8 Ways to Flunk Your Federal Retirement (And How to Avoid Them)
After decades of federal service, you deserve a retirement that rewards your dedication. Retirement is more than just walking out of the office and closing your SF-50 file. It's a shift in identity, routines, and relevance. For many federal employees, especially those in service-oriented roles, work has provided a daily mission, social network, and sense of impact.
But once that structure disappears, the question arises: What now?
Too often, federal employees falter in ways that jeopardize their retirement plans, both from a psychological and financial planning perspective. This guide outlines eight common mistakes that can derail your retirement and how to avoid them.
- Losing Your Sense of Purpose After You Retire
The transition into retirement can be challenging without a renewed sense of purpose. It’s crucial to start thinking about your post-retirement goals before you retire to avoid boredom or depression.
How to avoid flunking: Start exploring your post-career purpose before you retire. Finding a new mission or purpose outside of your career is essential for a smooth transition from employment to retirement. The Japanese concept of Ikigai, your reason for waking up, can help. It is the intersection of what you love, what you're good at, what the world needs, and what you can offer.
Consider mentoring younger professionals, volunteering, pursuing creative passions, consulting, or learning a new skill. Retirement isn’t an end, but your chance to reinvent how you spend your time, on your terms.
- Misunderstanding Your Pension Calculation
Too many employees retire with only a vague understanding of how their FERS or CSRS annuity is calculated. Under FERS, your pension is based on:
High-3 Salary x Years of Creditable Service x Multiplier (typically 1% or 1.1%)
Relying solely on your pension, especially under FERS, can leave a significant income gap if not supported by other savings.
How to avoid flunking: Use the OPM Retirement Calculator and request an agency estimate well in advance. Make sure your service history is accurate, especially if you’ve changed agencies or had breaks in service.
3. Ignoring the Power of TSP Contributions
FERS was designed to include the TSP as a key pillar of your retirement income. But too many federal employees contribute below the matching threshold or keep all their money in the G Fund out of fear.
How to avoid flunking: Contribute at least 5% to get the full agency match. Why not? It’s free money! Review your investment allocation at least annually. Consider using Lifecycle (L) Funds if you’re unsure how to diversify. After retirement, create a strategy for withdrawing funds tax-efficiently over time.
4. Not Knowing the Various Types of Retirement
Retirement from federal service isn’t one-size-fits-all. There are several types of retirement, including immediate, postponed, deferred, early (MRA+10), and disability. Each comes with different rules, eligibility requirements, and consequences.
For example, deferred retirement allows you to leave federal service before reaching your Minimum Retirement Age (MRA) and apply for benefits later. However, you’ll lose access to FEHB and FEGLI. A postponed retirement might preserve your health benefits, but only if you meet specific criteria.
Choosing the wrong type, or not knowing your options at all, can mean giving up lifetime health coverage, losing out on annuity payments, or retiring before you’re financially ready.
How to avoid flunking: Talk to OPM early. Understand the key differences between each type of retirement and how they affect your annuity, TSP access, insurance coverage, and survivor benefits. There’s a strategy in when and how you retire. Don’t leave it to chance. Want to consider early retirement? Check out our article on GovExec.
5. Retiring at the Wrong Time of Year
Retirement timing isn’t just a matter of when you feel ready. It also affects your annuity start date, leave payout, and eligibility for cost-of-living adjustments (COLAs).
For example, under FERS, if you retire on December 31, your annuity starts in January. Retire on January 2, and you wait a full extra month for benefits.
How to avoid flunking: Understand the best retirement window for your system:
- FERS: Retire at the end of the month, ideally end of the calendar year for tax and leave benefits.
- CSRS: Retire on the first three days of the month for annuity to begin that month.
Review your Annual Leave balance to maximize your lump sum payout.
6. Underestimating Healthcare Costs
Many retirees mistakenly believe that their FEHB coverage will automatically continue, failing to consider how it integrates with Medicare. Additionally, some may not qualify to maintain their coverage due to not fulfilling the 5-year enrollment requirement.
How to avoid flunking: Make sure you’ve been continuously enrolled in FEHB for at least 5 years before retirement. At age 65, consider enrolling in Medicare Part B. Though it has a premium, pairing it with FEHB can reduce your out-of-pocket costs.
7. Neglecting Survivor Benefits Planning
Your pension doesn’t automatically carry over to your spouse if you pass away. Without proper planning, your spouse may lose both annuity income and FEHB coverage.
How to avoid flunking: Evaluate your Survivor Benefit Election carefully. FERS and CSRS allow for full, partial, or no survivor benefits, each affecting your pension and your spouse’s eligibility. This decision is often irrevocable, so discuss it openly with your partner and financial advisor.
8. Just “Wing It” Without a Retirement Plan
“If you fail to plan, you are planning to fail!” – Benjamin Franklin
Many federal employees consider retirement as a final goal, assuming everything will fall into place once they reach it. However, lacking a well-defined strategy may lead to excessive withdrawals from your TSP, underestimating healthcare expenses, or discovering that your funds do not last as long as anticipated.
How to avoid flunking: Map out your expected income from all sources, including FERS/CSRS annuity, TSP withdrawals, Social Security, rental or side income. Then, compare it to realistic expenses. Consider working with a federal retirement financial planner who understands your benefits and can help you optimize.
Retirement isn’t just the end of your federal service; it’s the start of your freedom. Avoid these common mistakes and treat your future with the same diligence you’ve given your career. You’ve earned it.
Neil Cain and Austin Costello are certified financial planners with Capital Financial Planners. If you have questions about how retirement impacts your Medicare payments, register for a complimentary checkup. For topics covered in even greater depth, see our YouTube page.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
