Category: Retirement

Key Takeaways:

• Overlooking federal retirement calculations can lead to financial shortfalls in your post-career years. Understanding how annuities, TSP, and Social Security work together is crucial.

• Ignoring healthcare costs and federal benefits planning can leave you vulnerable to unexpected expenses in retirement. Planning for FEHB, Medicare, and long-term care now can save you headaches later.

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One of the biggest mistakes you can make as a federal employee is assuming that your retirement annuity will be enough to sustain you without fully understanding how it’s calculated. The Federal Employees Retirement System (FERS) and Civil Service Retirement System (CSRS) each have unique formulas that determine your monthly pension, but many retirees miscalculate their expected income.

The “High-3” Average Salary Formula Matters

Your retirement annuity is based on your highest three years of average salary, often called your “high-3.” If you don’t accurately estimate this number or misinterpret how locality pay factors in, your expected pension may be lower than anticipated. In some cases, recent legislative proposals have aimed to exclude locality pay from high-3 calculations, which could significantly impact future retirees.

The FERS Annuity Formula

If you are under FERS, your annuity formula is straightforward but varies based on your age and years of service:

• Standard formula: 1% x high-3 average salary x years of service.

• Enhanced formula (if retiring at age 62 with 20+ years): 1.1% x high-3 average salary x years of service.

For example, if your high-3 is $100,000 and you retire at 62 with 25 years of service, your pension would be $27,500 per year ($2,291 per month). However, many retirees forget that their annuity is not adjusted for inflation until age 62, meaning the real value of your pension could diminish.

The CSRS Annuity Formula

CSRS retirees generally receive a more generous pension but do not qualify for Social Security benefits unless they have earned enough credits separately. The calculation is more complex and provides a higher percentage of income replacement. If you’re under CSRS, failing to account for the Windfall Elimination Provision (WEP) could also reduce any Social Security benefits you expect to receive.

How to Avoid This Mistake

• Use OPM’s online calculator or consult a retirement specialist to determine your estimated annuity.

• Keep track of any legislative changes affecting locality pay or annuity formulas.

• Plan for inflation adjustments and avoid assuming your pension will remain sufficient in later years.

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Neglecting Your TSP Strategy and Social Security Timing

Your Thrift Savings Plan (TSP) and Social Security benefits are essential to your retirement security, yet many federal employees mismanage their investment approach or claim Social Security too early.

The Role of TSP in Your Retirement Plan

TSP functions similarly to a 401(k) and is a primary source of supplemental income. Yet, common mistakes include:

• Not contributing enough to get the full government match. (For FERS employees, this is an automatic 1% contribution plus up to a 5% match.)

• Relying too much on the G Fund. While the G Fund offers safety, it may not provide sufficient growth over a 20- to 30-year retirement.

• Failing to adjust investment allocations. As you near retirement, shifting too aggressively or too conservatively can leave you exposed to unnecessary risk or insufficient returns.

Social Security Timing Can Make or Break Your Retirement Income

For most federal retirees, Social Security is another income stream, but claiming it too early can reduce your lifetime benefits. If you start collecting at age 62, your monthly check could be reduced by up to 30% compared to waiting until full retirement age (FRA).

Waiting longer to claim can be a smart move, especially since Social Security benefits are adjusted for inflation annually.

How to Avoid This Mistake

• Contribute at least 5% to your TSP to maximize government matching funds.

• Diversify your TSP investments beyond the G Fund for better long-term returns.

• Carefully evaluate the best age to claim Social Security to maximize your lifetime income.

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Underestimating Healthcare Costs in Retirement

Many federal employees mistakenly believe that their healthcare costs will remain stable after retirement. However, medical expenses often increase as you age, and improper planning can lead to financial stress.

FEHB: Your Key to Health Coverage in Retirement

The Federal Employees Health Benefits (FEHB) Program is one of the most valuable perks of a federal career, and you can continue coverage into retirement if you meet the five-year rule. However, retirees often overlook key considerations:

• Premiums increase annually. FEHB costs have historically risen by 10-15% per year, meaning your expenses could double over a 20-year retirement.

