Retiring From Public Service in 2025 Feels Like a Moving Target—Here’s How to Stay Ahead

Key Takeaways

• Retiring from public service in 2025 involves more moving parts than in past decades. You need to adapt your strategy to align with evolving rules, benefits, and expectations.

• From shifting Social Security laws to healthcare integration requirements under PSHB, you’ll want to take proactive steps well before your official retirement date.

The Retirement Landscape Looks Very Different in 2025

Retirement used to follow a predictable pattern. You reached a target age, submitted your paperwork, and started receiving your benefits. In 2025, that roadmap has changed. If you’re a public sector employee nearing retirement, you’re likely facing changes to retirement formulas, healthcare integration requirements, and policy reforms that didn’t apply to retirees before you.

The key is recognizing that the current environment requires earlier preparation, clearer documentation, and more personalized decision-making. You’re not retiring into the same system that shaped your early career.

FERS Isn’t as Simple as It Once Was

The Federal Employees Retirement System (FERS) has long offered three main pillars: a basic annuity, Social Security, and your Thrift Savings Plan (TSP). But today, each of those components carries new considerations.

Annuity Adjustments

• The FERS Basic Benefit remains a guaranteed pension, but proposals in recent years have threatened reductions in COLAs and the inclusion of locality pay in the high-3 salary calculation.

• As of 2025, locality pay is still included, but pending legislation could change that for future retirees. If you’re planning to retire within the next two years, monitor this closely.

Thrift Savings Plan in the Spotlight

• In 2025, the TSP contribution limits are $23,500 for regular contributions and $7,500 for catch-up contributions if you’re 50 or older. A special catch-up of $11,250 applies to ages 60–63.

• You must decide how to use your TSP in retirement: full withdrawal, installment payments, annuitization, or rollover.

• Market volatility means a conservative or diversified strategy is more important than ever. Automatic lifecycle funds may not align with your actual retirement date or risk tolerance.

Social Security Changes You Should Know

• The repeal of the Windfall Elimination Provision (WEP) in 2025 means public employees who also qualify for Social Security will no longer see their benefits reduced. This is a major shift for CSRS retirees who contributed to Social Security through other jobs.

• The Full Retirement Age for individuals born in 1963 is now 67. Claiming earlier results in permanent reductions.

• The earnings limit for those under Full Retirement Age is $23,480 in 2025. If you continue working while collecting early Social Security, benefits may be temporarily withheld.

PSHB Is Here—And You Must Comply

One of the most significant changes in 2025 is the full rollout of the Postal Service Health Benefits (PSHB) Program. If you’re a postal worker or annuitant, you are now required to be enrolled in PSHB instead of FEHB.

Mandatory Medicare Part B Enrollment

• If you’re a Medicare-eligible annuitant, you must enroll in Medicare Part B to keep your PSHB coverage, unless you meet one of the narrow exemption criteria (such as retiring before January 1, 2025).

• Failure to enroll in Part B could mean loss of your prescription drug coverage and higher out-of-pocket costs under PSHB.

Prescription Drug Changes

• PSHB includes automatic enrollment into an EGWP (Employer Group Waiver Plan) for Part D.

• There’s now a $2,000 cap on annual out-of-pocket drug costs. This is a significant improvement from the older donut hole model.

• You also have access to a Prescription Payment Plan that allows you to spread the cost of your medications evenly throughout the year.

FEHB Still Matters for Non-Postal Employees

If you’re not part of the USPS, the Federal Employees Health Benefits (FEHB) Program still applies to you. But even here, changes are becoming more common.

• Premiums have risen sharply, with the average enrollee seeing a 13.5% increase in 2025.

• Coordination with Medicare is more important than ever. FEHB plans often reduce cost-sharing for enrollees who have Medicare Parts A and B.

• Review your plan’s brochure annually during Open Season (November to December) to confirm that your provider network, formulary, and premiums still make sense for your needs.

Survivor Benefits Need a Closer Look

Choosing survivor benefits can feel like a formality, but in reality, it’s a long-term financial decision. The cost of electing survivor annuity coverage directly impacts your monthly pension.

• To keep your spouse eligible for FEHB after your death, you must elect at least a partial survivor annuity.

• The reduction in your own annuity can range from 5% to 10%, depending on the option you choose.

• Changes to survivor elections must typically be made before retirement. Post-retirement changes are allowed only in limited cases, such as remarriage.

Retirement Paperwork Still Causes Delays

Although OPM is now digitizing retirement applications, processing still takes 60 to 90 days. You should not assume your annuity will begin immediately after your last day of work.

• Submit your retirement application (SF 3107) at least 2 to 3 months before your intended retirement date.

• Keep copies of all submissions and confirmations.

• If your agency requires internal processing, build in additional time.

• Stay in touch with HR throughout the process.

Timing Your Exit Matters

The retirement date you choose affects your annuity start date, your leave payout, and even your tax burden.

• Retiring at the end of a pay period maximizes leave accrual.

• A retirement date at the end of December may allow you to use your accumulated leave while deferring income to the next tax year.

• If you’re retiring under MRA+10 (Minimum Retirement Age with at least 10 years of service), you may want to postpone your annuity start date to reduce the early retirement penalty.

Don’t Overlook Required Minimum Distributions (RMDs)

As of 2025, the age for starting RMDs is 73. That means if you turned 73 in 2025, you must begin RMDs by April 1, 2026.

• This applies to TSP, IRAs, and other tax-deferred accounts.

• Failing to take your RMD results in steep penalties.

• Your first RMD can be delayed until April 1 of the following year, but all subsequent ones are due by December 31 annually.

Inflation and Taxes Won’t Wait for You to Catch Up

Your retirement income will stretch only as far as inflation and taxes allow. With inflation continuing to impact healthcare and everyday costs, it’s vital to build flexibility into your retirement budget.

• The 2025 COLA increase for Social Security and federal pensions is 2.5%, but some essential expenses have risen more sharply.

• Medicare Part B premiums have increased to $185 per month, with an annual deductible of $257.

• Your federal pension is taxable at the federal level and possibly at the state level, depending on where you live.

Take Action While You Still Have Leverage

If you’re still working, you still have tools available to strengthen your retirement. These include:

• Increasing TSP contributions while you’re eligible for matching.

• Converting some traditional TSP assets to Roth during lower income years to reduce future tax liabilities.

• Reviewing your beneficiary designations across all retirement accounts.

• Booking a benefits review session with your agency’s retirement counselor.

Staying on Track When the Rules Keep Changing

Retiring from public service in 2025 is not impossible—but it is more complex than it used to be. The sooner you acknowledge that reality, the better positioned you’ll be to handle it.

Track updates from OPM, Social Security, and your agency’s benefits office. Read your Annual Notice of Change letters and your TSP quarterly statements. Most importantly, don’t try to guess your way through retirement planning.

Speak with a licensed professional listed on this website to review your benefits, taxes, and withdrawal strategy. The difference between guessing and planning could be the difference between a stressful retirement and a confident one.