Big News for Federal Employees—Here’s What’s Going on with Your Pay, Benefits, and Time Off

Katherine Summers
January 31, 2025

Key Takeaways:

Retirement just got more interesting for federal employees – Understanding your pension options and how changes affect your benefits is crucial for planning.
More than just pay – Your benefits and leave policies are also seeing changes that could impact your overall retirement strategy.

Let’s Talk About Your Pay

If you’re a federal employee, you already know your pay is more than just what hits your bank account. It’s wrapped up with all sorts of benefits, adjustments, and contributions that go well beyond the basic salary figure. And guess what? There are some key updates coming your way.

For 2025, there’s potential for a slight pay adjustment to reflect inflation and other economic conditions. While we often get focused on yearly cost-of-living adjustments (COLAs) for retirees, it’s important to remember that active federal workers may see changes too. These are generally tied to broader federal budget decisions, so don’t be surprised if you hear more as the year rolls on. It’s worth keeping an eye on any announcements toward the end of 2024 or early 2025 to see how it all shakes out.

Retirement Pay – What’s New?

Retirement pay, for federal employees, is divided into two main systems: the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). A key change you need to know? Those of you under FERS will want to pay attention to how your Thrift Savings Plan (TSP) contributions are doing. With a 2024 contribution limit of $23,000 (plus catch-up contributions for those 50+), maximizing this is key for a comfortable retirement.

For CSRS employees (though there are fewer of you), you might be more concerned about how any new rules will impact your annuity calculations. CSRS annuities tend to be more generous, and as such, any changes in contribution rates or benefits could make a big difference. But the big picture? Both FERS and CSRS retirees will continue to enjoy reliable income sources, even with the occasional hiccup in COLA or pay adjustments.

COLA – Your Cost of Living Adjustments

Every year, federal retirees brace for COLA announcements. For 2025, there’s buzz that the adjustment could be around 3.2%, but don’t take that as a given just yet. The official number gets finalized based on inflation data, so we won’t know for sure until later. But COLA is essential. It ensures your retirement pay stays aligned with inflation so that you’re not losing out on purchasing power as time goes on.

And don’t forget—if you’re under FERS, your COLA might not match the one that CSRS retirees get. FERS retirees sometimes see a slightly lower adjustment, which can be frustrating, but it’s part of the system’s design.

Leave Policies – They Matter for Retirement Too

What’s happening with your leave? For federal employees still on the job, leave accrual is a big deal. More annual leave means more flexibility, whether you’re planning that pre-retirement trip or just making sure you don’t lose leave when it tops out. For most employees, the magic number is 240 hours of annual leave you can carry over. Anything above that, you need to use or lose before the year’s end.

If you’re retiring, your unused leave matters even more. The good news? You’ll be paid out for it when you leave. That’s right—any leftover annual leave gets cashed out, and this can sometimes lead to a nice little bonus right as you walk out the door. Keep an eye on your leave balances and consider how using or banking them will affect you.

Sick Leave – A Retirement Goldmine

Sick leave doesn’t just disappear. In fact, under both FERS and CSRS, any unused sick leave is converted into additional time toward your retirement. This can be huge for boosting your pension. Every little bit of extra time counts. Whether you’ve been hoarding your sick days or just haven’t needed them, knowing how they’ll be used in retirement planning can give you a strategic edge.

Health Benefits for Retirees

Health insurance is one of the biggest worries retirees have, and for good reason. With medical costs rising, understanding how your Federal Employees Health Benefits (FEHB) will continue into retirement is critical. The great news? Your FEHB plan stays with you, and even better, many retirees coordinate their FEHB with Medicare once they’re eligible. This combo can keep your health costs manageable while providing comprehensive coverage.

One upcoming change to watch for is the 13.5% increase in FEHB premiums for 2025. That’s a sizable jump, so be sure you’ve planned for it. You may need to consider how this affects your budget, particularly if you’re coordinating with Medicare or thinking about switching plans during open season.

For those of you in the Postal Service, don’t forget that your health coverage is shifting to the Postal Service Health Benefits (PSHB) program starting in 2025. It’s important to review your options during open season to ensure your needs are covered.

Time Off in Your Last Year of Service

If you’re nearing retirement, you’re probably strategizing your final months carefully. One thing that might be on your mind is how to use your annual leave or if you should bank it for a payout. But there’s another consideration—scheduling a chunk of time off for mental refreshment before officially leaving can also be a smart play. It’s like a final victory lap before your new chapter begins!

And don’t forget, in your last year, you want to max out any use-or-lose leave while also ensuring you’re getting your full paycheck up until the day you retire. It’s all about maximizing those benefits before you transition out.

Are You Thinking About Early Retirement?

Federal employees have the option to retire early under the Minimum Retirement Age (MRA) + 10 provision. This allows you to retire as early as age 57 (for those born after 1970), but it comes with a penalty—your FERS annuity is reduced by 5% for each year you’re under 62. If you can afford to wait, it often makes sense to hold off, but if early retirement is calling your name, this is a good option to explore.

On the flip side, law enforcement officers (LEOs), firefighters, and air traffic controllers have special provisions allowing them to retire earlier—after 20 years of service at age 50, or with 25 years of service regardless of age. This group often faces mandatory retirement at age 57, so planning ahead is critical.

Wrapping Up Your Retirement Game Plan

Your retirement is more than just a date on the calendar—it’s a carefully planned exit from your career. From how you manage your pay and leave to understanding your retirement benefits, everything ties together for the smoothest transition possible. Keep in mind that every decision you make now impacts your future comfort and financial security.

As 2025 approaches, staying informed and adjusting your plans as necessary will help ensure you’re ready when it’s time to close the door on your working years and step into retirement with confidence.