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Retiring Under CSRS Feels Like Winning the Lottery—But There’s One Major Catch

Jamie Carlson
May 11, 2025

Key Takeaways

Retiring under CSRS in 2025 still offers a substantial pension benefit that outpaces many retirement systems today.
However, the absence of Social Security coverage can create serious income gaps if not properly planned for.

The Strong Appeal of a CSRS Pension

The Civil Service Retirement System (CSRS) has long been admired for its ability to provide retirees with a generous, stable pension. If you are among the remaining public sector employees eligible to retire under CSRS in 2025, you are in an enviable position. Your pension calculation formula

—which is based on your years of service and your highest three years of salary—can produce monthly payments that are often double or even triple what retirees under newer systems like FERS receive.

Key factors that make CSRS pensions so valuable include:

High Percentage Replacement: Many CSRS retirees replace up to 80% of their pre-retirement income solely through their pension.
Guaranteed Cost-of-Living Adjustments (COLAs): Annual COLAs help maintain purchasing power in retirement.
Lifetime Income: The pension lasts as long as you do, offering a critical level of financial security.

This financial security is why many describe CSRS pensions as feeling like “winning the lottery.”

How CSRS Benefits Are Calculated

CSRS uses a formula that rewards longevity and salary growth. In 2025, the basic formula remains:

1.5% of your high-3 average salary for each of the first 5 years of service
1.75% for each of the next 5 years
2.0% for each year of service over 10 years

For example, with 35 years of service, you could replace about 70-80% of your pre-retirement income just from your pension alone.

High-3 Salary: Your highest three consecutive years of basic pay are used.
Service Credit: Only full years and months are counted; partial months are typically discarded.
Unused Sick Leave: Sick leave converts into additional service credit, increasing your pension slightly.

The One Major Catch: No Full Social Security Coverage

Despite the advantages, CSRS pensions come with a significant catch: you likely will not receive a full Social Security benefit.

Here’s why it matters:

No Social Security Taxes Paid: As a CSRS employee, you have not paid Social Security taxes during your government service.
Limited Social Security Eligibility: If you have fewer than 40 quarters (10 years) of non-CSRS-covered employment, you will not qualify for Social Security retirement benefits.
WEP Still Applies for 2024 Retirements: For those who retired before January 2025, the Windfall Elimination Provision (WEP) reduced Social Security benefits. As of 2025, WEP has been repealed, but you still need sufficient non-CSRS earnings to collect any benefit at all.

You cannot assume that your CSRS pension alone will cover everything Social Security would have, especially when it comes to survivor benefits and healthcare assistance.

Impact on Healthcare in Retirement

While CSRS pensions are generous, healthcare costs continue to rise. In 2025, retirees who combine their Federal Employees Health Benefits (FEHB) coverage with Medicare Parts A and B generally enjoy excellent healthcare protection. However, because CSRS retirees may not qualify for free Medicare Part A (hospital insurance) without sufficient Social Security credits, you could face extra premium costs:

Medicare Part A premium in 2025: $518 per month if you have fewer than 30 quarters of covered employment.
Medicare Part B premium in 2025: $185 per month, with an annual deductible of $257.

Without full Social Security coverage, you may have to pay more out-of-pocket for Medicare premiums than retirees who worked in Social Security-covered jobs.

Survivor Benefits: A Critical Planning Need

Survivor benefits under CSRS require careful attention. If you want your spouse to receive a portion of your pension after your death, you must elect a survivor annuity at the time of retirement.

Important facts about CSRS survivor benefits in 2025:

Cost: Electing a survivor annuity reduces your pension by about 10%.
Benefit: Your spouse receives up to 55% of your unreduced annuity after your death.
No Automatic Enrollment: You must choose this option explicitly. Otherwise, no survivor benefit will be provided.

Failing to arrange for survivor benefits can leave your spouse without income, especially since Social Security survivor benefits may not be available.

The Role of COLAs in 2025 and Beyond

One of the continued strengths of CSRS is the annual cost-of-living adjustment (COLA). In 2025, the COLA adjustment was 2.5%, ensuring that retiree benefits keep pace with inflation. Unlike the Federal Employees Retirement System (FERS), which offers only a reduced COLA when inflation is between 2% and 3%, CSRS COLAs match the full Consumer Price Index (CPI).

This helps your retirement income maintain its real-world value over time, an advantage that becomes increasingly critical as you age into your 70s, 80s, and beyond.

Tax Considerations for CSRS Retirees

Your CSRS annuity is subject to federal income tax but not Social Security tax. A portion of your annuity may be tax-free based on your contributions to the retirement system while working. The IRS uses a “Simplified Method” to calculate how much of your annuity is non-taxable each year.

Key points to remember for 2025:

Federal Taxation: Annuities are taxable at ordinary income rates.
State Taxation: Some states exclude CSRS pensions from taxation or provide partial exemptions.
No Social Security Tax: You will not pay FICA taxes on your pension income.

It’s essential to understand your tax obligations to avoid surprises during your first few years of retirement.

Retirement Timing Matters More Than Ever

Choosing the right retirement date under CSRS can significantly affect your first year’s income. If you retire at the beginning of the month, your annuity starts the next day. However, if you retire mid-month, your annuity will be delayed until the next month, costing you valuable income.

Ideal timing strategies for 2025 retirees:

Retire at the End of the Month: Maximize your final paycheck and begin your annuity immediately.
Watch Sick and Annual Leave: Unused annual leave is paid out as a lump sum, but sick leave adds to your annuity calculation.

Proper planning can add thousands of dollars to your first year of retirement income.

How TSP Fits into the CSRS Equation

Unlike FERS retirees, CSRS employees have no government-matching contributions to the Thrift Savings Plan (TSP). However, you still have access to TSP as a voluntary, tax-advantaged savings tool.

Using TSP effectively can help address potential income gaps caused by:

Healthcare expenses
Unexpected costs
Long-term care needs

In 2025, TSP contribution limits are $23,500 for regular contributions and $7,500 for catch-up contributions if you are age 50 or older. Properly managing your TSP alongside your CSRS pension provides additional financial security.

Planning for a Long Retirement

Life expectancy in the United States continues to rise. If you retire at 62, you may easily live 25 to 30 more years. This means your CSRS pension must last a very long time.

Important strategies include:

Review Insurance Coverage: Evaluate long-term care insurance or savings to handle healthcare needs later in life.
Estate Planning: Update wills, powers of attorney, and beneficiary designations.
Annual Reviews: Revisit your retirement income plan every year to ensure it continues to meet your needs.

Long-term planning gives you the best chance of maintaining your financial independence throughout your retirement.

Why CSRS Still Offers Extraordinary Value in 2025

Retiring under CSRS in 2025 still feels like winning the retirement lottery for a good reason. Your pension delivers a level of lifetime financial security that very few retirement systems can match today. However, the absence of full Social Security benefits, rising healthcare costs, and long-term planning needs require careful preparation.

If you are preparing to retire under CSRS, getting advice from a licensed professional listed on this website can make all the difference in securing a retirement that truly feels like a win.