Thinking of Retiring Early From Federal Service? These Realities Might Change Your Mind Instantly

Key Takeaways

• Retiring early under FERS might drastically reduce your lifetime retirement income due to annuity reductions and delayed benefits.

• Health insurance, Social Security, and TSP withdrawals all come with critical conditions if you retire before key age milestones like 56, 59.5, or 62.

The Allure of Early Retirement in 2025

With increasing stress, shifting work priorities, and evolving personal goals, more federal employees are considering early retirement in 2025. You might be eligible under the MRA+10 provision, or perhaps you’re exploring discontinued service retirement. But before you act on the appeal of “freedom,” it’s vital to examine what early retirement really means financially, medically, and strategically.

Understanding the Minimum Retirement Age (MRA)

Under the Federal Employees Retirement System (FERS), your Minimum Retirement Age (MRA) depends on your birth year. In 2025, most eligible federal workers fall under an MRA between 56 and 57.

• If you retire at your MRA with fewer than 30 years of service, you’ll be subject to a penalty: 5% per year for every year you’re under age 62.

• That means if you retire at 57 with 20 years of service, your annuity could be reduced by 25% permanently.

This cut is lifelong. Even if you live to 90 or beyond, that lower annuity continues.

You Lose the Special Retirement Supplement

If you retire before age 62 and don’t meet the eligibility for an immediate unreduced retirement (e.g., 30 years at MRA or 20 years at age 60), you lose out on the FERS Special Retirement Supplement. This supplement was designed to bridge the gap until you’re eligible for Social Security at 62.

Without it, you might need to draw from your Thrift Savings Plan (TSP) or outside savings to cover expenses, which could result in:

• Early withdrawal penalties if you’re younger than 59.5

• Depleting your savings too soon

• Missed growth potential from leaving funds invested

The 59.5 Rule on TSP Withdrawals

TSP withdrawals before age 59.5 are generally subject to a 10% early withdrawal penalty unless an exception applies. Some federal employees can avoid this if they retire in the year they turn 55 or later. However, if you retire at 54 or younger, and need to access TSP, you could face penalties plus income tax.

By retiring too early, you limit your flexibility to use your retirement funds efficiently. You might be forced into:

• Taking smaller TSP withdrawals just to avoid hitting higher tax brackets

• Using personal savings until age milestones are met

Health Insurance Isn’t Guaranteed to Continue

One of the biggest surprises to early retirees is that FEHB (Federal Employees Health Benefits) doesn’t just automatically continue into retirement. You must:

• Be enrolled in FEHB for at least the 5 years before retirement

• Retire on an immediate annuity

If you retire under MRA+10 and postpone your annuity, you lose FEHB in the interim. It won’t restart until your annuity begins, which could be years later. During that gap, you would need to:

• Pay full cost for COBRA or private insurance

• Risk going without coverage entirely

In 2025, with rising healthcare costs and inflation pressures, a multi-year gap in coverage could cost tens of thousands.

Postponing vs. Deferring: A Crucial Distinction

There is a difference between “postponing” and “deferring” your retirement under FERS:

• Postponing means you retire under MRA+10 but delay receiving your annuity to avoid the 5% penalty. You can re-enroll in FEHB and FEGLI (Federal Employees Group Life Insurance) when your annuity begins.

• Deferring means you quit federal service before reaching MRA and apply for a benefit later. You are not eligible to re-enroll in FEHB or FEGLI.

This nuance is critical. If you leave before your MRA and plan to defer your pension, your future benefits are significantly weaker. There’s no going back to FEHB, which is one of the most valuable retiree perks in the public sector.

Early Retirement Reduces Your High-3 Average

Your FERS annuity is calculated using:

• Your high-3 average salary

• Your years of creditable service

• A percentage multiplier (usually 1% or 1.1%)

By retiring early, you might reduce your high-3 average simply because you miss out on your peak earning years. Most federal workers earn their highest salaries toward the end of their careers.

Additionally, with fewer years of service:

• The total annuity multiplier is smaller

• Any missed promotions or locality pay increases shrink your final benefit

These changes are permanent and will affect your retirement income for decades.

Early Social Security Isn’t a Safe Backup

Some consider claiming Social Security at 62 to compensate for the loss of the FERS Special Retirement Supplement. However, Social Security itself is permanently reduced if you start benefits early:

• Up to 30% less if you claim at 62 instead of your full retirement age (67 for those born in 1963)

• Subject to the annual earnings limit ($23,480 in 2025) if you continue to work

So not only do you get a smaller benefit, but you might also lose some of it if you earn too much in a side job.

The Psychological and Career Trade-Offs

Retirement is more than a financial decision. Walking away from a federal career early can lead to:

• Loss of identity or purpose

• Fewer opportunities to mentor or use your skills

• Increased boredom, isolation, or even regret

Many early retirees find themselves returning to work within 2–3 years, not because they need the income, but because they miss the structure and engagement. If you retire early and return to federal service, your retirement benefits may be paused or recalculated.

COLA Delays and Inflation Risks

If you retire under MRA+10 or defer your annuity, you might not be eligible for annual Cost-of-Living Adjustments (COLAs) until age 62. That means no inflation protection for potentially 5 to 6 years.

In today’s economy, where the COLA for 2025 is 2.5%, even a few years without increases can erode your spending power significantly. Your annuity won’t stretch as far, especially with rising medical and housing costs.

Returning to Work Can Complicate Your Benefits

If you decide to return to work after early retirement:

• You might face a salary offset if you return to a federal position

• Your Social Security or FERS Supplement could be reduced or eliminated based on earnings

Furthermore, if you retired under MRA+10 and postponed your annuity, returning to federal service might cancel or delay your retirement entirely.

This is why planning ahead matters. Leaving too soon without a long-term strategy may create complications that are hard to reverse.

Survivorship Penalties and Spousal Benefits

By retiring early, especially under reduced or postponed annuities, you also affect the survivorship benefits for your spouse:

• Spousal annuities are based on your final annuity amount

• If you accept a reduced annuity early, your spouse’s future benefit is reduced as well

This is particularly important if your spouse depends on FEHB as a survivor. Losing eligibility could leave them uncovered.

Putting It All Together

The dream of early retirement is enticing, but it comes with real trade-offs. From lifetime income losses to healthcare gaps and inflation erosion, leaving before 60 or 62 can derail your retirement stability. In most cases, staying a few more years increases not just your annuity, but also your benefit access, cost protections, and long-term peace of mind.

Know Before You Leap: Speak With a Licensed Professional

If you’re thinking about retiring early from federal service, now is the time to run the numbers and weigh the realities. A few extra years of work could translate into tens or even hundreds of thousands more in lifetime income.

Before making any decisions, get in touch with a licensed professional listed on this website. They can walk you through your personalized retirement estimates, timing strategies, and benefit impacts. Don’t retire early unless it’s truly worth it.