Key Takeaways
- Public sector retirement options continue to evolve, offering both opportunities and challenges for federal workers and retirees. Understanding these changes can help you make the most of your benefits.
- New rules impacting healthcare, retirement savings, and eligibility are being phased in this year, with some changes taking full effect in 2025. Preparing now will ensure a smoother transition.
Your Retirement Options Are Expanding
If you’re working in the federal government, chances are you’ve heard a lot about changes coming to retirement benefits. Retirement packages for federal employees, especially under the Federal Employees Retirement System (FERS), continue to grow and adapt. Whether you’re close to retiring or still a few years away, staying on top of these shifts can help you better plan for the future.
- Also Read: Law Enforcement Retires Early—But Not Without These Rarely Mentioned Tradeoffs
- Also Read: Why the FERS Supplement Is Still a Lifeline for Early Retirees—But a Risky One
- Also Read: You May Be Eligible for Medicare Soon—Here’s How It Affects Your Other Coverage
Big News in 2025: New Changes on the Horizon
With the start of 2025, some key changes will kick in that may affect your healthcare and retirement planning. For starters, if you’re a USPS employee or retiree, your health benefits will shift from the Federal Employees Health Benefits (FEHB) system to the new Postal Service Health Benefits (PSHB) program. This transition won’t just impact postal workers—it’s part of a broader rethinking of how federal healthcare is structured.
Another major change: if you’re retiring after January 1, 2025, and eligible for Medicare, you’ll need to enroll in Medicare Part B to stay in the new PSHB. This integration means that Medicare will work alongside your PSHB plan to help cover costs. Not enrolling could lead to complications with your coverage, so it’s important to keep this on your radar if you’re nearing retirement.
FERS: The System for Most of Us
For those of us under FERS, the retirement landscape is largely familiar, but there are a few noteworthy adjustments. The average monthly annuity for FERS retirees has been around $1,810, a solid foundation for a comfortable retirement when combined with Social Security and personal savings.
But FERS comes with a few complexities. If you’re planning on retiring early under the “MRA+10” rule, for example, you might face penalties unless you’re able to meet specific age and service requirements. The Minimum Retirement Age (MRA) for federal employees is typically between 55 and 57, depending on your birth year. If you retire with at least 10 years of service but before reaching your MRA, your pension will be reduced by 5% for each year you’re under 62. It’s a small but significant detail that can impact your monthly income.
Another important aspect to keep in mind: your Social Security benefits will kick in at age 62, but be aware that if you’re still working and claiming benefits, the earnings limit could reduce your Social Security payments.
Don’t Forget About the TSP
The Thrift Savings Plan (TSP) is a powerful tool that helps boost your retirement savings. It’s a lot like a 401(k) plan in the private sector but designed specifically for federal employees. For 2024, the TSP contribution limit is set at $23,000, with an additional $7,500 for those of you aged 50 or older.
One exciting update is the SECURE 2.0 Act, which will increase the catch-up contribution limit for those aged 60-63 starting in 2025. This will allow you to contribute even more during those crucial final years before retirement. If you’re getting close to retirement and haven’t maxed out your TSP contributions, now is the time to consider doing so. It’s never too late to give your retirement savings a boost.
What About CSRS?
Although most of us are under FERS, some federal employees are still covered by the older Civil Service Retirement System (CSRS). If you’re one of them, you likely know that the pension benefits under CSRS are more generous, but you might also be aware of the trade-offs.
CSRS retirees don’t pay into Social Security during their federal careers, and that can lead to reduced Social Security benefits due to the Windfall Elimination Provision (WEP). The average monthly CSRS annuity stands at around $4,464, significantly higher than the FERS pension, but understanding how WEP might affect your Social Security is critical, especially if you have non-government work in your history.
Healthcare in Retirement: How It’s Changing
Let’s talk healthcare because that’s a major concern for most retirees. If you’re already retired, you probably coordinate your FEHB (or soon, PSHB if you’re with the USPS) coverage with Medicare to reduce your out-of-pocket costs.
One important update is the cap on Medicare Part D drug costs coming in 2025. A $2,000 annual cap on out-of-pocket prescription costs will be in place, which is a big win for retirees who have struggled with rising medication prices. There’s also a new payment option that will allow you to spread your prescription costs over the year instead of paying in one lump sum, offering some financial relief.
Medicare Part B premiums are expected to increase slightly in 2025, so make sure to factor that into your healthcare budget. It’s always good to review your health plan during Open Season to ensure it still fits your needs, especially as these changes come into play.
Don’t Forget About Open Season
Speaking of Open Season, the 2024 Open Season for the PSHB program is running from November 11 to December 9, 2024. If you don’t actively choose a new plan, you’ll automatically be enrolled in one that closely mirrors your current FEHB coverage. But it’s always a good idea to review your options to make sure the plan you end up with is the best fit for you and your family.
Timing Your Retirement Right
Retirement is more than just knowing your benefits—it’s about timing. Leaving federal service at the right time can maximize your annuity and ensure you’re financially secure. If you’re retiring under FERS, consider waiting until you’re at least 62. Why? Because retiring at or after 62 can increase your pension by up to 10% and allow you to avoid penalties under the MRA+10 rule.
Plus, the FERS Special Retirement Supplement, designed to bridge the gap until you’re eligible for Social Security at age 62, provides some additional income if you retire earlier. Law enforcement officers and certain other special categories of employees can receive this supplement at an even younger age, so check whether you qualify.
Get Ready for What’s Next
As we wrap up, it’s clear that public sector retirement continues to evolve. Changes in healthcare, savings limits, and retirement rules may seem overwhelming, but staying informed is your best bet for securing a comfortable retirement. Use the resources available to you, ask questions during Open Season, and take advantage of the benefits you’ve worked so hard for.
