Key Takeaways
- Many public sector employees overlook hidden retirement perks that can maximize their benefits.
- Understanding how your retirement system works, especially key timelines and options, can significantly impact your financial future.
Are You Missing Out on Your Federal Retirement Benefits?
As a federal employee, you’ve probably heard about the usual suspects when it comes to your retirement package—things like your pension, Thrift Savings Plan (TSP), and maybe even Social Security. But what you might not realize is that there are benefits hidden in plain sight, or often misunderstood, that could greatly improve your retirement experience. Whether you’re just starting your career or getting close to retirement, it’s never too late to discover what’s available to you.
Let’s dive into some often-overlooked retirement options and how to make the most of them.
- Also Read: TSP Investment Moves That Could Help Federal Employees Retire on Their Own Terms
- Also Read: Early Retirement Myths Federal Employees Need to Stop Believing
- Also Read: The Surprisingly Modern Perks of CSRS and What It Means for Longtime Federal Employees
The Power of the FERS Annuity Supplement
You might think your pension stops at the monthly annuity you’ll receive under the Federal Employees Retirement System (FERS), but there’s a hidden gem called the FERS Annuity Supplement. This is essentially a bridge between your federal retirement annuity and when you qualify for Social Security at age 62.
Here’s how it works: If you retire before 62 and have the required years of service, the FERS Supplement gives you an additional income stream. It can help smooth out the gap between when you retire and when your Social Security kicks in.
The important thing to note is that the FERS Supplement is available if you retire with at least 30 years of service at your Minimum Retirement Age (MRA), which is between 55 and 57, depending on when you were born. If you retire early with fewer years of service, you could still be eligible under certain circumstances, but it’s essential to understand how the supplement works and how it’s calculated.
Sick Leave: Your Ticket to More Retirement Time
Sick leave often feels like an afterthought. We use it when we need to and sometimes even forget about it. But did you know that your unused sick leave can be converted into service credit when you retire? This is one of those hidden benefits that many federal employees overlook.
Under FERS, your unused sick leave doesn’t just evaporate when you retire—it adds to your total service time, which means a bigger annuity. For example, if you have accumulated a year’s worth of sick leave, that year gets tacked onto your total service time, increasing your retirement annuity by a percentage point that may surprise you. In essence, it’s free money in the form of a higher pension.
If you’ve been banking sick days, keep it up! They will pay off big time when you’re ready to walk out the door for good.
Maximizing Your Thrift Savings Plan (TSP)
Most federal employees know about the TSP, but many don’t take full advantage of its benefits. The TSP works a lot like a 401(k), with a tax-deferred option and a Roth option. What many don’t realize is how much the TSP can grow with even small contributions over time, thanks to the power of compound interest.
What’s even better is that you’re likely getting matching contributions from your agency, up to 5% of your salary. If you’re not contributing at least that much, you’re leaving free money on the table.
Also, be sure to keep an eye on the TSP’s contribution limits, which increase over time. For 2024, you can contribute up to $23,000, with an additional $7,500 in catch-up contributions if you’re 50 or older. Starting in 2025, the SECURE 2.0 Act will allow those aged 60-63 to make even higher catch-up contributions.
Military Buyback Program: A Hidden Way to Boost Your Retirement
If you’ve served in the military before becoming a federal employee, you may be eligible for a service credit through the Military Buyback Program. By buying back your military service time, you can add those years toward your civilian retirement, which means a higher pension when you retire.
Here’s how it works: You pay a small percentage of your military earnings to “buy back” your service time. The longer you wait to do this, the more it could cost you, as interest accrues on your buyback. The key takeaway here is that if you’re eligible, buying back your military time can substantially increase your retirement annuity under both FERS and the older Civil Service Retirement System (CSRS).
Early Retirement: Understanding MRA+10
Thinking about retiring early? The MRA+10 option might be for you. This provision allows you to retire with as few as 10 years of federal service once you reach your Minimum Retirement Age (MRA). The catch? Your pension will be reduced by 5% for each year you’re under age 62.
While the reduction might seem steep, there’s a silver lining: you can defer your annuity until you reach age 62 to avoid the reduction. This could be a useful tool if you’re eager to leave the workforce early but want to minimize the financial hit.
This option is especially handy if you’ve had a shorter federal career or want to retire early for personal reasons.
Federal Employees’ Group Life Insurance (FEGLI) in Retirement
Another benefit that often goes overlooked is your Federal Employees’ Group Life Insurance (FEGLI). While many employees are aware of their life insurance benefits while actively working, they may not fully understand how FEGLI works in retirement.
As you approach retirement, you’ll have options to keep a portion of your FEGLI coverage, but keep in mind that premiums increase significantly as you age. It’s important to carefully evaluate whether keeping FEGLI into retirement is worth the cost. If you’re relying on it for long-term security, consider how much it will really cost you as those premiums jump after age 65.
Coordinating Medicare with Federal Health Benefits
One of the biggest questions federal employees face as they near retirement is how to coordinate Medicare with their Federal Employees Health Benefits (FEHB). While you’re not required to enroll in Medicare when you turn 65, many retirees find that having both Medicare and FEHB provides comprehensive coverage with fewer out-of-pocket costs.
Here’s the deal: FEHB remains your primary health insurance if you don’t sign up for Medicare Part B, but Medicare can act as a supplement, reducing your overall healthcare costs. Most federal retirees who sign up for Medicare Part B find that their FEHB plan coordinates well, offering reduced premiums or enhanced coverage.
Time to Start Taking Advantage of Your Benefits
You might be years away from retirement, or perhaps it’s just around the corner. Either way, don’t make the mistake of ignoring the benefits you’ve earned. By learning more about the FERS Supplement, maximizing your TSP contributions, considering military buyback options, and properly coordinating Medicare with your FEHB, you can optimize your retirement.
Remember, federal retirement benefits are complex, and taking the time now to fully understand what you have can pay off in the long run.
Plan Your Retirement with Confidence
Planning for retirement doesn’t have to be overwhelming if you know what to look for. Take control of your future by getting familiar with these often-overlooked benefits, and you’ll set yourself up for a smoother and more comfortable retirement.
