Key Takeaways
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You might be leaving valuable benefits on the table — Understanding all your federal benefits could save you a lot of money in retirement.
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Some benefits aren’t automatic — To make the most of your federal retirement package, it’s important to take proactive steps and ensure you’re enrolled in everything you’re eligible for.
Maximize Your Federal Retirement Package
If you’re a federal employee nearing retirement, congratulations! You’ve worked hard to earn your place, and now it’s time to reap the benefits. But here’s the thing—are you absolutely sure you’re getting everything you deserve? Your federal employee retirement benefits
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Let’s go over some key areas where federal employees often miss out, and how you can ensure you get every dollar and benefit you’re entitled to.
The Federal Employees Retirement System (FERS) – Are You Covered?
The Federal Employees Retirement System (FERS) forms the backbone of your retirement package. You might already know the basics—FERS combines three key components: your FERS annuity, Social Security, and the Thrift Savings Plan (TSP). But it’s easy to miss how all these pieces fit together. Let’s break it down.
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FERS Annuity: Your FERS annuity is your pension, and it’s based on your highest three consecutive years of salary (your “high-3”) and your years of service. If you’re leaving before 20 years of service, did you know that your pension will be reduced? It’s called the MRA+10 rule—if you retire with at least 10 years but fewer than 20 years of service, you can retire under this rule but expect a 5% reduction for each year you’re under age 62. Timing really matters here, so plan your retirement age accordingly!
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Social Security: Don’t forget that as a FERS employee, you’re contributing to Social Security. You’ll be eligible to start collecting at age 62. Keep in mind that your Social Security benefits are reduced if you claim them early, so holding off until your full retirement age (or beyond) could result in a higher monthly payment.
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Thrift Savings Plan (TSP): Your TSP is essentially your 401(k) equivalent, and if you haven’t already, now’s the time to max out your contributions. You’re allowed to contribute up to $23,000 in 2024, and if you’re over 50, you can take advantage of an extra $7,500 in catch-up contributions. Be sure to allocate your funds carefully and understand your investment options to avoid losing out on potential growth.
Health Insurance in Retirement – It’s Not Automatic!
Many federal retirees assume that their Federal Employees Health Benefits (FEHB) will automatically follow them into retirement. That’s mostly true, but there are a few key details you don’t want to miss.
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Five-Year Rule: To carry your FEHB coverage into retirement, you must have been enrolled in the program for at least five consecutive years before retiring. If you didn’t pay attention to this earlier in your career, you could be in for a surprise. No five-year rule, no FEHB in retirement—it’s that simple.
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Medicare Coordination: Once you reach age 65, Medicare becomes available. While you can choose to keep FEHB as your primary coverage, most retirees opt to enroll in Medicare Part B and use it alongside FEHB. It reduces your out-of-pocket expenses and gives you more comprehensive coverage. Just remember, enrolling in Medicare isn’t automatic—you need to sign up during your Initial Enrollment Period, or you could face a penalty.
Don’t Miss Out on Life Insurance
You may have had Federal Employees’ Group Life Insurance (FEGLI) for years, but did you know that your premiums increase significantly as you age? As you approach retirement, you’ll want to decide whether it’s worth keeping.
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Basic Coverage: Most employees automatically carry basic FEGLI coverage, but you have to elect any optional coverage. Once you retire, you have to choose whether you want to maintain the same level of coverage or let it decrease. By the time you hit 65, your basic coverage can reduce to 25% of its original amount—make sure to review your options before it’s too late.
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Cost Control: While life insurance is valuable, especially if you have dependents, it’s wise to compare the rising cost of keeping FEGLI in retirement with alternative ways to secure financial protection for your loved ones.
Special Retirement Supplement (SRS) – Are You Eligible?
Here’s one benefit you don’t want to miss out on if you retire before age 62. If you have 30 years of service and retire before age 62 (or 20 years if you retire at age 60), you may be eligible for the Special Retirement Supplement (SRS). This supplement helps bridge the gap between your retirement date and when you’re eligible to start collecting Social Security.
It’s designed to approximate the Social Security benefit you’d receive for your federal service, but not everyone is aware that it exists. Don’t let this slip by—make sure you understand whether you qualify and how to apply.
Survivor Benefits – Protect Your Loved Ones
Your pension doesn’t have to end with your passing. As part of your FERS retirement, you can elect a survivor benefit for your spouse. While this election reduces your pension payments, it ensures that your spouse will continue to receive a portion of your annuity after your death.
- 50% or 25% Option: You can choose to leave your spouse with either 50% or 25% of your annuity. The 50% option is the more common choice, but it does reduce your monthly pension by 10%. Make sure to consider the impact on your retirement income and decide if it’s worth the cost to provide financial security for your spouse.
Catch the Military Buyback Opportunity
If you’ve served in the military, there’s a good chance you’re eligible for the military service credit or buyback option. This allows you to add your years of military service to your civilian federal retirement, potentially increasing your pension.
The process involves buying back your military time by paying a percentage of your military base pay to the retirement system. But here’s the catch: it’s best to take care of this early. The longer you wait, the more interest you’ll have to pay. Don’t wait until the last minute—get your paperwork in order early to avoid higher costs down the line.
Your Federal Benefits Are Waiting – Don’t Let Them Slip Away
As you get closer to retirement, it’s easy to focus on the finish line and miss out on some key benefits that can make a huge difference in your financial future. The good news? A little planning and attention to detail can go a long way in ensuring you maximize your federal employee benefits package. From understanding the interplay between FERS, Social Security, and TSP, to navigating FEHB and Medicare, you’ll want to stay proactive and informed to avoid leaving money on the table. Retirement is about enjoying life and reaping the rewards of your hard work—so make sure you’re getting every benefit you’ve earned!
