Leaving a Federal Job Early? Here’s Exactly What Happens to Your Retirement

Key Takeaways

• Leaving your federal job before retirement age can impact your eligibility, annuity amount, and access to benefits, depending on your age and years of service.

• Understanding the rules of deferred and postponed retirement under FERS helps you make informed choices if you leave early.

What Counts as Leaving Early in 2025?

Leaving early usually means separating from your federal job before you qualify for an immediate unreduced annuity. Under the Federal Employees Retirement System (FERS), you’re generally considered to be leaving early if you:

• Separate before reaching your Minimum Retirement Age (MRA) with at least 30 years of service

• Separate before age 60 with at least 20 years of service

• Separate before age 62 with at least 5 years of service

How Your Years of Service Affect the Outcome

• Also Read: How Civilian Employees Can Turn Military Time Into a Bigger FERS Pension
• Also Read: Dropping FEGLI Sounds Smart—Until You Realize What It No Longer Covers After Retirement
• Also Read: Hitting 20 Years in Law Enforcement? Here’s What You Can Expect From Your Pension

Your creditable service—which includes actual federal civilian service and possibly military time if bought back—plays a key role in what happens next.

• Less than 5 years: You are not entitled to any retirement annuity under FERS. However, you can request a refund of your FERS contributions.

• 5 or more years: You qualify for a deferred retirement, though it won’t start until at least age 62 unless you meet other conditions.

Deferred Retirement: When You Leave But Wait

If you leave with at least five years of creditable service, you may apply for deferred retirement once you reach a qualifying age. There are three primary scenarios:

• At age 62 with at least 5 years of service

• At age 60 with at least 20 years of service

• At MRA with at least 10 years of service (reduced benefits unless postponed)

The benefit? You eventually get an annuity based on your service. The downside? You lose access to federal health and life insurance benefits unless you postpone (not defer) your retirement.

What About Postponed Retirement?

Postponed retirement is available if you meet the MRA+10 rule (Minimum Retirement Age and at least 10 years of service). Instead of taking a reduced annuity immediately, you can postpone your annuity to avoid the penalty.

The Penalty:

• A 5% reduction for each year you are under age 62 at the time you begin your annuity

Why postpone?

• By postponing your annuity until age 62 (or age 60 with 20 years), you avoid the reduction

• You may also be eligible to resume FEHB and FEGLI coverage

Health and Life Insurance: What You Lose (or Keep)

If you separate before retirement eligibility:

• You lose FEHB (Federal Employees Health Benefits) and FEGLI (Federal Employees’ Group Life Insurance) coverage immediately after separation

• If you opt for postponed retirement, and you were enrolled in FEHB/FEGLI for at least 5 years before separation, you can re-enroll when your annuity begins

• If you choose deferred retirement, you cannot resume FEHB or FEGLI

Social Security and the FERS Supplement

FERS employees contribute to Social Security, so you may still qualify for those benefits based on your total work history.

• Social Security benefits begin as early as age 62, but are reduced unless you wait until full retirement age (currently 67 for those born in 1963)

• The FERS Supplement, a temporary payment meant to bridge the gap until Social Security kicks in, is not available to those who take a deferred retirement

Thrift Savings Plan (TSP) Options After Separation

When you leave federal service, your TSP remains yours, but you’ll need to decide how to manage it.

Your choices include:

• Leave the money in your TSP account

• Withdraw funds (which may have tax implications)

• Roll over to an IRA or other qualified plan

Withdrawals before age 59½ may trigger a 10% early withdrawal penalty, unless exceptions apply (such as separating during or after the year you turn 55).

How Early Retirement Affects Your Annuity Calculation

If you eventually qualify for a FERS annuity, it’s based on your high-3 average salary and years of creditable service. Leaving early means fewer years of service, which lowers your annuity.

Example Formula:

• 1% x high-3 average salary x years of service

• 1.1% if you retire at age 62 or later with at least 20 years of service

No cost-of-living adjustments (COLAs) are applied until you begin receiving the annuity—and not until age 62 unless you’re a special category retiree.

What Happens to Unused Sick Leave?

Your unused sick leave does not count toward eligibility for deferred retirement. However, if you postpone your retirement, it may be credited toward your annuity calculation, provided you meet MRA+10 requirements.

Special Case: Early Out and Discontinued Service Retirement (DSR)

If you’re offered an Early Out (VERA) or experience a Reduction in Force (RIF), different rules apply:

• You can retire earlier (at age 50 with 20 years or any age with 25)

• You may qualify for immediate annuity and FEHB/FEGLI continuation

• The FERS Supplement is generally included

However, these are agency-approved and not guaranteed to all employees.

Survivor and Death Benefits

If you leave before retirement and die before claiming your annuity:

• No survivor annuity is payable unless you were eligible for a deferred annuity at the time of death and your survivor applies for it

• Refund of contributions may be paid to a designated beneficiary or estate

If you die after you start receiving deferred or postponed benefits, your survivor may be eligible for a reduced annuity if elected at the time your benefit started.

Timeline to Apply for Deferred or Postponed Retirement

To avoid missing out on benefits, keep the following in mind:

• Deferred retirement: Apply 2–3 months before your eligibility age (typically 62)

• Postponed retirement: File immediately prior to the age you want your annuity to begin

The Office of Personnel Management (OPM) handles these applications. Delays are common, so keep copies and submit paperwork early.

What You Should Do Before You Leave

If you’re considering leaving your federal job early in 2025, take these steps first:

• Review your Service Computation Date (SCD) and verify creditable service

• Request an estimate of deferred/postponed annuity from your HR office or OPM

• Evaluate your TSP strategy and withdrawal rules

• Consider your health insurance options post-employment

• Understand how your choice impacts Social Security eligibility and timing

Make the Most of Your Exit Plan

Leaving your federal job early can mean walking away from valuable benefits—or preserving them with the right plan. Every year of creditable service matters. Whether you’re opting for deferred retirement, postponed benefits, or considering a return later, knowing the rules gives you control over your future.

If you’re unsure which path to take, get in touch with a licensed professional listed on this website who can help you review your service, annuity potential, and benefit eligibility before you make your move.