These Mistakes Keep Costing Public Sector Retirees—Even After They’ve Stopped Working for Good

Missy E
November 14, 2025

Key Takeaways

Retiring from public service doesn’t automatically protect you from critical financial and benefits-related missteps. Some of the most damaging errors occur after you’ve stopped working.
Understanding how your federal benefits interact with taxes, inflation, healthcare needs, and estate planning is essential to preserving your long-term retirement security.

Retirement Isn’t the Finish Line—It’s a New Beginning

Many public sector employees spend decades planning for the day they walk away from work. But what often goes overlooked is that retirement isn’t just the end of your career—it’s the start of a complex financial chapter. Your pension, health coverage, Thrift Savings Plan (TSP), Social Security benefits, and other entitlements now serve as your only line of defense against unexpected costs, longevity, and market instability.

If you’re not paying attention, it’s easy to slip into post-retirement patterns that slowly erode your nest egg. And because some errors may not be obvious until years later, early awareness is your best tool for prevention.

1. Assuming Your Federal Pension Will Be Enough

The average monthly FERS annuity for retirees is approximately $1,810 in 2025. While that may sound stable, many public retirees discover that it barely covers housing, food, transportation, and basic insurance needs—especially in higher-cost areas.

Why It’s Costly:

You may not have adequately accounted for inflation.
Housing and healthcare costs tend to rise faster than your annuity’s cost-of-living adjustments (COLAs).
Social Security may not fill the gap if you delay claiming or are affected by other benefit reductions.

What You Can Do:

Calculate your expected retirement income from all sources.
Reassess your budget annually to reflect current cost trends.
Consider income from other sources like a part-time job or withdrawals from the TSP, but only with a clear drawdown strategy.

2. Mismanaging TSP Withdrawals

One of the most common financial pitfalls is treating the TSP like a cash reserve. Without a plan, it’s easy to take out too much, too fast—triggering tax burdens, reducing long-term growth, and increasing the risk of outliving your savings.

What Makes This Problematic:

Withdrawals are subject to federal income taxes, and depending on your state, state income tax as well.
Taking out large sums can push you into a higher tax bracket.
Poor market timing can lead to locking in losses.

Smart Alternatives:

Create a systematic withdrawal plan.
Consider a bucket strategy, separating short-term, mid-term, and long-term funds.
Rebalance your TSP investments periodically to protect against unnecessary risk.

3. Overlooking Required Minimum Distributions (RMDs)

If you’re 73 or older in 2025 and have a TSP, you must take RMDs each year or face a 25% penalty on the amount not withdrawn.

Where Mistakes Happen:

Forgetting to set up automatic distributions.
Failing to understand the tax impact of these distributions.
Miscalculating your RMD if you’ve rolled over portions of your TSP to other accounts.

Protect Your Finances:

Start RMD planning several years before you turn 73.
Coordinate your withdrawals with other income sources to reduce tax exposure.
Consider spreading withdrawals across multiple accounts to manage bracket creep.

4. Neglecting FEHB and Medicare Coordination

Many public retirees qualify for the Federal Employees Health Benefits (FEHB) Program for life. But once you turn 65, Medicare eligibility changes the equation.

What’s at Stake:

If you delay enrolling in Medicare Part B without qualifying for an exemption, you may face permanent late enrollment penalties.
Overpaying for redundant coverage if you don’t evaluate whether Medicare should work alongside or instead of your current FEHB plan.

Your Best Move:

Review your FEHB plan’s integration with Medicare.
Consider enrolling in Medicare Part B at age 65, especially if your FEHB plan reduces cost-sharing with Medicare.
Be aware of enrollment windows and how they affect future eligibility.

5. Misunderstanding Survivor Benefit Elections

The survivor benefit option in FERS allows you to leave a portion of your annuity to your spouse after your death—but it comes at a cost to your monthly annuity during retirement.

Where People Go Wrong:

Declining the survivor benefit to increase their own retirement income without considering long-term consequences.
Not informing spouses of the implications of the election.
Forgetting to update elections after divorce or remarriage.

Protect Your Loved Ones:

Ensure your survivor benefit election aligns with your broader estate and insurance plans.
Factor in your spouse’s other sources of income.
Don’t assume your life insurance or TSP beneficiary designations provide the same support.

6. Ignoring Inflation’s Long-Term Effects

The Consumer Price Index (CPI) drives federal COLAs, but retirees often find that their expenses rise faster than their benefits. In 2025, while a 3.2% COLA has been applied, real inflation in healthcare and housing can outpace that increase.

How This Hurts:

Your annuity and Social Security lose purchasing power.
Emergency expenses can wipe out cash reserves.
Inflation affects fixed-income investments more severely.

Adjust Your Strategy:

Include inflation-protected investments in your TSP or other retirement accounts.
Periodically review your budget against actual cost increases.
Consider delaying Social Security to maximize monthly benefits.

7. Assuming You’ll Always Be in a Lower Tax Bracket

It’s a common misconception that retirement automatically drops you into a lower bracket. Between RMDs, Social Security, pension income, and other assets, many retirees find themselves paying more in taxes than they expected.

The Impact:

Unexpected tax bills can force unplanned withdrawals.
Medicare premiums may rise due to IRMAA surcharges.
Poorly timed income can trigger taxes on Social Security.

What to Do:

Use tax-efficient withdrawal strategies.
Explore Roth conversions during low-income years.
Understand how your income layers affect Medicare premiums.

8. Failing to Update Estate Plans and Beneficiaries

Estate planning isn’t one and done. Public retirees often forget to update designations or legal documents after major life events.

Common Oversights:

TSP, FEGLI, and pension designations that are outdated.
No power of attorney or healthcare directive in place.
Living wills that don’t reflect current wishes or family dynamics.

Keep Things Current:

Review all beneficiary forms annually.
Coordinate with your will and trust to ensure consistency.
Involve a legal professional who understands government benefits.

9. Letting Emotions Drive Investment Decisions

After retirement, risk tolerance naturally declines. But too much caution can be just as dangerous as too much risk—especially over a 25- or 30-year retirement horizon.

Emotional Traps to Avoid:

Selling during market downturns.
Holding too much in G Fund or similar low-yield investments.
Reacting to headlines instead of sticking to a long-term plan.

Stay Disciplined:

Base your investment allocation on your withdrawal timeline.
Rebalance with intent, not fear.
Consult a financial professional who understands TSP behavior.

10. Not Seeking Expert Help When Needed

Public retirement systems like FERS, CSRS, and the TSP are complex. Assuming you understand every nuance—especially as policies evolve—can cost you dearly.

Why DIY Doesn’t Always Work:

Rules around TSP rollovers, Medicare coordination, and survivor benefits are constantly changing.
Misinformation is common—even among financial professionals unfamiliar with government systems.

Your Best Resource:

Work with a licensed agent who specializes in public sector retirement.
Ask detailed questions during your annual review.
Make professional support part of your long-term strategy.

Protecting Your Retirement Starts with Awareness

Retiring from public service is an incredible accomplishment—but it’s not the end of your financial decision-making. In fact, the years after retirement often carry just as much risk as the years before.

By staying alert to the common mistakes above, you can protect your pension, grow your savings, and reduce long-term risks to your health and finances. Don’t wait until small oversights become irreversible losses.

Get in touch with a licensed agent listed on this website to review your situation and get professional guidance tailored to your specific federal benefits.