What Today’s Federal Employee News Means for the Retirement Plans You’ve Already Made

Key Takeaways

• Recent policy shifts in 2025 are changing how your existing retirement benefits will function, particularly for those under FERS.

• Planning around Medicare, COLAs, and TSP rules requires attention now to avoid costly missteps when you actually retire.

The Retirement You Planned for Is Still Viable, But Not Untouched

If you’re a federal employee nearing retirement or already retired, you’ve likely had a plan in place for years. But 2025 has not been a quiet year in terms of legislation, budget priorities, and benefit restructuring. These developments don’t mean your retirement security is lost. What they do mean is that you may need to reevaluate how you plan to draw your benefits, coordinate with Medicare, or approach your Thrift Savings Plan (TSP) withdrawals.

Whether you’re five years out or already retired, these updates affect you now.

Your FERS Annuity Could Be Shifting in Value

The Federal Employees Retirement System (FERS) still provides a three-tiered structure: basic annuity, Social Security, and TSP. But legislative changes in 2025 have altered how future retirees (and some current ones) interact with this system.

Locality Pay and the High-3 Calculation

A proposed bill in early 2025 suggested excluding locality pay from your high-3 average salary. If this bill is passed into law, your pension calculation could decrease significantly if you are in a high-cost-of-living area.

• High-3 is calculated based on your highest average basic pay over three consecutive years.

• Excluding locality pay could cut your annuity by thousands annually.

If you’re not yet retired and in a region with high locality adjustments, this policy proposal should immediately prompt you to explore your retirement timeline and consider your options. For some, retiring before the bill passes might preserve a higher annuity.

FERS Annuity Supplement Remains in Focus

The FERS annuity supplement is still scheduled to end at age 62, even if you delay Social Security benefits. This hasn’t changed in 2025. However, newer proposals suggest reducing or even eliminating this benefit for new hires after 2028. If you’re already eligible, you retain this benefit, but it serves as a reminder that these retirement perks are not guaranteed indefinitely.

Thrift Savings Plan in 2025: Contribution Limits and Market Trends

The TSP remains your most flexible retirement tool. For 2025, the elective deferral limit is $23,500. If you’re age 50 or older, you can contribute an additional $7,500, and those aged 60 to 63 have access to a special catch-up provision of $11,250.

Lifecycle Fund Performance

In June 2025, all TSP Lifecycle funds posted gains of over 4.6%. The I Fund alone saw an 18% year-to-date return. While the markets are favorable now, you should still reassess your allocation in light of your risk tolerance as retirement nears.

If you haven’t reviewed your fund selections this year, do so immediately. Relying solely on default allocations could undercut your gains.

Required Minimum Distributions (RMDs) Are Still in Effect

Once you reach age 73, RMDs must begin. Many federal retirees mistakenly delay their TSP withdrawal strategy, assuming they can ignore the tax implications. By not planning for RMDs early, you could face unexpected tax burdens that shrink your net income.

Medicare and the New Postal Service Integration Rules

One of the most impactful changes in 2025 is the full transition of USPS employees and annuitants to the Postal Service Health Benefits (PSHB) Program. While this only directly affects Postal Service employees, it sets a tone for future Medicare integration policies.

Medicare Part B Is Now Tied More Closely to Health Benefits

Under PSHB rules, Medicare-eligible annuitants must enroll in Part B to maintain full coverage under their new plan. Although this rule doesn’t currently affect non-USPS federal retirees, it’s a policy precedent that could spread across the broader FEHB system in future years.

Medicare Part B premiums in 2025 are $185 monthly, and the deductible is $257. If you’re approaching age 65 and plan to keep your FEHB plan, think carefully about whether to enroll in Part B.

• Coordinating FEHB with Part B often reduces your out-of-pocket costs.

• Some FEHB plans offer partial premium reimbursement for those enrolled in Part B.

Understanding which plans offer those incentives matters more now than ever. Check your plan brochure or speak with a licensed professional to evaluate your options.

COLAs Are Still Reliable—But Moderating

The 2025 cost-of-living adjustment (COLA) is 2.5%. That’s a slowdown from 2023’s higher inflation rates but still meaningful.

If you’re under FERS, remember:

• Your pension gets a reduced COLA if inflation is under 2%, but the full COLA if it’s 2% or higher.

• 2025’s 2.5% COLA means you get the full adjustment.

For retirees under the Civil Service Retirement System (CSRS), the full COLA applies regardless. If you’re in CSRS or a CSRS Offset plan, this difference remains a valuable asset. However, don’t mistake COLA increases for guarantees of future stability. Economic trends and political decisions can shift this rate yearly.

Social Security Fairness Act Changes the Equation in 2025

A game-changing law was passed in January 2025: the Social Security Fairness Act, which repealed both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

For decades, WEP and GPO reduced Social Security benefits for those who received a pension from non-covered federal employment, particularly under CSRS. Their repeal means:

• Full Social Security benefits are now available to most CSRS and CSRS Offset retirees.

• Retroactive adjustments have been issued for 2024.

• Average monthly benefit increases range from $360 (WEP) to over $1,100 (GPO).

If you were impacted by these provisions in prior years, check your Social Security records and speak to a representative or a licensed professional to ensure you’re receiving your full benefit.

FEHB Remains Available—but Premiums Are Increasing

Your Federal Employees Health Benefits (FEHB) coverage still continues into retirement, but costs are rising. In 2025, the average premium increase is 13.5%, with the federal government continuing to cover about 70% of the total cost.

Your share varies depending on the plan you choose:

• Self Only premiums can range between $120 to $200 per month.

• Family plans can approach $550 per month.

This makes careful plan selection during Open Season in November and December more critical than ever. Don’t just renew the same plan without reviewing its cost-sharing terms, copayments, and out-of-pocket maximums.

Proposed Reforms Could Affect New Hires—but Not You (Yet)

Several 2025 budget proposals aim to:

• Eliminate the FERS annuity supplement for new hires starting in 2028.

• Require higher FERS contributions (up to 15.6%) from new employees.

While these changes don’t apply to current retirees or employees close to retirement, they indicate a trend. Retirement benefits are increasingly being scaled back for future federal workers.

If you’re mentoring younger staff or helping family members consider federal careers, keep this in mind. Also, it’s worth watching whether these reforms gradually phase in to affect more employees over time.

Online Retirement Processing Is Now the Default

Starting July 15, 2025, the Office of Personnel Management (OPM) fully transitioned retirement applications to a digital platform.

• Paper submissions are still accepted but significantly delayed.

• Processing time remains around 60–90 days.

If you’re applying for retirement this year, prepare your documents early and use the online system. Keep digital copies of your SF-50s, beneficiary designations, and service history.

Don’t Rely on Yesterday’s Assumptions

The 2025 updates prove one thing clearly: public sector retirement is not static. What worked even two years ago may no longer deliver the same outcome. To protect the retirement you’ve worked for:

• Reassess your TSP allocation and withdrawal strategy.

• Confirm whether you should enroll in Medicare Part B.

• Review your FEHB plan during Open Season.

• Ensure your Social Security benefits reflect the repeal of WEP and GPO.

If it’s been more than 12 months since you last reviewed your retirement plan, now is the time. The federal retirement landscape has changed—and staying passive could cost you.

Take the Next Step Toward Retirement Clarity

You’ve spent years contributing to your pension, saving in your TSP, and selecting the right health plans. But 2025’s changes mean those decisions need to be revisited with fresh eyes. It’s not about starting over—it’s about adapting smartly.

Get in touch with a licensed professional listed on this website to help you review your options and make the most of your federal benefits.