The Biggest Benefit Mistakes Public Sector Employees Keep Making (and How to Avoid Them)

Missy E
November 14, 2025

Key Takeaways

Many public sector employees in 2025 are missing critical opportunities by mismanaging their retirement, health, and insurance benefits.
Careful planning, regular reviews, and professional guidance can help you avoid costly mistakes that may impact your future security.

Understanding the Risks of Benefit Mismanagement

Public sector employees have access to one of the most valuable benefits packages available today. Yet, many are not maximizing these opportunities, often leaving money on the table or facing unexpected gaps in retirement and health coverage. You need to understand the most common mistakes and how to avoid them to safeguard your financial future.

Not Reviewing Benefits Annually

In 2025, benefit programs are more dynamic than ever. Policies, premiums, and coverage options can change from year to year. If you are not reviewing your benefits during the annual Open Season, you risk:

Missing new plan options that better suit your needs.
Paying higher out-of-pocket costs unnecessarily.
Losing access to coverage enhancements that align with major life events.

It is critical to review your benefit elections every November and December to ensure you stay aligned with your financial and healthcare goals.

Underestimating Health Care Costs in Retirement

Health care costs continue to rise in 2025. Many public sector employees assume their benefits will automatically cover them fully into retirement. This is a dangerous assumption.

Even with Federal Employees Health Benefits (FEHB) or Postal Service Health Benefits (PSHB) programs, retirees often face deductibles, copayments, and premiums.
Medicare enrollment and coordination are vital to avoid penalties and to enhance coverage.
Long-term care expenses are often not covered by standard insurance and require separate planning.

Early planning for healthcare in retirement helps you avoid sudden financial strain later.

Ignoring the Importance of Medicare Coordination

If you retire at 65 or later, understanding how Medicare interacts with your health benefits is vital.

Medicare Part A is usually premium-free if you paid sufficient Medicare taxes.
Medicare Part B requires a monthly premium, currently $185 in 2025.
Not enrolling in Medicare Part B when required can lead to permanent late enrollment penalties.

Proper Medicare coordination ensures you have complete, cost-effective coverage.

Assuming Survivor Benefits Are Automatic

Survivor benefits require proactive election. Many employees wrongly assume that their pensions, health insurance, and other benefits will automatically transfer to a spouse or family member after death. Without proper elections:

Survivor annuities will not be paid.
Health insurance could terminate for your family members.

At retirement, it is essential to elect a survivor benefit if you want your family to continue receiving support.

Overlooking the Thrift Savings Plan (TSP) Withdrawal Rules

The TSP is a crucial part of your retirement savings, but improper withdrawals can lead to severe tax consequences.

Required Minimum Distributions (RMDs) must begin at age 73.
Early withdrawals before age 59½ without an eligible exception can trigger a 10% penalty.
Loans or hardship withdrawals taken while employed must be carefully managed to avoid tax liabilities.

A thoughtful TSP withdrawal strategy helps you preserve assets and minimize taxes.

Misunderstanding Disability Retirement Benefits

Disability retirement is an important safeguard for federal and postal employees. However, misunderstanding the eligibility rules and benefit calculations can cost you thousands.

You must have completed at least 18 months of creditable service under FERS.
Medical documentation must show you are unable to perform your job duties.
Benefits differ significantly from regular retirement benefits.

It is important to understand your rights under disability retirement and the correct process for applying.

Not Accounting for Inflation

In 2025, inflation continues to impact daily living costs. Retirement savings and annuities may not stretch as far as you expect if you fail to plan for:

Future increases in healthcare and long-term care costs.
Rising premiums for insurance coverage.
Changes in purchasing power for fixed annuity payments.

Choosing benefits and investment strategies that offer some inflation protection is essential for long-term financial security.

Missing the Opportunity to Elect Flexible Spending Accounts (FSA)

Flexible Spending Accounts (FSAs) offer major tax advantages for current employees.

In 2025, the contribution limit for healthcare FSAs is $3,300.
Up to $660 can be carried over into the next year, if your plan allows.

Failing to participate in an FSA when eligible means paying more in taxes and missing the chance to save on eligible expenses like medical copays, prescriptions, and dependent care.

Neglecting Life Insurance Planning

The Federal Employees’ Group Life Insurance (FEGLI) Program offers valuable coverage during your working years. However, you must reassess your life insurance needs over time.

FEGLI premiums increase significantly with age, especially after retirement.
Overpaying for unnecessary coverage is common if you do not adjust your elections.
Underinsuring leaves your family at risk in the event of your death.

Regular life insurance reviews ensure your coverage matches your current needs.

Assuming Your Pension Alone Will Be Enough

Many public sector employees mistakenly believe their annuity will fully cover their retirement expenses. While pensions provide a reliable base, they rarely replace pre-retirement income entirely.

FERS pensions typically replace only about 30%-40% of your salary.
Cost-of-Living Adjustments (COLAs) are applied but may not keep up fully with inflation.
Supplementary savings through TSP and Social Security are essential.

Diversified retirement planning is necessary to maintain your desired lifestyle.

Not Planning for Early Retirement Penalties

If you retire under the MRA+10 provision (Minimum Retirement Age with at least 10 years of service), your pension is permanently reduced unless you postpone your annuity.

Reductions are 5% per year under your MRA, which can significantly diminish lifetime retirement income.

Understanding the trade-offs of early retirement helps you make informed decisions.

Forgetting to Update Beneficiary Designations

Beneficiary forms for your TSP, FEGLI, and pension benefits must be updated after major life events such as marriage, divorce, or the birth of a child.

Outdated designations can result in benefits being paid to unintended recipients.
Retirement system designations override wills and other estate plans.

Review and update your beneficiary forms regularly to ensure your wishes are honored.

Believing Part-Time Work Won’t Affect Retirement Benefits

Working part-time during your career can impact your retirement calculations more than you realize.

Part-time service is prorated when calculating the FERS pension.
It affects your High-3 average salary and overall service credit.

If you work part-time for a significant portion of your career, plan accordingly to avoid retirement surprises.

The Smart Way Forward in 2025

You have more control over your retirement security than you might think. Avoiding these benefit mistakes requires proactive steps:

Conduct annual benefits reviews.
Understand your healthcare and Medicare options.
Coordinate your TSP, pension, and Social Security plans.
Work with a licensed professional listed on this website to create a customized strategy.

Public sector employees who take a hands-on approach to managing their benefits position themselves for a more secure and comfortable retirement.

Stay Ahead by Taking Action Now

The decisions you make today shape your financial tomorrow. By understanding these common mistakes and acting early, you can protect your retirement income, healthcare coverage, and overall peace of mind. Connect with a licensed professional listed on this website to review your options and create a strategy tailored to your goals.