Early Federal Retirements Sound Great—But This Overlooked Detail Can Ruin Your Financial Planning

Key Takeaways

• Retiring early under the Federal Employees Retirement System (FERS) may sound appealing, but misjudging how your benefits are reduced and when they begin can lead to unexpected financial shortfalls.

• The biggest oversight is the gap in income between early retirement and eligibility for full Social Security and annuity supplement benefits, which could leave you without critical income for several years.

Why Early Retirement Appeals to So Many Federal Employees

You may be drawn to early retirement for many reasons: burnout, changing life goals, or the desire to enjoy more free time while still healthy. Under the FERS system, retiring before your Minimum Retirement Age (MRA) is technically possible, and even retiring at your MRA with fewer than 30 years of service is allowed under the MRA+10 provision.

On the surface, this can seem like a win. However, the reality behind early retirement options can be more financially restrictive than you expect. The decisions you make now can impact your income not just for a few years, but for the rest of your life.

Understanding the Minimum Retirement Age (MRA)

Your MRA is based on your birth year. In 2025:

• If you were born between 1953 and 1964, your MRA is 56.

• For those born in 1965, it increases to 56 and 2 months.

• The MRA gradually increases until it caps at age 57 for those born in 1970 or later.

To retire with full FERS benefits, you must meet one of these combinations:

• Age 62 with at least 5 years of service

• Age 60 with at least 20 years

• MRA with at least 30 years

You may also choose the MRA+10 route: retiring at your MRA with at least 10 but fewer than 30 years of service. However, this comes with a permanent reduction in your annuity.

The Permanent Reduction Trap

If you retire under MRA+10, your annuity is reduced by 5% for every year you’re under age 62. That’s not just a temporary decrease. It’s a lifetime reduction.

For example: If you retire at age 57 with 20 years of service, your annuity is reduced by 25%.

This reduction doesn’t go away even once you turn 62 or later. It remains locked in for life unless you postpone your retirement.

The Option to Postpone: Postponed Retirement vs. Deferred Retirement

To avoid the MRA+10 reduction, you can postpone your annuity. Here’s how it works:

• You leave federal service at your MRA or later, with at least 10 years of service.

• You postpone receiving your annuity until age 60 (if you have at least 20 years of service) or 62 (if you have fewer than 20 years).

This way, you don’t incur the 5% reduction per year. However, this also means no annuity or health insurance until you begin drawing your benefit.

A deferred retirement, by contrast, is when you leave before your MRA with at least 5 years of service. You cannot retain your health benefits under this path.

Health Insurance Pitfalls in Early Retirement

You can only keep your FEHB coverage in retirement if:

• You are entitled to an immediate annuity,

• You were continuously enrolled in FEHB for the 5 years before retiring.

If you retire early and postpone your annuity (as in postponed retirement), you lose FEHB during the waiting period but can re-enroll once your annuity starts. If you defer your retirement, you permanently lose FEHB access.

This gap in coverage is critical. Buying private insurance to cover the years between separation and annuity eligibility can be costly, especially without the federal subsidy.

The FERS Annuity Supplement Misconception

The FERS Annuity Supplement is designed to bridge the gap between your retirement and age 62, when you’re eligible for Social Security. But this benefit only applies if you retire under certain conditions:

• At MRA with 30 years of service

• At age 60 with 20 years of service

If you retire under MRA+10 or use a postponed annuity, you do not qualify for the supplement.

Additionally, the supplement ends the month you turn 62, even if you don’t begin receiving Social Security right away.

Social Security Eligibility Doesn’t Solve the Gap

You can start receiving Social Security at 62, but that comes with its own permanent reduction—about 30% less than your full retirement benefit if your full retirement age (FRA) is 67. Waiting until FRA offers a higher benefit, but you may not have the income to wait that long.

If you retire early under MRA+10 and don’t qualify for the supplement, you’ll face a multi-year income gap between retiring and receiving any meaningful benefits.

Time Gaps That Can Jeopardize Your Finances

Consider this sequence:

• You retire at age 57 under MRA+10.

• You opt to postpone your annuity until age 60 to avoid the 15% reduction.

• During ages 57 to 60, you have no annuity and no FEHB coverage unless you pay out of pocket for private insurance.

• From 60 to 62, you have an unreduced annuity but no annuity supplement.

• At 62, you may opt for Social Security with a permanent reduction or wait until 67.

These gaps must be planned for carefully. Relying on savings alone during these years could strain your long-term retirement assets.

What About the Thrift Savings Plan (TSP)?

If you separate from service in the year you turn 55 or later, you can access your TSP funds without the 10% early withdrawal penalty. This is known as the “age 55 rule.”

But if you leave service before the year you turn 55, any withdrawals before age 59½ are subject to the penalty unless an exception applies.

Retiring under MRA+10 before 55 could restrict your access to penalty-free TSP withdrawals, unless you roll over the TSP into an IRA and use IRS Rule 72(t) or another strategy.

Medicare Enrollment and Coordination

Another layer to consider is how early retirement affects your Medicare strategy:

• Medicare eligibility begins at 65.

• If you retire at 57, you’ll need eight years of interim health coverage before Medicare starts.

If you plan to use FEHB in retirement and later coordinate with Medicare, you’ll need to ensure you retain eligibility by receiving an immediate annuity or by postponing (not deferring) your benefit.

Planning Ahead: What to Do Before You Choose Early Retirement

Before finalizing your early retirement date, you should:

• Map out your income gap: Calculate the number of years between retirement and the start of each benefit (annuity, supplement, Social Security).

• Assess your FEHB eligibility: Know whether you’ll retain or lose federal health insurance.

• Review your TSP withdrawal options: Understand the penalties and exemptions tied to your age and separation date.

• Plan for Medicare: Think about the 65 milestone and what your healthcare will look like before then.

• Consider delaying: In many cases, waiting a year or two can preserve thousands in annual benefits for life.

Working Part-Time or Returning to Federal Work

Some retirees choose to work part-time in the private sector or return as reemployed annuitants. Keep in mind:

• The FERS supplement is subject to the Social Security earnings limit ($23,480 in 2025). Earning more than that may reduce or eliminate the supplement.

• Returning to federal work while receiving an annuity may trigger an offset unless you’re hired into a special waiver position.

If your early retirement strategy includes working to bridge the gap, make sure it doesn’t unintentionally reduce your FERS benefits.

This One Misstep Can Derail a Great Retirement Plan

Early retirement isn’t just about exiting the workforce. It’s about knowing the exact structure of your benefits and how they shift with time.

Overlooking the timing of your annuity, the loss of FEHB coverage, and the absence of the supplement can turn what seems like a freedom-filled opportunity into a string of financial compromises.

The real key to successful early retirement is preparing for the gaps—between your MRA and age 60, between separation and Medicare, and between annuity and Social Security. If you bridge those gaps wisely, early retirement can still be a realistic and rewarding goal.

Build Your Strategy Around the Gaps, Not Just the Benefits

The idea of leaving federal service early is tempting, especially if you’ve dedicated decades of your life to public service. But retirement isn’t just a finish line—it’s a new phase of life that requires strong, informed planning.

Don’t leave that planning to guesswork. If you’re thinking about retiring before age 60, review your annuity timeline, FEHB eligibility, and income needs with a licensed professional listed on this website. A tailored approach will help you sidestep the biggest financial pitfalls of early retirement.