Retirement Planning for Federal Employees

A Strategic Guide to Maximizing Your FERS Benefits

Retirement planning for federal employees is fundamentally different from planning in the private sector. With a three-part retirement system that includes a pension (FERS), Social Security, and the Thrift Savings Plan (TSP), federal workers must make highly technical decisions that can permanently impact their retirement income.

This guide outlines the most important retirement planning considerations federal employees should evaluate before separating from service.

1. Federal Employee Benefit Estimates

Your FERS annuity is the foundation of your retirement—and understanding how it’s calculated is step one.

Your pension is generally based on:

• Your High-3 Average Salary
• Your Years of Creditable Service
• Your Retirement Multiplier (typically 1% – 1.1%)

Every additional year of creditable service increases your lifetime pension. In fact, each added year can increase your annuity by approximately 1% of your High-3 salary for life .

This is why:

• Prior federal service deposits
• Temporary service
• Military Buy-Back time

…can have a dramatic impact on retirement income.

Additionally, unused sick leave may be applied toward annuity calculation purposes, increasing total creditable service when computing your retirement benefit .

2. TSP Options & Decisions

Your Thrift Savings Plan (TSP) serves as your defined-contribution retirement account—similar to a 401(k).

Federal employees must decide:

Stay in TSP

TSP offers:

• Extremely low administrative expenses compared to many private mutual funds
• Institutional-class investment funds
• Continued tax-deferred or Roth growth

Roll Over Your TSP

Upon separation from service, you may roll TSP assets into:

• Traditional IRA
• Roth IRA
• New employer’s 401(k)

This can expand investment options and simplify Required Minimum Distribution (RMD) planning when executed correctly .

Conversely, employees may also roll funds into the TSP from other retirement plans such as IRAs or prior employer plans while still employed .

Key decisions include:

• Roth vs. Traditional contributions
• Lifecycle (L) Funds vs. Individual Funds
• Withdrawal strategy
• Partial vs. full rollover at retirement

3. FEGLI Review

Federal Employees’ Group Life Insurance (FEGLI) often becomes significantly more expensive in retirement—especially:

• Option B (Additional Insurance)
• Option C (Family Coverage)

Employees should review:

• Reduction elections (75%, 50%, or No Reduction)
• Post-retirement premium schedules
• Survivor income needs

Many federal retirees unnecessarily carry high-cost FEGLI coverage well into retirement without reviewing cost-benefit alternatives.

4. Military Buy-Back Decisions

Federal employees with prior military service may have the opportunity to buy back their active-duty service.

By making a service deposit:

• Military time becomes creditable toward civilian retirement
• Retirement eligibility may be accelerated
• Pension calculations increase

In many cases, buying back military time can:

• Add additional years of service
• Increase lifetime pension payments
• Allow earlier retirement eligibility

However, if you are receiving military retired pay, you typically must:

• Waive military retirement pay, and
• Pay a deposit for post-1956 service

…for that time to count toward your FERS annuity .

Employees who apply within their first three years of civilian employment may avoid interest charges on the required deposit .

5. Special Retirement Provisions

Certain federal employees qualify for enhanced retirement benefits under:

• Law Enforcement Officer (LEO) coverage
• Firefighter coverage
• Air Traffic Controller provisions
• Special Category Employees

These provisions may allow:

• Retirement at earlier ages
• Enhanced annuity multipliers
• Mandatory retirement rules

Understanding eligibility and service computation rules is critical for employees in covered positions.

6. FERS Transfer Rules

Employees who transferred from the Civil Service Retirement System (CSRS) to FERS are subject to special rules.

For example:

• Deposits may be required for CSRS-covered service
• Failure to make a required deposit can reduce retirement benefits
• A retirement annuity may be reduced by 10% of the unpaid deposit amount if not paid before retirement

Transferred employees may receive:

• A CSRS component, and
• A FERS component

…within the same retirement annuity, making retirement planning significantly more complex.

Final Thoughts

Federal retirement planning is not a one-size-fits-all process. Decisions involving:

• TSP withdrawal strategies
• FEGLI elections
• Military Buy-Back
• Prior service deposits
• CSRS-to-FERS transfers

…can affect your retirement income for decades.

Conducting a comprehensive retirement analysis before separation from service can help ensure you:

• Maximize lifetime annuity income
• Optimize survivor benefits
• Reduce insurance costs
• Improve tax-efficient income distribution