Key Takeaways
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2025 brings significant changes for federal employees beyond expected pay raises, including shifts in retirement benefits and healthcare costs.
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Staying informed and reviewing your benefits now can help you avoid costly surprises later in retirement.
Pay Raises Are Only Part of the Story
At first glance, 2025 seems positive for federal employees with an average 4.7% pay raise across the public sector workforce. However, focusing only on salary increases overlooks deeper issues unfolding beneath the surface.
Several legislative and administrative changes in 2025 affect your retirement security, healthcare expenses, and financial planning timeline. Ignoring these shifts could set you up for serious challenges when you step away from government service.
Higher Pay, Higher Deductions
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- Also Read: These TSP Tips Are What Financial Planners Wish More Government Employees Knew
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FERS Contributions: Remain stable for most employees at 4.4% for newer hires, but rising FEHB costs in 2025 mean a larger share of your paycheck heads toward premiums.
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Thrift Savings Plan (TSP): The elective deferral limit has increased to $23,500, encouraging higher savings but also impacting take-home pay for those maximizing contributions.
Your overall paycheck may look larger, but the real increase feels smaller once mandatory deductions are factored in.
Healthcare Costs Continue to Rise
The Federal Employees Health Benefits (FEHB) program saw an average premium increase of 11.2% in 2025. This trend affects both active employees and retirees who rely on FEHB during retirement.
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Biweekly Premium Increases: For many, this means an additional $20 to $40 per pay period.
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Higher Out-of-Pocket Costs: Expect increases in deductibles, copayments, and coinsurance in several FEHB plans.
If you plan to retire soon, you will need to factor in these escalating healthcare expenses when estimating your post-retirement budget.
Retirement Annuity Calculations Face Potential Changes
In 2025, a proposal is under consideration to exclude locality pay from the “high-3” salary calculation used to determine your retirement annuity.
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Impact: Excluding locality pay would lower your average salary figure, reducing your lifetime annuity.
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Timeline: Although no final action has occurred yet, you must watch for updates throughout 2025.
Those who work in high-cost areas stand to lose the most if this proposal becomes law. Early retirement planning in 2025 must account for this possibility.
TSP Investment Environment Is Shifting
The TSP landscape is evolving rapidly in 2025.
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G Fund Changes: Proposals to remove the government subsidy for the G Fund could lead to lower returns for conservative investors.
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Catch-Up Contributions: New Secure Act provisions offer higher catch-up limits for participants aged 60-63, up to $11,250.
Reviewing your TSP investment strategy this year is crucial to staying on track for retirement.
Postal Service Health Benefits Transition
USPS employees and retirees have officially transitioned to the new Postal Service Health Benefits (PSHB) Program as of January 1, 2025.
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Open Season: Occurred from November to December 2024, with automatic enrollment for most current participants.
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Medicare Requirement: Postal retirees eligible for Medicare must enroll in Part B to maintain full PSHB coverage unless they qualify for specific exemptions.
If you are a USPS retiree or employee, be sure you understand how your new plan integrates with Medicare and what out-of-pocket changes you might face.
Medicare Costs Are Higher in 2025
Medicare expenses for retirees are also rising this year.
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Part B Premium: Standard monthly premium is $185.
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Part B Deductible: Has increased to $257.
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Part A Deductible: Now $1,676 per benefit period.
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Part D Changes: Introduction of a $2,000 out-of-pocket cap for prescription drugs offers some financial relief.
Although protections are improving under Part D, the higher premiums and deductibles for Part A and Part B demand careful budgeting.
Retirement Timelines Need Adjustment
Given these changes, you may need to rethink your retirement timeline.
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Full Retirement Age (FRA): For those born in 1963, your Social Security FRA is now officially 67.
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FERS Annuity Supplement: Ends at age 62, even if you delay Social Security beyond that point.
Delaying retirement could allow you to build a higher annuity and maximize TSP savings, but it comes with the need to absorb rising healthcare and cost-of-living expenses.
COLA Adjustments Are Modest
The cost-of-living adjustment (COLA) for federal pensions and Social Security benefits is 3.2% for 2025.
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Impact: This moderate increase helps offset inflation but is not enough to match the jump in healthcare and everyday living costs.
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Planning Tip: Revisit your expected retirement expenses carefully to ensure a manageable retirement lifestyle.
Federal Long Term Care Insurance Remains Frozen
The Federal Long Term Care Insurance Program (FLTCIP) remains suspended for new enrollees in 2025.
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Existing Policyholders: Still covered under previous terms.
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New Applicants: No option to enroll until further notice.
If you were planning to add long-term care coverage, you will need to explore private options, which typically cost more and offer different benefits.
Survivor Benefits Require a Second Look
Choosing a survivor benefit at retirement is more critical than ever.
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FEHB Continuation: Your spouse can continue FEHB coverage only if you elect a survivor annuity.
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Cost Impact: Survivor benefits reduce your monthly annuity, but skipping them risks leaving your spouse without affordable healthcare.
Reviewing this decision in the context of today’s rising costs is vital to protect your family.
Disability Retirement Trends Are Changing
Requests for disability retirement have increased slightly in 2025 due to expanded awareness and lingering health effects from prior years’ events.
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Approval Timelines: Still lengthy, often 6-12 months.
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Financial Planning: Ensure you have sufficient emergency savings if you are considering this path, as approval is not immediate.
Disability retirement remains a valuable safety net but is not a quick or guaranteed solution.
Employment Opportunities After Retirement Are Expanding
Many federal retirees are returning to part-time work after separation.
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Reemployment Restrictions: Some federal agencies offer “dual compensation waivers” allowing you to work without losing your annuity.
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Private Sector Growth: Demand for experienced government retirees in consulting, cybersecurity, and healthcare sectors remains strong.
Retirement today often means “reinvention” rather than “complete exit” from the workforce.
Stay Proactive About Legislative Changes
Bills affecting federal retirement benefits are being introduced throughout 2025.
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FEHB Contributions: A shift to a flat-rate model could increase your personal healthcare expenses.
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TSP G Fund: Potential subsidy removal still under debate.
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Locality Pay: High-3 calculation changes are actively discussed.
Staying informed about these issues will position you to make smarter financial and career decisions.
Preparing for Retirement in 2025 Means More Than Ever
Retirement planning in 2025 demands a sharper focus than in previous years.
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Healthcare: Rising costs and Medicare changes.
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TSP Investments: New contribution rules and evolving fund performance.
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Pension Calculations: Possible changes to locality pay inclusion.
You must actively review your financial and benefits status every few months this year to stay ahead.
Why You Should Take Action Now
Even if your retirement feels years away, 2025 is the year to rethink your strategy.
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Benefits Changes: Can reshape your financial foundation faster than expected.
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New Opportunities: Emerging work roles and increased TSP options allow more flexibility.
Getting advice from a licensed professional listed on this website can help you align your retirement plans with the realities of today’s public sector landscape.
Setting Up a Stronger Retirement Future
Understanding the realities behind the “good news” headlines about pay raises and retirement benefits in 2025 empowers you to make better decisions. Whether you are just starting your career or finalizing your exit strategy, this year requires a careful, detailed approach.
Take time to assess your situation and consider speaking with a licensed professional listed on this website for customized advice to protect and grow your future security.
