Expert Retirement Advice for Federal Employees Eyeing the Exit Door

Heather Knight
December 31, 2024

Key Takeaways

Deciding when to retire as a federal employee involves understanding your retirement benefits, healthcare options, and timing strategies that can maximize your financial security.
You need to consider the right age and financial benchmarks, ensuring you’re prepared for both the immediate and long-term impacts of leaving your federal career.

Getting Serious About Your Exit Strategy

If you’re a federal employee considering retirement, it’s probably crossed your mind more than once: Is now the right time to retire? You’re not alone. Many federal workers face the same dilemma as they get closer to their minimum retirement age (MRA). After decades of service, the idea of walking away from the daily grind sounds appealing, but there’s a lot to think about before you hand in that retirement paperwork.

Here’s the thing—it’s not just about “when can I retire?” It’s also about “when should I retire to get the most out of my benefits?” Let’s dive into some important factors to help you decide if you’re ready to take the plunge.

Timing Is Everything

Knowing when to retire is critical for maximizing your federal retirement benefits. Under the Federal Employees Retirement System (FERS), your benefits improve the longer you stay, especially if you can hit those key milestones. For most of us under FERS, retirement options start with the Minimum Retirement Age (MRA), which ranges between 55 and 57, depending on when you were born. But just because you can retire at your MRA doesn’t mean it’s the best time financially.

Here’s why: If you retire before you hit age 62, your FERS annuity will be permanently reduced unless you qualify for an early retirement option like the MRA+10 rule. Even then, there’s a penalty if you’re not yet 62, which is why many federal workers choose to wait. At 62, your annuity formula improves—you’ll get 1.1% of your high-three average salary for each year of service, compared to just 1% if you retire earlier.

It might seem like a small difference, but over time, it adds up significantly. If you’ve got the flexibility to wait, consider sticking around until 62 for the financial benefits.

Tapping Into the Thrift Savings Plan (TSP)

Your Thrift Savings Plan (TSP) is one of the most powerful tools you have to ensure a comfortable retirement. For many federal employees, the TSP is the backbone of their retirement portfolio. As you approach retirement, understanding your withdrawal options and strategies is essential.

You can start withdrawing from your TSP without penalties once you hit age 59½. But if you’re thinking about taking early withdrawals before that age, be prepared for a 10% early withdrawal penalty unless you qualify for an exemption. It’s a decision that requires careful planning—especially since taking out too much, too soon can deplete your savings faster than you think.

Another key point: Once you hit age 72, required minimum distributions (RMDs) kick in, meaning you’ll need to start taking withdrawals, whether you want to or not. Keep that timeline in mind as you map out your retirement income plan.

Healthcare: Don’t Let It Fall Off the Radar

Healthcare is one of the biggest expenses you’ll face in retirement. For federal employees, the Federal Employees Health Benefits (FEHB) program is a major asset, and if you play your cards right, you can keep your FEHB coverage in retirement. To do that, you need to meet a few basic requirements, including being enrolled in the program for the last five years of your federal career.

But here’s a crucial point: Once you turn 65, you’ll have to coordinate your FEHB benefits with Medicare. Medicare becomes your primary health insurance, with FEHB as secondary coverage. If you opt for Medicare Part B, you’ll need to pay an additional premium, so it’s important to weigh the costs against the benefits.

For some retirees, keeping both Medicare and FEHB makes sense, but others choose to drop one to avoid paying duplicate premiums. It’s a personal choice, and your decision will depend on your health needs and budget. Just remember—don’t let healthcare planning slip through the cracks. It can quickly become one of your biggest monthly costs in retirement.

Social Security Timing: It’s All About the Numbers

Another big decision is when to claim Social Security. Under FERS, you’re eligible for Social Security benefits, and the earliest you can claim them is age 62. However, claiming early means permanently reduced benefits. If you can hold off until your full retirement age (66 or 67, depending on your birth year), you’ll receive your full Social Security benefit. Waiting even longer, up to age 70, increases your benefits by about 8% per year.

But here’s where it gets tricky. If you’re retiring early and plan on claiming Social Security at 62, but you’re still working, your benefits could be reduced if your earnings exceed the annual limit ($22,320 in 2024). It’s important to balance when to stop working, when to file for Social Security, and how much income you’ll need in retirement.

Annuity Supplements: A Bridge Until Social Security

If you’re retiring before age 62, there’s good news—you might be eligible for the FERS Special Retirement Supplement (SRS), which acts as a temporary Social Security replacement until you reach 62. The SRS can provide a significant financial boost for early retirees, but like Social Security, it’s subject to an earnings test if you continue to work after retirement.

This supplement helps fill the income gap between when you retire and when you’re eligible for Social Security, so it’s worth looking into if you plan on exiting the workforce before 62.

Your Final Retirement Checklist

By the time you’re close to retirement, there are a lot of details to juggle. Here’s a quick checklist to help you stay on top of the most critical items:

Check your FERS pension estimates: Use the official calculator to get a ballpark figure of what your annuity will look like.
Review your TSP: Make sure you understand your withdrawal options, and consider how much you’ll need to sustain your lifestyle.
Healthcare: Verify your FEHB eligibility in retirement and decide how to coordinate with Medicare.
Social Security: Decide when to claim your benefits and consider the impact of working while collecting them.
FERS Special Retirement Supplement: If you’re retiring before 62, find out if you’re eligible for this bridge benefit.

With these key areas covered, you can head toward retirement feeling confident and prepared for what’s next.

Closing the Door on Your Federal Career

Retiring from federal service isn’t just about picking a date and saying goodbye. It’s about ensuring you’ve squeezed every last bit of value out of the benefits you’ve earned. Whether it’s waiting until 62 for a bigger annuity, planning the best TSP withdrawal strategy, or figuring out your Medicare and Social Security timing, every decision you make now will have a lasting impact on your financial future.

The bottom line? Take your time. Get informed. And don’t let the excitement of retirement push you into making rushed decisions. You’ve worked hard to get here—make sure your retirement is everything you want it to be.