Key Takeaways:
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Timing your retirement correctly as a federal employee can mean the difference between smooth sailing and unexpected delays. Don’t rush the process—every detail counts.
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Coordinating your benefits, from your pension to health insurance, is key to a stress-free transition. Knowing how to navigate FERS, TSP, and FEHB ensures you’re well-covered as you step into retirement.
Thinking of Retiring Soon? Here’s What You Should Know First
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Timing is Everything: Know When to Pull the Trigger
I can’t stress this enough—timing your retirement can have a huge impact on your benefits. If you’re part of FERS, you’ve likely heard this before, but I’ll repeat it: the end of the calendar year is typically the sweet spot. Why? It allows you to maximize your annual leave payout while also taking advantage of potential cost-of-living adjustments (COLA) in January.
Federal employees who retire at the end of the year often cash in on unused annual leave, and that’s paid out based on your final salary, including any raises you got in your last year. This can add up to a nice chunk of change. On top of that, January is when COLA usually kicks in, and by retiring close to the end of the year, you may get that extra bump in your pension sooner.
Understanding Your FERS Pension: The Basics Matter
Your Federal Employees Retirement System (FERS) pension is the cornerstone of your retirement income. For many, it’s easy to overlook the details until the very end, but this is one area where you don’t want to cut corners. Your pension amount is based on your high-3 salary (the average of your highest-paying consecutive three years), your years of service, and a percentage multiplier. Make sure to double-check those numbers, because every dollar counts.
Another key piece of advice? Don’t forget about the FERS annuity supplement. This little-known perk is available to retirees under age 62 and serves as a bridge until you can claim Social Security. You qualify for it if you retire under the FERS special retirement or regular FERS rules, and it’s based on your years of service.
TSP: Don’t Leave Money on the Table
For many federal employees, the Thrift Savings Plan (TSP) is a crucial part of their retirement strategy. But here’s the thing—too many of us forget about it in the final stretch toward retirement. Your TSP can be a powerful tool if you manage it correctly.
As of 2024, the TSP contribution limit is $23,000, and if you’re 50 or older, you can throw in an extra $7,500 through catch-up contributions. That’s $30,500 in total, which can boost your retirement savings significantly if you take advantage of it. If you haven’t been maxing out your contributions, now’s the time to do it.
But don’t just dump money into the TSP without a strategy. Are you comfortable with your current investment mix? As you approach retirement, shifting more of your money into conservative options like the G Fund (which invests in government securities) can help protect your savings from market volatility. On the flip side, if you’ve got a higher risk tolerance, you might want to keep more funds in growth-oriented investments like the C or S Funds. Whatever your strategy, review your TSP and make adjustments that align with your retirement goals.
Health Insurance: Don’t Get Caught Off Guard
If there’s one piece of advice I wish I’d heard earlier, it’s this: don’t sleep on your health insurance. For federal employees, the Federal Employees Health Benefits (FEHB) program is a lifeline, but there are some important details to keep in mind as you near retirement.
You’ve probably already been enrolled in FEHB for most of your career, and you can carry that coverage into retirement, as long as you’ve been enrolled for at least five years before you retire. That’s a big plus since federal retirees often enjoy lower premiums than what’s available in the private sector.
However, coordinating your FEHB coverage with Medicare is where things can get tricky. At age 65, most federal retirees will be eligible for Medicare Part A (hospital insurance), which is typically premium-free. You’ll need to decide whether to enroll in Medicare Part B (medical insurance), which does have a premium. Many retirees choose to combine Part B with FEHB, as it can reduce out-of-pocket costs for medical care. But here’s the catch—Medicare Part B is optional, so you’ll want to carefully weigh the costs and benefits of enrolling.
And let’s not forget the Postal Service Health Benefits (PSHB) program, which postal employees are transitioning into in 2025. Postal workers should pay close attention to these changes to avoid any hiccups.
Annual Leave: Cash Out Smartly
One of the biggest perks of retiring as a federal employee is the ability to cash out unused annual leave. But before you make plans for that lump sum payout, there are a few things to consider. If you retire at the end of the year, your annual leave will be paid out at your current rate of pay, which could include the 2024 raise. That’s a significant bonus.
To maximize this benefit, many federal employees aim to carry over the maximum allowable annual leave—typically 240 hours. If you’ve hit that cap and can’t take more leave, cashing out those hours can give you a nice financial cushion as you ease into retirement.
Survivor Benefits: Don’t Overlook Your Loved Ones
It’s easy to focus on your own benefits when planning for retirement, but don’t forget about survivor benefits. If you’re married or have dependents, you’ll want to ensure they’re taken care of if something happens to you. Under FERS, you can choose from several survivor benefit options, including a full or partial survivor annuity. Yes, it means a slightly smaller pension while you’re alive, but it could make all the difference for your loved ones down the road.
Also, remember that opting into survivor benefits is a one-time decision at retirement. Once you retire, you can’t change your mind, so it’s important to discuss these options with your spouse or loved ones in advance.
Wrapping it All Up: Make Your Retirement a Smooth Ride
As a federal employee, you’ve put in the years of service and now it’s time to reap the rewards. But don’t rush the process. Whether it’s timing your retirement date just right, optimizing your TSP, or ensuring your health coverage is in place, every step counts. With the right preparation, you can make your exit from the federal workforce as smooth as possible, ensuring a financially secure and stress-free retirement.