• Your share of premiums may change. Legislative changes could reduce government contributions, increasing your out-of-pocket costs.

• Retiree plans differ from employee plans. Not all plans offer the same benefits after you retire, making it essential to review options before leaving service.

Medicare: Enrollment and Cost Considerations

If you retire at 65 or later, you must decide whether to enroll in Medicare Part B. While FEHB provides excellent coverage, adding Medicare can reduce copayments and out-of-pocket costs. However, Part B comes with a monthly premium ($185 in 2025), which increases based on your income (IRMAA surcharges may apply).

Long-Term Care: An Often Overlooked Expense

Long-term care (LTC) is a major financial concern for retirees. Many federal employees assume FEHB or Medicare will cover these costs, but neither program covers extended nursing home care or home health services. Private long-term care insurance or alternative savings strategies may be necessary.

How to Avoid This Mistake

• Evaluate your FEHB plan annually to ensure it meets your needs in retirement.

• Consider enrolling in Medicare Part B to reduce long-term healthcare expenses.

• Research long-term care coverage options before you retire.

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Take Control of Your Retirement Plan Now

Retirement planning for federal employees requires careful attention to annuities, TSP management, Social Security timing, and healthcare costs. By avoiding these common mistakes, you can ensure a more financially secure and stress-free retirement. The key is to stay informed, plan ahead, and make adjustments as needed to protect your future income.

For personalized guidance on maximizing your federal retirement benefits, get in touch with a licensed agent listed on this website. They can help you navigate annuities, TSP allocations, Social Security decisions, and healthcare options to align with your retirement goals.

Key Takeaways

1. Survivor benefits can provide ongoing financial support for your loved ones, even after you’re gone.
2. Planning ahead and understanding survivor benefits can protect your family from financial stress during a difficult time.

A Future-Proof Safety Net for Your Family

When we think of retirement, we often envision relaxing years ahead, but it’s just as crucial to consider the future for those who depend on us. Federal survivor benefits are one of the most significant ways you can ensure that your family is cared for financially after your passing. Survivor benefits within public sector retirement systems are available to most federal employees, including those in both the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).

Understanding these benefits now can provide you with peace of mind, knowing that your spouse, children, or other dependents will have financial security down the road. Let’s break down what these benefits look like and how you can set them up effectively to maximize protection for your family.

What Are Federal Survivor Benefits?

Survivor benefits are designed to provide ongoing financial support to the families of federal employees after they pass. Essentially, a portion of your federal retirement benefits can continue to go to your spouse or other designated dependents. These benefits usually come from your pension or annuity and are paid out as regular monthly payments.

For both FERS and CSRS, there are specific rules on how benefits are paid out, who qualifies to receive them, and what steps you need to take during your career to ensure they are properly set up.

Eligibility Requirements: Are Your Family Members Covered?

The most common beneficiaries of survivor benefits are spouses, but these benefits can also cover eligible children and, in certain circumstances, former spouses. Let’s look at the main groups who qualify:

1. Spouse: For a spouse to receive survivor benefits, they generally need to have been married to the federal employee for at least nine months at the time of death, unless the death was accidental.
2. Children: Unmarried children under the age of 18 (or up to 22 if they’re full-time students) are typically eligible for survivor benefits. Benefits may also extend to adult children who are incapable of self-support due to a disability that occurred before age 18.
3. Former Spouses: In some cases, a former spouse may be entitled to survivor benefits if a divorce decree mandates it.

The Two Types of Annuities for Survivor Benefits

When setting up survivor benefits, you’ll usually choose between two main types of annuities: a full survivor annuity and a partial survivor annuity. The choice impacts how much income your survivor will receive and the cost it adds to your retirement deductions.

Full Survivor Annuity

A full survivor annuity provides your spouse with 50% of your unreduced monthly retirement income. Although choosing the full survivor option reduces your own monthly annuity during retirement, it provides the most substantial ongoing financial support for your spouse after your passing.

