Government Retirement Planning Has Changed—But Most People Are Still Using a 1990s Playbook

Key Takeaways

• Retirement planning for government employees in 2025 requires updated thinking around longevity, income sources, and rising healthcare costs. Strategies from the 1990s no longer apply to today’s retirement landscape.

• Relying solely on your pension or the Thrift Savings Plan (TSP) without reassessing inflation, withdrawal timing, and tax implications can lead to income gaps and financial strain in your retirement years.

The Rules of Retirement Have Shifted Dramatically

In the 1990s, retirement planning for government workers was relatively straightforward. You worked for 30 years, earned a defined pension, and retired comfortably without worrying too much about stock market volatility, Medicare coordination, or outliving your savings. That model no longer holds in 2025.

Several structural shifts have redefined how you should approach retirement:

• Longer life expectancy means you may need income for 25 to 35 years post-retirement.

• Inflation and rising healthcare costs have outpaced the growth of many retirement benefits.

• Pension formulas and benefit eligibility rules have been adjusted for many roles, especially new hires.

• Social Security rules and COLA trends are under continued scrutiny and change.

If you’re still operating under the assumptions your predecessors used, you’re likely setting yourself up for a shortfall.

Pension Alone Isn’t Enough Anymore

Your government pension is still a critical part of your retirement plan, but it can no longer serve as your sole safety net.

Today, most government workers are covered by the Federal Employees Retirement System (FERS), which includes:

• A basic annuity, calculated using your High-3 average salary and years of service.

• Social Security benefits, assuming eligibility.

• Your own savings via the TSP, with limited employer matching.

The old Civil Service Retirement System (CSRS) provided a much larger annuity and did not require coordination with Social Security. But CSRS only covers a shrinking group of retirees. FERS was designed with the assumption that you would actively save and invest through the TSP.

Yet many workers underestimate how much they need to supplement their pension. If you haven’t modeled your projected expenses against your three-part income sources, you risk falling behind.

Your TSP Needs Active Management, Not Autopilot

TSP funds were introduced with simplicity in mind, but they were never designed to replace financial planning. In 2025, your TSP needs your ongoing attention:

• Contribution limits have increased to $23,500 for elective deferrals, with an additional $7,500 if you’re age 50 or older.

• New catch-up rules under the SECURE Act provide even more flexibility for those aged 60 to 63.

• Your investment mix must be reviewed regularly to reflect your risk tolerance, time horizon, and projected income needs.

Many retirees leave their TSP in the default fund or forget to rebalance, which can expose them to unnecessary risk or missed growth. A periodic strategy review is essential.

Healthcare Planning Must Be Front and Center

In the 1990s, healthcare was an afterthought in retirement plans. Today, it is one of the largest and fastest-growing expenses for retirees.

You should expect to spend thousands each year on premiums, copayments, and uncovered services. This includes:

• FEHB or PSHB premiums, depending on your agency.

• Medicare Part B premiums, which in 2025 are $185 monthly for most.

• Deductibles and coinsurance costs, especially for hospitalization, prescription drugs, or skilled nursing care.

Some government retirees mistakenly assume that their coverage will remain unchanged or free. But premium-sharing arrangements shift costs to retirees over time, and failing to enroll in Medicare Part B when required could result in late penalties and reduced coordination of benefits.

COLA Expectations Should Be Realistic

Cost-of-Living Adjustments (COLAs) are meant to preserve your purchasing power, but in 2025, they don’t always keep up with actual inflation.

• The 2025 COLA is 2.5%, which does little to offset healthcare inflation or housing cost increases.

• FERS retirees only receive partial COLAs if inflation is below 3%, unlike CSRS retirees.

You should not rely on COLAs to protect your real income. Build in buffers in your savings strategy and spending forecasts instead.

Required Minimum Distributions Start at Age 73

If you turn 73 in 2025, you must begin taking Required Minimum Distributions (RMDs) from your TSP or other qualified retirement plans. These withdrawals are taxable, and failure to comply results in steep penalties.

Even if you don’t need the income, RMDs could push you into a higher tax bracket, affect your Medicare premiums, or trigger taxation of your Social Security benefits.

