Retiring Early From Government Work Sounds Smart—Until You Factor in the Long-Term Costs

Key Takeaways

• Leaving government service early may seem attractive, but reduced benefits, delayed eligibility for full pension, and gaps in healthcare coverage can quietly erode your long-term financial security.

• Planning to retire before reaching key milestones like your Minimum Retirement Age (MRA) or 62 can mean smaller annuities, higher premiums, and limited access to Social Security and Medicare.

Why Early Government Retirement Appeals to So Many

Many government employees dream of retiring early. After decades of structured schedules, the allure of more time with family, personal travel, or passion projects is understandably strong. Federal, state, and local employees under plans like FERS (Federal Employees Retirement System) or similar public retirement programs often assume that retiring a few years ahead of schedule is financially feasible. In some cases, it is. But most times, it comes with significant trade-offs that only become clear after the paperwork is filed.

The MRA+10 Retirement Option: A Double-Edged Sword

If you have reached your Minimum Retirement Age (MRA), typically between 55 and 57 depending on your year of birth, and you have at least 10 years of creditable service, you’re eligible for MRA+10 retirement. But here’s the catch: your FERS annuity will be permanently reduced by 5% for every year you are under age 62 when you retire.

For example, retiring at age 57 instead of 62 results in a 25% reduction in your annuity. That penalty is permanent and does not go away even after you reach age 62. While you may defer your annuity to avoid the penalty, that means going without income for those years and also delaying access to FEHB (Federal Employees Health Benefits).

Delayed Social Security Access

Under FERS, your Social Security benefits are a major component of your retirement income. However, you cannot collect them until age 62 at the earliest. If you retire before that, you’ll be relying solely on your FERS annuity and possibly TSP (Thrift Savings Plan) withdrawals.

Many early retirees underestimate how much they’ll need to withdraw from TSP to bridge the gap until Social Security kicks in. If you withdraw too much too early, you risk depleting your savings prematurely. And if you’re under age 59½, early TSP withdrawals may trigger a 10% IRS penalty unless you qualify for an exception, such as the “age 55 rule.”

The Special Retirement Supplement Ends at 62

If you retire under an immediate FERS retirement before age 62 and are eligible for the Special Retirement Supplement (SRS), it helps bridge the gap between your retirement and Social Security eligibility. But that supplement ends at 62 whether or not you claim Social Security.

In 2025, this still applies. If you’re counting on the supplement beyond 62, you may face an unexpected drop in income. It’s important to align your income streams accordingly to avoid financial shock.

Reduced Health Benefits Access

If you retire under MRA+10 and defer your annuity to avoid the early retirement penalty, you also forfeit your FEHB access until your annuity starts. That means unless you have alternate coverage through a spouse or the private market, you may face months or even years without affordable health insurance.

Even for those eligible for immediate retirement, the loss of employer contributions can make healthcare more expensive. FEHB premiums typically rise after retirement because you pay both the employee and employer shares for optional coverage like dental and vision under FEDVIP. For many, these costs are manageable only with a full annuity and Medicare later on.

Medicare Eligibility Gaps

Medicare begins at 65. If you retire in your mid-50s or early 60s, that leaves a substantial gap. While FEHB continues into retirement if you meet eligibility requirements, early retirement under deferred or postponed annuity scenarios may disrupt your eligibility.

Some retirees attempt to rely on COBRA or private insurance until Medicare kicks in, but these options can cost thousands per year. In 2025, the average annual cost of private coverage can exceed $7,000 to $10,000 per person, depending on the region and age. This is a long-term financial drag unless you have a clear plan.

Survivor Benefit Trade-Offs

Early retirement can also reduce the value of your survivor benefits. If you choose to defer your retirement benefits or take a lower annuity, your spouse may receive a lower survivor annuity. And if you don’t elect a survivor benefit at the time of retirement, they lose FEHB access entirely after your death.

Many public sector retirees only realize this risk after retirement. If maintaining coverage for a spouse is important, electing full survivor benefits is essential, even if it reduces your monthly income.

COLAs Apply Differently

Cost-of-Living Adjustments (COLAs) are a major advantage of federal retirement. However, FERS retirees do not receive full COLAs before age 62 unless they retire under special provisions (such as law enforcement or air traffic controllers).

In 2025, if you retire early under FERS, you won’t receive COLAs until you turn 62. That means inflation can erode your purchasing power significantly in those early years of retirement. If inflation continues at a pace of 2% to 3% annually, you could lose up to 15% of your annuity’s real value in just five years.

You May Need to Work Again

Many early retirees find they need to reenter the workforce. Whether to cover healthcare costs, supplement retirement income, or just manage unexpected inflation, the reality of early retirement often includes a “second career.”

Returning to work after retirement may impact your FERS Special Retirement Supplement if you’re under age 62. There’s an earnings test similar to Social Security, and if you exceed the limit ($23,480 in 2025), your supplement is reduced $1 for every $2 over the threshold.

Moreover, finding meaningful or well-paid work in your late 50s or early 60s can be challenging. The employment landscape may not accommodate your expectations, which adds emotional stress to financial uncertainty.

Deferred vs. Postponed Retirement: Know the Difference

Both deferred and postponed retirement allow you to leave government work before becoming eligible for an immediate annuity. But they differ significantly:

• Deferred retirement means you leave service and wait until you qualify for a future pension. You lose FEHB and FEGLI access permanently.

• Postponed retirement lets you delay collecting your pension (and FEHB) until you meet the age and service requirements. You can regain FEHB once the annuity starts.

This distinction is critical. Many employees confuse the two and are surprised by the loss of long-term healthcare coverage.

Early Retirement and TSP: A Balancing Act

The TSP is a powerful savings tool, but it can’t do everything. Early retirees often depend too heavily on it in the absence of Social Security or a full annuity.

If you begin withdrawals in your 50s, you may face:

• Rapid depletion due to longer retirement

• Market volatility reducing long-term growth

• Penalties unless you qualify for the “55 and separated” rule

In 2025, the IRS penalty for early withdrawal remains 10% for distributions taken before age 59½, with some exceptions. Using TSP too early not only reduces its long-term compounding potential but can also leave you exposed to future financial shocks.

Building a Better Timeline

If you’re considering early retirement, take a step back and map your financial life across a 30-year retirement horizon. Ask yourself:

• Can I wait until age 62 or 65 for a full annuity and better healthcare access?

• Do I understand the penalties and coverage gaps tied to MRA+10?

• Is my TSP balance strong enough to cover 10 to 15 years before Medicare and Social Security?

• What happens if I live to age 90?

A well-structured plan may mean working just a few more years, which can add thousands to your annuity, maintain FEHB without interruption, and let you retire with fewer sacrifices.

Rethinking the Early Exit

Retiring early from government work is tempting, especially after years of demanding public service. But the long-term costs—reduced income, lost benefits, and higher expenses—often outweigh the short-term appeal.

Even if you’ve reached your MRA, a full retirement at age 60 with 20 years of service, or age 62 with five years, unlocks significantly more value. Those few extra years can shape the rest of your retirement.

Prepare Now to Secure More Later

If you’re seriously considering retiring early, it’s time to pause and analyze your entire retirement ecosystem. Review your projected annuity, healthcare needs, TSP withdrawals, and Social Security timing with precision. The decisions you make now can set the tone for the next 30 years.

Speak with a licensed professional listed on this website to help evaluate your retirement timeline, coverage continuity, and income strategies.