Civilian Military Employees Are Missing Out on Thousands by Overlooking These Little-Known Federal Benefit Rules

Key Takeaways

• Many civilian military employees miss out on thousands in retirement value simply by misunderstanding or ignoring rules around service credit, FEHB eligibility, and military buyback.

• Strategic timing of retirement, coordination with Medicare, and proper beneficiary designations can significantly enhance your financial security.

Your Service Counts More Than You Think

One of the most overlooked areas for civilian military employees is how their time in federal service is credited toward retirement. If you’ve worked in both military and civilian capacities, or if you’ve shifted roles within a military installation, the amount of creditable service time may not be fully reflected in your retirement calculations unless you take specific steps.

The Federal Employees Retirement System (FERS) and the legacy Civil Service Retirement System (CSRS) both require careful documentation of your service time. Simply having worked at a military installation does not automatically mean all your time is credited. If you’ve moved between temporary, term, and permanent roles, verify that your SF-50s reflect the correct series, appointment type, and tenure. Even one year of uncredited service can reduce your annuity significantly over time.

Military Buyback: A One-Time Opportunity With Lasting Impact

If you served in the military before joining the civilian federal workforce, the Military Buyback program allows you to make a deposit to have that time count toward your civilian retirement.

Here’s what you need to know in 2025:

• You must complete the military service deposit before retirement.

• Interest begins two years after your federal civilian appointment date, so acting early avoids added costs.

• Buying back three years of military service, for example, can increase your FERS annuity by about 3% of your High-3 average salary. Over a 25-year retirement, that can add up to tens of thousands of dollars.

The deadline is critical: If you delay until your retirement paperwork is already submitted, it may be too late to receive full credit.

FEHB Coverage Is Not Guaranteed in Retirement

Federal Employees Health Benefits (FEHB) coverage is a powerful asset in retirement, but it isn’t automatic. You must meet two key conditions:

1. Be enrolled in FEHB on the date of retirement.

2. Have been continuously enrolled (or covered as a family member) for the five years immediately before retirement.

Many civilian military employees unknowingly break this continuity, especially when they shift between agencies or appointments. A break in coverage, even for a few months, can disqualify you from keeping FEHB into retirement. Always check your status if you’re considering a position change or leave without pay.

Also, your retirement system matters. If you’re under CSRS Offset or transferred to FERS mid-career, your eligibility rules for FEHB remain, but your annuity calculation may shift. Clarify how these transitions impact your benefits.

Survivor Benefit Election Isn’t Just Optional Paperwork

If you’re married or supporting someone financially, your survivor benefit election directly affects their future security. Under FERS and CSRS, you must elect a survivor benefit if you want your spouse or other dependent to continue receiving health benefits and a portion of your annuity after your death.

Failing to make this election, or reducing it below the full level, can:

• Disqualify your spouse from continuing FEHB coverage.

• Eliminate their eligibility for a survivor annuity.

The cost of the full survivor benefit is typically 10% of your annuity, but the long-term value is immense. It ensures your spouse continues receiving 50% of your annuity after your passing. In 2025, this can mean the difference between sustainable retirement for your loved one or a loss of coverage and income.

Sick Leave: The Hidden Booster to Your Pension

Unused sick leave adds time to your total service for pension purposes. Under FERS, 100% of unused sick leave is creditable at retirement.

For example, if you have 2,087 hours (one year) of unused sick leave, it adds one full year of service credit. This extra year is used solely to calculate your annuity, not for retirement eligibility. Still, even a few months of added credit can increase your annuity for life.

Make sure your agency’s HR office confirms the proper transfer and application of your sick leave, especially if you’ve changed agencies or worked under different service appointments.

Timing Retirement Around Your Minimum Retirement Age (MRA)

Your Minimum Retirement Age (MRA) depends on your birth year and affects when you can retire with full or partial benefits:

• If born between 1953 and 1964: MRA is 56

• If born in 1965: MRA is 56 and 2 months

• If born in 1970: MRA is 56 and 8 months

• If born in 1973 or later: MRA is 57

If you retire under MRA+10 (at your MRA with at least 10 years of service), your pension is reduced by 5% for every year you’re under age 62. To avoid this penalty, you can postpone your annuity until age 62.

Strategic timing allows you to avoid reductions, preserve FEHB, and improve your overall financial picture.

Medicare and FEHB: Pairing Them the Right Way

At age 65, you become eligible for Medicare. Many civilian military retirees keep FEHB and enroll in Medicare Part A and B. Here’s how it benefits you:

• Medicare Part A (hospital insurance) is premium-free if you worked 40 quarters.

• Medicare Part B has a monthly premium, currently $185 in 2025.

• When combined, FEHB often becomes your secondary coverage, reducing out-of-pocket expenses.

Some FEHB plans waive deductibles and coinsurance if you have Medicare. You are not required to enroll in Part B, but declining it may lead to higher out-of-pocket costs in the long run.

Evaluate your plan’s coordination with Medicare before turning 65. Consider the savings, not just the premiums.

Deferred Retirement Is Available—But Comes With Rules

If you separate from service before reaching your MRA but have at least five years of creditable service, you can apply for a deferred retirement later.

This can be helpful if you leave government work in your 40s or early 50s but want your pension later.

Key points for deferred retirement:

• No FEHB or FEGLI in retirement.

• You must apply for retirement benefits when you reach MRA or age 62.

• Your High-3 salary and service years will still determine your annuity.

If you plan to return to federal service later, a deferred pension could be part of a larger retirement strategy.

High-3 Average Salary: What Counts and What Doesn’t

Your annuity is based on your High-3 average salary—the highest three consecutive years of basic pay.

Do not assume this includes overtime, bonuses, or travel pay. It strictly includes:

• Base pay

• Locality adjustments

• Shift differentials (if applicable)

In 2025, there’s proposed legislation to exclude locality pay from annuity calculations. If passed, this could reduce annuities significantly for those in high-cost areas. If you’re close to retirement, check with your HR to ensure your High-3 includes eligible components.

Don’t Ignore Your Beneficiary Designations

Many employees fail to update beneficiary forms after life events. If your FEGLI, TSP, or retirement system records an outdated beneficiary, your assets may not go to your intended recipients.

Review and update these forms:

• SF-2823 (FEGLI)

• SF-1152 (Unpaid Compensation)

• TSP-3 (Thrift Savings Plan)

• SF-3102 (FERS/CSRS retirement)

Outdated forms override wills, so keeping these current is essential to avoid disputes.

Small Steps Now, Big Payoffs Later

Understanding these often-missed federal benefit rules isn’t just about avoiding loss—it’s about maximizing what you’ve earned. Civilian military employees have unique paths through the federal workforce, and those paths come with overlooked opportunities.

It’s worth taking the time to meet with your HR department, check your service records, and align your benefits with your life plans. Many retirees leave money or benefits behind simply because they didn’t ask the right questions early enough.

If you’re approaching retirement—or even years away—now is the time to act.

Get More Out of Your Federal Retirement Path

You’ve put in the work. Now make sure the system works for you. Whether it’s buying back military service, aligning FEHB and Medicare, or choosing the right retirement date, small decisions can add up to thousands gained or lost.

If you’re unsure about where to begin or want a second opinion, get in touch with a licensed professional listed on this website. They can help you make confident, informed choices.