You are only eligible if:

You retire with a full immediate retirement (such as at MRA with 30 years, or age 60 with 20 years, or age 62 with 5 years).
You are not retiring under the MRA+10 provision.

Many retirees plan for that supplement but find out too late they do not qualify.

Ignoring the Impact of Unused Sick Leave

You might think unused sick leave just disappears when you retire, but under FERS it actually adds to your creditable service for pension calculation purposes. However, you must:

Separate for an immediate retirement (not a deferred retirement) to apply unused sick leave.
Realize that sick leave cannot be used to meet eligibility for retirement itself.

In 2025, about 2,087 hours of sick leave equals one additional year of creditable service. Knowing how to manage your leave can help slightly increase your annuity.

Misunderstanding the “High-3” Salary Calculation

Your FERS pension is based on your “high-3” average salary — the highest average basic pay over any consecutive three years of service. Mistakes happen when you assume:

Bonuses, overtime, and awards count toward your high-3. They do not. Only basic pay does.
Temporary promotions automatically boost your high-3, when in fact they might not last long enough.
Locality pay counts in 2025, but proposed changes are being discussed that could affect future calculations.

Clarifying exactly what your high-3 includes is essential to project your retirement income.

Overlooking Survivor Election Reductions

When you retire, you must choose whether to elect a survivor benefit for your spouse. If you want your spouse to continue receiving a portion of your annuity after your death, your own annuity is reduced.

In 2025, the reductions are generally:

About 10% for a full survivor benefit (50% of your annuity continuing to your spouse).
About 5% for a partial survivor benefit (25% continuing).

If you do not plan for this reduction, you could be surprised by how much it lowers your monthly income.

Believing Cost-of-Living Adjustments (COLAs) Start Immediately

FERS annuities receive cost-of-living adjustments, but not immediately for all retirees.

If you retire under age 62, you only receive COLAs if you qualify for a special retirement category like law enforcement or air traffic control.
Otherwise, you must wait until age 62 to start receiving COLAs.

In 2025, the COLA is 3.2%, but if you retire before 62 without qualifying, your pension will not increase for inflation until you reach that milestone.

Assuming TSP Withdrawals Have No Impact on FERS Annuity

Your Thrift Savings Plan (TSP) withdrawals and your FERS annuity are separate. However, they interact in retirement planning.

Withdrawing too quickly from TSP can leave you with a funding gap later in retirement.
Some TSP withdrawal strategies can affect your taxable income and impact the net income you actually enjoy.

You must integrate both sources carefully to have a stable income throughout retirement.

Forgetting to Elect Health Benefits Into Retirement

FEHB (Federal Employees Health Benefits) can continue into retirement if you meet eligibility rules:

Enrolled in FEHB for at least five years before retirement.
Retire on an immediate annuity.

If you miss this, you lose FEHB permanently. The cost of private insurance in 2025 continues to be significantly higher than FEHB, making this mistake extremely costly.

Neglecting to Review Your Retirement Estimate Carefully

Before you retire, you should request an official retirement estimate from your agency’s HR department. However, many employees:

Glance quickly at the estimate without verifying.
Miss errors in service credit, high-3 calculations, or survivor election details.

Given that even small mistakes can shrink your retirement by thousands over your lifetime, taking the time to review and ask questions is essential.

Missing Out on Deferred Retirement Options

If you leave federal service before you are eligible for an immediate retirement, you may qualify for deferred retirement instead.

You must have at least five years of creditable service.
You can apply for retirement benefits at age 62 (or at MRA with 10+ years, with reductions).

Deferred retirees do not qualify for the FERS Supplement or FEHB, but it can still be a valuable option rather than forfeiting your earned pension entirely.

Failing to Plan for the Tax Impact of Your Annuity

Your FERS pension is taxable at the federal level, and possibly at the state level depending on where you live. Some employees mistakenly think their pension will be tax-free because they contributed to the retirement system.

In reality, only a small portion of your annuity — the amount based on your after-tax contributions — is excluded from taxation.
You may also owe taxes on Social Security and TSP withdrawals.

Proper tax planning can help you avoid unpleasant surprises.

Overestimating the Value of Early Retirement Incentives

In times of restructuring or downsizing, agencies may offer early retirement packages. However, early retirement does not guarantee a higher pension.

You may retire earlier, but reductions for retiring before age 62 still apply.
Incentive bonuses offered to leave early do not affect your pension calculation.

Evaluate carefully whether early retirement truly fits your financial needs.

Why Staying Informed Matters

Even one misunderstanding about FERS can cost you tens of thousands of dollars over your retirement. By taking the time now in 2025 to verify your service history, understand your options, and make informed elections, you can retire with the security you have earned.

If you have any questions about your FERS annuity or need help ensuring your numbers are accurate, you are encouraged to get in touch with a licensed professional listed on this website for personalized retirement planning assistance.