Partial Survivor Annuity

A partial survivor annuity generally provides 25% of your retirement income to your spouse. It reduces the overall cost from your retirement annuity, making it a popular choice for those who want to balance between the monthly retirement income they receive and what they leave to their spouse.

Choosing the Right Survivor Benefits for Your Family

While survivor benefits offer a valuable source of income to your family, the choices can feel overwhelming. To simplify, ask yourself a few key questions to help guide your decisions:

• What are our household expenses? Consider the ongoing expenses that your spouse or family would need to cover if you passed. This could include housing, healthcare, education for children, and other necessities.
• What is our risk tolerance? If you’re comfortable with a reduced income now, a full survivor benefit option may offer the most peace of mind. However, if immediate financial flexibility is a priority, a partial survivor annuity may be a better fit.
• Do we have other financial assets? If you have significant savings or investments outside of your federal pension, this may allow for greater flexibility in choosing a lower-cost survivor option.

How to Apply for Survivor Benefits

Setting up survivor benefits is a straightforward process, and it starts with selecting the right options when you apply for retirement. Here’s what you need to know:

1. Choose Your Survivor Benefit Option on Your Retirement Application: When completing your retirement application, you’ll be asked to specify your desired survivor benefit. Be sure to choose either full, partial, or none, depending on your family’s needs.
2. Keep Beneficiary Records Updated: Circumstances may change, and so might your survivor beneficiaries. Keep all beneficiary records updated to ensure there’s no confusion or delay in benefit payments.
3. Notify Your Agency’s Retirement Office: Your agency’s HR or retirement office can help facilitate your choices, ensuring that your survivor benefits are properly documented and communicated.

How Much Do Survivor Benefits Cost?

The cost of survivor benefits varies, typically based on the amount of annuity you want to leave for your survivor. In general:

• A full survivor annuity for a spouse costs about 10% of your retirement annuity, reducing your monthly benefit by that percentage.
• A partial survivor annuity usually costs around 5%, creating a lesser reduction in your monthly income but providing a smaller survivor benefit.

These costs are deducted from your retirement annuity each month, and they’re factored into your calculations when you elect your retirement options.

Special Considerations: FERS and CSRS Differences

While both FERS and CSRS offer survivor benefits, there are differences worth noting:

1. CSRS: CSRS participants often have higher pension benefits than FERS employees, which can result in larger survivor benefits. However, because CSRS employees aren’t typically covered by Social Security, there are fewer offsetting benefits.
2. FERS: FERS retirees often receive smaller pensions but have access to Social Security, which can supplement survivor benefits. This dual approach can offer additional financial security for a surviving spouse or dependents.

Federal Employees Group Life Insurance (FEGLI) as Supplemental Protection

Federal Employees Group Life Insurance (FEGLI) provides life insurance to federal employees and can act as an additional layer of security for your family. Unlike the survivor benefits from your retirement annuity, FEGLI can offer a lump-sum payment to your survivors, which may help them manage immediate expenses. While it does come at a monthly premium, this option can add valuable financial protection beyond standard survivor benefits.

Reviewing and Adjusting Survivor Benefits Over Time

Survivor benefit needs can change as life circumstances evolve, so it’s wise to periodically revisit your benefit elections and make adjustments if necessary. Major life events such as marriage, divorce, or the birth of a child can all impact the decisions around survivor benefits. Regularly reviewing your choices and staying informed about any policy updates ensures that your benefit elections always reflect your family’s current needs.

Preparing Your Family for a Stable Financial Future

Choosing survivor benefits is about more than just finances; it’s about peace of mind for you and the people you love. By carefully considering the options available through federal retirement systems, you can provide for your family even when you’re not there. From selecting the right type of annuity to keeping your paperwork updated, every step you take now will pay dividends for your family’s future stability.

Federal survivor benefits are just one piece of a comprehensive retirement plan, but they’re a powerful tool for creating financial security. Taking the time now to understand and optimize these benefits is a gift that keeps on giving.