If You Think You’re Ready to Retire From Government Work, This Might Make You Think Twice

This article was originally published here

Key Takeaways

Many government workers assume they are retirement-ready, but gaps in timing, paperwork, and financial alignment can delay or disrupt the process.
A successful retirement in 2025 requires updated planning, including understanding Medicare integration, TSP withdrawal rules, and annuity expectations.

The Retirement Picture Isn’t as Clear as It Used to Be

If you’re approaching retirement from public service in 2025, you might feel confident. After all, you’ve worked decades under the assumption that your pension, health benefits, and TSP would cover everything. But here’s the hard truth: many of the assumptions that made sense ten years ago no longer apply.

Retirement today involves more than just filing a few forms and waiting for your annuity. It requires strategic timing, coordinated decisions, and a clear understanding of how benefits like FEHB, Social Security, and the Thrift Savings Plan work together. The rules have changed, timelines have shifted, and new requirements make the transition far more complex than it once was.

Your High-3 May Not Be What You Think

The Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS) calculate your pension using your “high-3” average salary. But many government workers assume this figure includes all forms of pay. In reality, it excludes overtime, bonuses, and some locality pay, unless specifically included.

As of 2025, legislation is still under review that may redefine what counts toward retirement calculations. If locality pay is excluded, workers in high-cost areas could see lower annuity projections than expected.

You need to:

Your Retirement Date Affects More Than Your Pension

Retiring at the end of a pay period, month, or year isn’t just about clean bookkeeping. The exact date you retire can influence your first pension payment, annual leave payout, and COLA eligibility.

For example:

FERS retirees who separate on December 31 may have their annuity start in January, but not receive their first full payment until February or March due to OPM processing delays.
Retiring on the last day of a month ensures the annuity begins the very next day. Missing that cutoff pushes your benefit start to the next month.

The timing isn’t just about preference. It affects income flow.

Social Security Isn’t Always a Sure Thing

In 2025, the Social Security Full Retirement Age (FRA) for those born in 1963 is 67. But many government workers under FERS assume they should take benefits as early as 62.

Here’s the issue:

Taking Social Security at 62 results in a permanent reduction of up to 30%
The FERS Annuity Supplement ends at 62, even if you delay Social Security
Income limits apply if you work while collecting early Social Security

If you claim too early without a backup income plan, you may limit your long-term benefit potential.

Medicare and FEHB: Coordination Is Now Mandatory for Some

Starting in 2025, Postal retirees and some other eligible groups must enroll in Medicare Part B to maintain PSHB (Postal Service Health Benefits) coverage. While this mandate doesn’t apply to all federal retirees, the trend is moving in that direction.

You should:

Enroll in Medicare Part B when first eligible at 65, unless you are actively working
Consider whether your FEHB plan offers coordination benefits like waived deductibles or Part B premium reimbursements
Know that delaying Part B enrollment may trigger lifelong penalties unless you qualify for a Special Enrollment Period

This coordination is not automatic. If you ignore the requirement, you risk reduced coverage or higher out-of-pocket costs.

The TSP Isn’t a Passive Retirement Income Tool

Many government workers mistakenly treat the Thrift Savings Plan like a traditional pension. But unlike your annuity, the TSP requires active management after retirement.

In 2025, the TSP offers flexible withdrawal options, including:

However, mistakes are easy to make. For instance:

Withdrawing too early (before age 59½) can trigger a 10% IRS penalty unless you qualify under the age 55 rule
Failing to meet Required Minimum Distributions (RMDs) starting at age 73 leads to tax penalties

You need to create a withdrawal strategy that aligns with your income needs, tax situation, and market risks.

Survivor Benefits: One Decision, Permanent Impact

Your choice of survivor benefits affects both your monthly annuity and your spouse’s financial security after your death. You only get one chance to make this election at retirement.

Key facts:

Electing a full survivor annuity (50%) reduces your pension by about 10%
Choosing no survivor annuity disqualifies your spouse from continuing FEHB after your death
You can’t change your decision after retirement unless your spouse dies or you divorce and remarry

This is not a checkbox on a form. It’s a permanent commitment with long-term consequences.

Don’t Overestimate Your Annual Leave Payout

Many government employees count on a substantial payout from unused annual leave. But several factors can reduce this expected windfall:

The payout is based on your hourly rate, not your high-3
Leave caps apply (typically 240 hours for most employees)
The payout is taxed as income and may affect your tax bracket

You may also face a delay of several pay periods before receiving your leave check. Planning around this money without a buffer could create a cash-flow gap.

COLAs Aren’t Guaranteed to Keep Pace With Reality

Cost-of-living adjustments (COLAs) apply differently depending on your retirement system:

FERS retirees receive partial COLAs: only the full amount if inflation is 2% or less, and less than full if it exceeds 2%
CSRS retirees receive full COLAs, but CSRS covers fewer employees today

In 2025, the COLA increase is 2.5%, offering moderate relief, but not fully covering the recent inflation surges.

You should not assume your purchasing power will remain steady. Budgeting for a gap between inflation and your COLA is a wise move.

Forms and Processing Delays Can Derail the Best-Laid Plans

Even if everything is in place, your retirement can be delayed or disrupted by errors in paperwork or OPM processing times.

In 2025:

Retirement application processing still averages 60 to 90 days
Common delays occur from missing signatures, outdated beneficiary forms, or incomplete service credit documentation

To reduce these risks:

Submit your retirement application at least 90 days before your intended retirement date
Review your OPF (Official Personnel Folder) annually during your last five years of service
Update your designations of beneficiary for life insurance, TSP, and unpaid compensation

What You Should Be Doing Right Now

If you’re within five years of retiring, take these steps immediately:

Request a full retirement estimate from your HR or agency benefits officer
Create a timeline that includes projected retirement date, Medicare eligibility, TSP withdrawal start, and Social Security claim window
Check if your FEHB plan requires or benefits from Medicare enrollment
Schedule a financial planning session with someone familiar with public sector retirement

These steps aren’t optional. Retirement is no longer a passive milestone—it’s an active transition that demands precision.

The Rules Keep Changing

Public sector retirement is not static. Each year brings potential changes to policies, benefits, and timelines. For example:

Proposed changes to the FERS contribution rate could increase how much you must pay toward your pension
Discussions around reducing the government’s FEHB contribution may increase your healthcare premiums in retirement
RMD rules and TSP withdrawal limits are evolving as life expectancy tables adjust

You must stay engaged even after retirement to avoid costly surprises.

Retirement Success in 2025 Requires More Than Tenure

If you feel ready to retire based solely on your years of service, that confidence may be premature. Modern retirement readiness involves:

The stakes are too high to leave any of this to chance.

Get Serious About Your Retirement Readiness

Retiring from public service in 2025 means entering a more complex benefits environment than ever before. Your pension, health insurance, and TSP will only work for you if they are aligned and planned carefully.

Don’t rely on outdated assumptions or one-size-fits-all calculators. Instead, speak with a licensed professional listed on this website who understands your specific agency rules, benefit interactions, and financial goals. They can help you verify that your readiness isn’t just hopeful — it’s real.