Federal Employee Benefits Are Worth More Than You Think—But Only If You Use Them Right

Key Takeaways

• Your federal benefits package holds more long-term value than most private-sector offerings, but only if you make informed decisions at every stage of your career.

• Missteps such as missing key deadlines, underestimating healthcare costs, or neglecting to coordinate with Medicare can reduce the lifetime worth of your benefits by tens of thousands of dollars.

Understanding the Structure of Your Federal Benefits

As a federal employee, you have access to one of the most robust retirement systems available in the public or private sector. But unlocking its full potential depends on how well you understand the structure and options embedded within your benefits package.

The Three-Legged Retirement Stool

The Federal Employees Retirement System (FERS) rests on three primary components:

• FERS Basic Annuity: A monthly pension based on your high-3 average salary and years of creditable service.

• Social Security: Benefits begin as early as age 62, depending on your earnings history and claiming strategy.

• Thrift Savings Plan (TSP): A tax-advantaged retirement savings plan that includes government matching contributions for current employees.

The synergy between these components can provide a strong foundation, but each piece requires strategic decision-making to maximize its impact.

1. Your FERS Annuity Isn’t Just Automatic Income

Many employees assume that their annuity will cover the bulk of their retirement needs. While the FERS annuity is dependable, it is not designed to fully replace your working income on its own.

Factors That Shape Your Monthly Pension

• High-3 Average Salary: This is calculated from your highest-paid consecutive 36 months.

• Creditable Service: Includes full-time federal employment and any military service bought back.

• Multiplier: Typically 1% for most employees or 1.1% if you retire at age 62 or later with at least 20 years of service.

Delaying retirement even a few years can significantly increase your annuity. Retiring at age 60 with 20 years of service yields noticeably more than retiring at 56 under the MRA+10 option with penalties.

2. Social Security Isn’t Automatic Either

Social Security is a critical piece of your retirement income, but when and how you claim it changes everything.

• Claiming at Age 62: Locks in permanent reductions (around 30%) compared to your full retirement age (67 for those born in 1963).

• Delaying to Age 70: Results in increased benefits (about 8% more per year after age 67).

In 2025, many federal retirees receive a higher overall income by coordinating the start of their Social Security with the end of the FERS Annuity Supplement, which stops at age 62.

3. The Thrift Savings Plan Can Make or Break Your Future Lifestyle

TSP offers both traditional and Roth options, with investment choices that rival private-sector 401(k)s. But unlike your annuity, TSP outcomes depend entirely on your contributions and management.

What You Should Be Doing Now

• Max Out Contributions: In 2025, you can contribute $23,500 (plus catch-up contributions if 50+).

• Diversify Investments: Don’t default to the G Fund without considering growth-oriented funds, especially early in your career.

• Plan for Withdrawals: Required Minimum Distributions (RMDs) begin at age 73. Know the tax impact of withdrawals, especially from traditional balances.

Neglecting your TSP while relying solely on the annuity can result in income shortfalls later in retirement.

4. FEHB Is Worth Far More Than You Think—If You Use It Correctly

The Federal Employees Health Benefits (FEHB) Program is one of the most valuable parts of your benefits package. The government covers approximately 70% of premiums, and coverage continues into retirement if you meet eligibility rules.

What You Must Know

• Five-Year Rule: You must be enrolled in FEHB for the five years before retiring to keep it in retirement.

• Premiums Post-Retirement: You pay the same premiums as active employees, but with no pre-tax payroll deduction.

• Coordination with Medicare: At age 65, you can combine FEHB with Medicare. Many retirees choose to enroll in Part A (premium-free) and Part B (which comes with a monthly cost).

In 2025, plans that integrate well with Medicare may waive deductibles or lower copayments for retirees who enroll in both programs.

5. Long-Term Care and Life Insurance Need Careful Review

Two often-overlooked pieces of your benefits package are the Federal Long Term Care Insurance Program (FLTCIP) and the Federal Employees’ Group Life Insurance (FEGLI).

Life Insurance in Retirement

• FEGLI Basic Coverage continues automatically into retirement, but with reduced coverage unless you opt (and pay) for more.

• Optional Coverage becomes more expensive with age and may be unaffordable if you wait too long to evaluate your needs.

Long-Term Care Insurance

While new FLTCIP enrollments remain suspended as of 2025, existing enrollees should periodically review their coverage to ensure it matches future care needs. Alternative private options are increasingly costly, but waiting too long can make insurance unattainable.

6. Survivor and Spousal Benefits Add Layers of Complexity

Your decisions about survivor benefits have lifetime implications for your spouse and family.

Key Considerations:

• FERS Survivor Annuity: You can elect 50%, 25%, or no survivor annuity. Electing 50% reduces your own annuity but guarantees your spouse a steady income.

• TSP Beneficiary Designation: This is handled separately and must be kept up to date.

• FEHB Continuation: If you want your spouse to keep FEHB after your death, you must elect at least a partial survivor annuity.

Failing to plan for these details can mean the loss of benefits your loved ones may rely on.

7. Leaving Government Service Early Means You Leave Money Behind

If you resign before reaching retirement eligibility, you may still qualify for a deferred annuity—but you lose access to FEHB and other retiree-only benefits unless you meet strict criteria.

• Deferred Retirement: Available at age 62 with five years of service or age 60 with 20 years, but without FEHB access.

• Refund of Contributions: You can withdraw your FERS contributions if you leave early, but you forfeit your pension unless you return and redeposit.

In short, early exits may cost you far more than you realize.

8. COLAs Aren’t Always Guaranteed

While federal retirees receive annual cost-of-living adjustments (COLAs), not all components increase equally.

• FERS Annuity COLA: If inflation is 2% or less, you receive the full COLA. If it’s 2% to 3%, you get 2%. If it’s above 3%, you’re capped at 1% below the CPI.

• Social Security: Receives full COLA based on CPI-W.

The 2025 COLA is 2.5%, which means most FERS retirees receive just 2.0%. Over decades, this discrepancy adds up.

9. You Need a Comprehensive Withdrawal Strategy

Once you retire, the coordination of all your income sources—annuity, TSP, Social Security—becomes critical.

• Avoiding Tax Traps: Large TSP withdrawals can push you into a higher tax bracket.

• RMD Planning: You must begin TSP withdrawals by April 1 of the year after turning 73.

• Spending Priorities: Consider drawing from taxable accounts first, then tax-deferred.

Without a strategy, you risk either overspending or underutilizing your resources.

10. You Can’t Afford to Skip Annual Reviews

Your circumstances, health, and financial goals change. So should your benefits strategy.

Each year:

• Reevaluate your FEHB plan during Open Season.

• Check TSP allocations and beneficiaries.

• Revisit your retirement date and income projections.

• Review spousal and survivor benefit elections.

Even one missed detail—such as an outdated TSP beneficiary or failing to enroll in Medicare Part B when required—can permanently alter your retirement security.

Make Your Benefits Work for You, Not Against You

Federal benefits offer a powerful foundation for retirement, but only if used correctly. Whether you’re five years away from retirement or just starting to consider your exit timeline, taking a proactive approach now can secure your future.

Don’t guess or go it alone. Connect with a licensed professional listed on this website to review your retirement readiness and create a personalized action plan.