The Classic CSRS Retirement Plan Still Pays Off—But Only If You Watch for These Traps

Key Takeaways

• The CSRS retirement system still delivers one of the highest guaranteed pensions available in 2025, but you need to carefully manage post-retirement decisions to fully benefit.

• Traps such as misunderstanding survivor benefits, Medicare timing, and inflation erosion can quietly undercut your income security if left unaddressed.

CSRS Still Has Strength in 2025

If you’re still under the Civil Service Retirement System (CSRS), you’re part of a legacy retirement system that most public sector employees today no longer have access to. Although CSRS was phased out for new hires starting in 1984, it remains in place for workers who were grandfathered into the system and did not switch to FERS. As of 2025, tens of thousands of government employees and retirees still rely on CSRS for retirement income.

The biggest strength of CSRS continues to be its defined benefit pension, calculated using a generous accrual rate: typically around 2 percent per year of service, capped at 80 percent of your high-3 average salary. With 40 years of service, many retirees hit the cap, creating a stable income stream without relying on Social Security.

But that doesn’t mean you’re in the clear. CSRS has limitations, and unless you actively manage around them, these gaps can cost you over time.

1. You May Not Get Full Social Security

Unlike FERS participants, CSRS retirees typically do not pay into Social Security during their federal careers. This creates a major issue if you worked a non-federal job before or after your government service and qualified for Social Security separately.

The issue lies with the Government Pension Offset (GPO), which can eliminate or reduce any Social Security spousal or survivor benefit you might have expected. The GPO reduces your Social Security spousal or survivor benefit by two-thirds of your CSRS pension. In many cases, this reduces the benefit to zero.

Although the Windfall Elimination Provision (WEP) has now been repealed as of January 2025 under the Social Security Fairness Act, the GPO is still in place.

To mitigate the GPO’s impact:

• Make sure your household plans are not assuming income you won’t receive.

• Revisit your spouse’s Social Security options.

• Consult a licensed agent listed on this website to recalculate your long-term income plan.

2. Inflation Can Quietly Erode Your Pension

CSRS includes cost-of-living adjustments (COLAs), which sounds like a safeguard against inflation. But don’t assume your purchasing power is locked in for life.

Each year’s COLA is based on the Consumer Price Index for Urban Wage Earners (CPI-W). While CSRS COLAs are not capped or delayed like FERS, inflation adjustments may still fall behind actual costs in categories such as healthcare or housing. In 2025, the COLA was 2.5 percent, which does not fully account for inflation in essential services like Medicare premiums, long-term care, and housing.

You need to:

• Avoid taking the full annuity without backup savings.

• Maintain an emergency fund to cover unexpected costs.

• Factor in higher-than-expected healthcare inflation when estimating future needs.

3. Survivor Benefits Must Be Chosen Carefully

CSRS gives you the option to elect a survivor annuity for your spouse, but the decision comes with lifelong trade-offs. You must reduce your monthly pension if you choose a survivor benefit. While this protects your spouse, the decision is irrevocable once finalized at retirement.

In 2025, many retirees underestimate their spouse’s dependency on this income or overestimate other assets. Common pitfalls include:

• Electing no survivor benefit because of assumed insurance or savings.

• Forgetting that the survivor benefit is tied to continued FEHB coverage for the spouse.

• Not adjusting plans after a divorce or remarriage.

Review your survivor election in detail before retiring and ensure your estate planning aligns with your CSRS decisions.

4. Medicare Timing Can Affect FEHB Coordination

You can keep your Federal Employees Health Benefits (FEHB) coverage in retirement under CSRS, but once you turn 65, Medicare becomes part of the picture. Many CSRS retirees in 2025 are surprised to learn how critical Medicare Part B timing is to their overall healthcare strategy.

You’re not required to enroll in Medicare Part B, but declining it can lead to higher out-of-pocket costs if your FEHB plan integrates with Medicare. Some plans reduce or waive deductibles and copayments only if you have both FEHB and Medicare Part B. Delaying Part B enrollment may also trigger a lifelong penalty if you don’t qualify for a Special Enrollment Period.

Steps to stay ahead:

• Enroll in Part B during your Initial Enrollment Period (IEP), which starts three months before you turn 65.

• Review your FEHB plan’s coordination policy with Medicare.

• Consider total cost and benefits, not just premiums.

5. Your TSP May Not Be Enough Without Planning

CSRS participants were not required to contribute to the Thrift Savings Plan (TSP), unlike FERS employees. Many CSRS employees chose not to participate or contributed only modestly. Now in 2025, you may face a retirement landscape where a pension alone is no longer enough.

TSP accounts offer a crucial cushion against unexpected inflation or legacy costs. But if your balance is low, your flexibility is limited. Before withdrawing from your TSP, review:

• Whether to take monthly payments, partial withdrawals, or annuitize the balance.

• Tax implications of lump-sum withdrawals.

• Coordination with Required Minimum Distributions (RMDs), which begin at age 73.

TSP can provide critical liquidity and estate planning options, but only with thoughtful management.

6. Leaving Federal Service Early Has Hidden Costs

Some CSRS employees leave federal service before hitting full retirement age or the 55/30 milestone (age 55 with 30 years of service). While you may still qualify for a deferred annuity, the rules and consequences are often misunderstood.

If you separate before reaching minimum retirement eligibility:

• You won’t receive your annuity until age 62.

• You lose the ability to keep FEHB coverage in retirement.

• You may miss the 80 percent pension cap if you fall short on service.

Before resigning, carefully evaluate whether an early exit will cause more harm than help in your long-term plan.

7. CSRS Doesn’t Cover Long-Term Care

One of the most overlooked risks in retirement is the cost of long-term care, which CSRS doesn’t directly address. The pension system provides monthly income, but it does not offer specific benefits for nursing homes, assisted living, or in-home care.

As life expectancy rises in 2025 and care costs climb, long-term care can drain your annuity and savings in just a few years. You should:

• Consider setting aside a portion of TSP or other savings for future care needs.

• Explore non-insurance alternatives, such as family caregiving support or community-based programs.

• Consult a professional for integrated care planning strategies.

8. Divorce or Marriage Late in Life Complicates Benefits

If your marital status changes late in your career or in retirement, it can significantly affect your CSRS benefits. Survivor annuities, FEHB eligibility, and court orders dividing the annuity or TSP can all come into play.

For instance:

• A divorce decree may award a portion of your CSRS annuity or TSP to your former spouse.

• A remarriage might trigger a need to re-elect a survivor annuity within a limited window (usually two years).

Failing to act in time or ignoring these legal triggers can result in benefit loss or legal complications. Keep your marital status updated with OPM and reevaluate your elections and beneficiaries when life events occur.

Staying Ahead of These Traps Requires Regular Check-Ins

CSRS still offers one of the most robust retirement structures available to public sector employees in 2025, but it is not self-adjusting. What you set in motion at retirement will define the rest of your financial life unless you proactively reassess your choices over time.

Keep an eye on policy changes, benefit elections, health costs, and estate matters. And don’t assume the absence of Social Security planning exempts you from coordination—every component still affects the big picture.

Making the Most of Your CSRS Retirement in 2025

Retiring under CSRS gives you an enviable level of income stability, but that stability only lasts if you manage it well. Survivor benefits, Medicare timing, inflation protection, and coordination with TSP are all critical in ensuring your retirement works for the long haul.

If you’re unsure whether your retirement plan accounts for these hidden risks, it’s time to take a closer look. Get in touch with a licensed professional listed on this website to review your elections, options, and overall financial readiness.