You should:

• Project your RMDs well in advance.

• Consider Roth conversions before age 73 to reduce future taxable income.

• Monitor the impact of withdrawals on your overall tax plan.

Survivorship Planning Is Often Overlooked

Survivor elections on your pension can make or break your spouse’s retirement security. Too many people either:

• Fail to elect a survivor annuity.

• Underestimate the long-term need for dual income streams.

• Don’t account for differences in age, health, or life expectancy.

Remember:

• Survivor annuities must be elected at retirement. You cannot revisit them easily.

• Choosing no survivor option disqualifies your spouse from continuing FEHB or PSHB coverage.

You must balance the cost of providing this coverage (typically around 10% of your pension) with the risk of leaving your spouse underinsured.

Inflation and Taxes Eat More Than You Think

Too many 1990s-era retirement plans fail to account for how much inflation and taxes compound over time. Even at a modest 3% inflation rate, your purchasing power is cut in half over 24 years.

At the same time, retirees often underestimate:

• The taxable nature of FERS annuities, Social Security benefits, and TSP withdrawals.

• How IRMAA (Medicare premium surcharges) can sneak up if you don’t manage taxable income.

• The state tax implications of your retirement, especially if you move.

By planning with after-tax income and inflation-adjusted expenses in mind, you protect your standard of living more accurately.

Retirement Timing Requires a Personalized Strategy

In the 1990s, retirement at age 55 or 60 was more common and often more feasible. In 2025, the age you choose to retire should depend on:

• Your Minimum Retirement Age (MRA) under FERS, which ranges from 55 to 57.

• Whether you qualify for MRA + 10, early retirement with reduced benefits.

• Whether you qualify for special category retirement (e.g., LEOs, ATCs) with enhanced annuities.

• Your Social Security claiming age, with full benefits at 67 for those born in 1963.

Delaying retirement by even a few years can significantly increase your pension, delay RMDs, reduce healthcare costs, and improve your overall financial picture.

Financial Planning Is Not One-and-Done

You may have completed a retirement estimate years ago. But in 2025, retirement planning is a dynamic process that needs regular reevaluation:

• Annual reviews of your TSP, pension projections, and budget should be routine.

• Major life changes like marriage, divorce, death of a spouse, or health issues demand immediate reassessment.

• Laws and regulations, including tax changes or healthcare rules, evolve frequently.

Too many retirees are still relying on outdated calculators, assumptions from a pre-internet era, or legacy paperwork. You need modern, accurate modeling based on 2025 rules and benefits.

Retirement Decisions Are Now More Interconnected Than Ever

In the past, you could make retirement decisions in silos. Today, every choice influences multiple areas:

• Electing a pension survivor benefit affects healthcare eligibility.

• Drawing Social Security earlier might reduce your spousal benefits later.

• Taking a TSP withdrawal can trigger Medicare premium surcharges or change your tax bracket.

The interconnectedness of these decisions in 2025 makes retirement more complex—but also more manageable with the right help.

What You Should Be Doing Differently Today

To move beyond the outdated 1990s playbook, you should:

• Get a comprehensive retirement income projection based on today’s rules.

• Coordinate your pension, TSP, and Social Security into a unified drawdown strategy.

• Plan for rising healthcare costs well beyond age 65.

• Use current tax laws to your advantage while you’re still working.

• Prepare for RMDs and their impact on your income, taxes, and Medicare premiums.

• Make survivor benefit and healthcare decisions as a couple, not just individually.

Each of these steps helps protect your future income and lifestyle in ways outdated assumptions cannot.

Retirement Planning in 2025 Is a Living Process

Retirement today isn’t about setting and forgetting. It’s about adjusting your strategy as life evolves and benefits shift. If you’re still using outdated projections, worksheets from a decade ago, or rules that applied under CSRS, now is the time to reset.

Speak with a licensed professional listed on this website to review your retirement plan through a 2025 lens. A 30-minute consultation can help you avoid years of underfunding, overpaying taxes, or leaving your spouse without proper coverage.