Four Retirement Fund Tips That Federal Workers Are Using This Year

Key Takeaways

1. Federal workers are leveraging strategic retirement fund management techniques to maximize their financial security.

2. Diversification, contribution maximization, and smart withdrawal strategies are key to a successful retirement portfolio.

Evaluate Your Current Retirement Contributions

One of the most important steps you can take is to review how much you’re contributing to your retirement accounts. For federal workers, the Thrift Savings Plan (TSP) is a cornerstone of your retirement strategy. In 2025, the elective deferral limit for TSP contributions is $23,500, with additional catch-up contributions of $7,500 for participants aged 50 to 59 and $11,250 for those aged 60 to 63. Are you maximizing your contributions to take full advantage of these limits? If not, consider adjusting your payroll deductions to get closer to the cap.

Why Maximize Contributions?

• Also Read: How Younger Federal Employees Are Leveraging FEGLI for Long-Term Financial Protection
• Also Read: Medicare Enrollment for Federal Employees: What’s Changing This Year and Why It Matters
• Also Read: Comparing TSP Funds: How Federal Investors Are Picking the Right Mix for Their Portfolios

Every dollar you contribute now has the potential to grow significantly over time due to compound interest. If you’re not contributing enough to meet the match provided by your agency, you’re essentially leaving free money on the table. Ensure you contribute at least 5% of your salary to capture the full match.

Set It and Forget It

If your budget allows, automate your contributions. This way, you’re consistently saving without having to manually adjust each pay period.

Diversify Beyond the TSP

While the TSP is an excellent retirement savings vehicle, it’s not your only option. Diversifying your investments helps reduce risk and ensures that all your financial eggs aren’t in one basket. Look into:

• Traditional IRAs or Roth IRAs: These accounts provide additional tax advantages and flexibility.

• Brokerage Accounts: While not tax-advantaged, these allow for a broader range of investment options, including individual stocks and ETFs.

• Real Estate Investments: Consider rental properties or REITs (real estate investment trusts) for income streams outside the stock market.

Allocation Strategies for the TSP

Within the TSP, you can choose from five core funds—G, F, C, S, and I funds—or opt for Lifecycle (L) Funds that automatically adjust their allocation based on your retirement timeline. Regularly review your allocations to ensure they align with your risk tolerance and retirement goals. For example, as you near retirement, you may want to shift toward a more conservative allocation.

Plan Your Withdrawals Wisely

Retirement is not just about saving; it’s also about strategically withdrawing your funds to ensure they last. Federal workers have several options when it comes to accessing their retirement savings, including their TSP, FERS pension, and Social Security.

Understand Required Minimum Distributions (RMDs)

For federal retirees, RMDs begin at age 73. Planning ahead can help you minimize the tax impact. For example, you might consider withdrawing funds earlier if you anticipate being in a lower tax bracket before RMDs are required. Alternatively, converting some of your TSP funds to a Roth IRA can help you avoid RMDs altogether.

Sequence Your Withdrawals

The order in which you withdraw from your accounts matters. For example:

• Start with Taxable Accounts: Withdraw from non-retirement accounts first to allow tax-advantaged accounts to continue growing.

• Move to Tax-Deferred Accounts: Access TSP funds and traditional IRAs next.

• Save Roth IRAs for Last: These accounts grow tax-free and don’t require RMDs, making them ideal for late-stage withdrawals or as a legacy for heirs.

Leverage Federal Benefits and Incentives

Federal employees have access to unique benefits that can significantly bolster retirement savings. Understanding these can help you optimize your retirement strategy.

Take Advantage of Catch-Up Contributions

If you’re 50 or older, you’re eligible to contribute more to your retirement accounts. This is especially beneficial if you’re playing catch-up or looking to bolster your savings in the final years before retirement.

Evaluate Your FERS Pension

Your FERS pension is calculated based on your years of service and the high-3 average of your salary. Ensure you’ve met the necessary requirements to retire with full benefits. For those considering early retirement under the MRA+10 provision, remember that penalties apply if you’re younger than 62.

Social Security Timing

Deciding when to claim Social Security is another critical decision. While you’re eligible at age 62, waiting until full retirement age (67 for most federal employees) or even age 70 can result in significantly higher benefits. Use your annual Social Security statement to model different scenarios and choose the option that best aligns with your financial needs.

Focus on Healthcare Costs

Healthcare is often one of the largest expenses for retirees, and federal workers are no exception. Coordinating your Federal Employees Health Benefits (FEHB) Program coverage with Medicare is a strategy many federal retirees use to reduce out-of-pocket costs.

Consider Medicare Enrollment

At age 65, you become eligible for Medicare. Enrolling in Medicare Part A is typically cost-free and provides hospital coverage. Medicare Part B, which covers outpatient services, requires a premium but often works well alongside FEHB coverage. Evaluate whether enrolling in Part B is beneficial for you, especially given the PSHB integration starting this year.

Plan for Long-Term Care

Long-term care isn’t covered by Medicare or FEHB. Federal workers can explore the Federal Long Term Care Insurance Program (FLTCIP) or other private options to address potential needs. Investing in long-term care insurance earlier can reduce premium costs.

Stay Updated on Policy Changes

Retirement planning isn’t static. Legislative changes and updates to federal benefits can impact your plans. Staying informed ensures you’re not caught off guard by new regulations or opportunities.

Monitor TSP Updates

The TSP regularly reviews its offerings and fees. New investment options or changes in administrative fees could affect your savings. Make it a habit to check your account and TSP announcements quarterly.

Understand Annual Adjustments

Keep track of annual changes to contribution limits, Social Security benefits, and healthcare costs. For instance, the Social Security earnings limit in 2025 is $23,400 for those under full retirement age. Exceeding this limit could result in reduced benefits.

Make Retirement Planning a Priority

Retirement planning can feel overwhelming, but breaking it into manageable steps makes it easier to navigate. Regularly review your accounts, adjust your contributions, and consider professional advice if needed. The key is to remain proactive and adaptable to changes in both your personal circumstances and the broader financial landscape.

Ask for Help if Needed

If you’re unsure about any aspect of your retirement planning, don’t hesitate to seek guidance. Financial advisors, HR specialists, and federal benefits counselors are excellent resources to help you make the most of your retirement.

Build a Retirement Strategy That Works for You

Retirement is a significant milestone, but it’s also a new beginning. By focusing on smart contributions, diversification, and strategic withdrawals, you can secure a comfortable and fulfilling future. Stay informed, adapt as needed, and take full advantage of the benefits available to you as a federal worker.