5 Important Things to Consider Before Retiring Under FERS to Ensure a Smooth Transition

Key Takeaways:

1. Retiring under FERS involves careful planning, from understanding your annuity to ensuring healthcare coverage and maximizing your TSP withdrawals.

2. Knowing the right age, benefits, and financial strategies can make the transition to retirement smoother and more secure.

Understanding Your FERS Annuity and How It Affects Your Retirement Income

Your FERS retirement annuity is a core part of your retirement income, but it’s crucial to know how it’s calculated and what factors influence the final amount. The FERS annuity is based on your high-3 average salary, which is the highest average annual pay over any three consecutive years of service.

• • Also Read: Why More Federal Retirees Are Choosing Creative TSP Withdrawal Options to Extend Their Nest Eggs
  • Also Read: Why Civilian Military Employees Are Weighing Their Benefit Options More Carefully Than Ever
  • Also Read: 5 Important Things to Consider Before Retiring Under FERS to Ensure a Smooth Transition
  If you retire before your Minimum Retirement Age (MRA) with fewer than 30 years of service, your annuity could be significantly reduced.

• If you retire at age 62 or later with at least 20 years of service, you get a higher pension calculation—1.1% instead of 1% per year of service.

• The FERS Annuity Supplement—available to those retiring before age 62 with at least 30 years of service—stops at 62, when Social Security eligibility begins.

Since your annuity won’t cover all expenses, it’s important to balance your TSP withdrawals and other income sources effectively. Additionally, if locality pay adjustments are removed from retirement calculations due to pending legislation, future annuity amounts could be impacted.

Additional Considerations for Annuity Planning

• Pension Reduction Factors: If you have a divorce decree that entitles your ex-spouse to a portion of your annuity, this will reduce your monthly payments.

• Special Retirement Benefits for LEOs: Law enforcement officers, firefighters, and air traffic controllers qualify for enhanced annuity calculations due to their mandatory early retirement.

• Working After Retirement: If you return to federal service after retiring, your annuity may be offset by your salary, reducing its overall benefit.

• Creditable Military Service: If you have prior military service, you may be able to buy back your military time, increasing your annuity benefits significantly.

• Deferred and Postponed Retirement Options: If you leave federal service before meeting retirement age, understanding the difference between deferred and postponed retirement can impact when and how you collect benefits.

Timing Your Retirement to Maximize Benefits

The timing of your retirement plays a major role in determining how much you receive. Here’s what to consider:

• MRA+10 Rule: If you retire under MRA+10 (Minimum Retirement Age with at least 10 years of service), your annuity is reduced by 5% per year for every year under 62. Waiting longer helps reduce this penalty.

• Retiring at 62 vs. 57 or 60: If you have at least 20 years of service, delaying retirement to age 62 increases your annuity formula to 1.1% per year instead of 1%.

• COLA Adjustments: If you retire before 62, you won’t receive Cost-of-Living Adjustments (COLAs) until you reach 62, unless you qualify under special provisions like law enforcement.

• Federal Budget Proposals: Some proposals suggest reducing government contributions to FERS pensions, which could impact long-term payouts.

• End-of-Year Retirements: Retiring at the end of the calendar year may allow you to accumulate annual leave payouts, providing an additional lump sum after separation.

• Social Security Considerations: If you plan on claiming Social Security benefits, understanding when to file can make a big difference in your overall retirement income.

Aligning your retirement date with these milestones ensures a more stable income.

Healthcare Considerations: FEHB, Medicare, and Long-Term Care

Healthcare is one of the biggest expenses in retirement, and how you handle it can impact your long-term security.

• FEHB (Federal Employees Health Benefits Program): You can keep your FEHB in retirement, but only if you were enrolled for at least five years before retirement.

• Medicare Enrollment at 65: Once you turn 65, you must decide how Medicare fits into your plan. Many federal retirees enroll in Medicare Part B, but FEHB remains an option.

• Long-Term Care Planning: FLTCIP (Federal Long-Term Care Insurance Program) enrollment is currently suspended for new applicants, so private options or personal savings may be necessary.

• Projected FEHB Changes: Government proposals aim to shift to a voucher-based model, which may increase out-of-pocket costs for retirees.

• TRICARE for Military Retirees: If you are eligible for TRICARE, consider how it integrates with FEHB and Medicare.

Planning for Healthcare Costs

• Supplemental Coverage: Some FEHB plans offer Medicare Part B premium reimbursement, helping offset additional costs.

• Health Savings Accounts (HSAs): If you have an HSA-eligible plan before retirement, you can continue using funds for qualified medical expenses tax-free.

• Catastrophic Coverage: Consider plans with lower premiums but higher out-of-pocket caps if you have significant savings to cover healthcare costs.

• Vision and Dental Coverage: FEDVIP plans are available in retirement, but it’s important to review your options and costs.

Ignoring healthcare planning can lead to unexpected costs and coverage gaps, so reviewing options early is essential.

Managing Your Thrift Savings Plan (TSP) Withdrawals Wisely

Your TSP (Thrift Savings Plan) is a major part of your retirement income, and how you withdraw funds affects taxes and longevity.

• Withdrawal Options: Monthly payments, partial withdrawals, or annuities—choosing the right mix depends on your budget and life expectancy.

• Required Minimum Distributions (RMDs): Starting at age 73, you must begin taking RMDs from your TSP or face IRS penalties.

• TSP Catch-Up Contributions: If you’re 60-63, you have a higher catch-up limit, which helps boost savings in the final working years.

• TSP G Fund Adjustments: Lawmakers are considering removing subsidies for the TSP G Fund, which may affect its returns.

• Investment Strategy in Retirement: Balancing growth and security is crucial to ensuring your savings last throughout your lifetime.

• Roth vs. Traditional TSP Withdrawals: Understanding tax implications when withdrawing from Roth and Traditional TSP accounts can help maximize your retirement savings.

A strategic withdrawal plan ensures you don’t outlive your savings while managing taxes efficiently.

Ensuring a Smooth Transition to Retirement

Taking the time to plan out your FERS annuity, TSP withdrawals, healthcare, and survivor benefits ensures a smooth and financially secure transition. Each of these elements affects your quality of life in retirement, and small mistakes can lead to unwanted surprises. Additionally, keeping an eye on legislative changes can help you adapt to new rules affecting federal retirement benefits.

For personalized guidance, get in touch with a licensed agent listed on this website who can help you navigate your retirement decisions effectively.