Understanding the options available to civil servants entering retirement under FERS.

If you’re one of the 2 million people in the federal workforce, this post is designed to help you make the most of your retirement plan by understanding the Federal Employee Retirement System (FERS). As we head toward the end of the fiscal year, it’s a great time to revisit how FERS works and how you can maximize your benefits.

Before we dive into the details, let’s recap the basic structure of FERS. There are three main components that federal employees need to pay attention to:

1. 
   
2. Pension: A defined benefit that provides income based on your years of service and salary.
   
3. Thrift Savings Plan (TSP): A defined contribution plan, similar to a 401(k), where you can contribute pre-tax or post-tax (Roth) dollars.
   
4. Social Security: Just like most employees, you’ll also receive Social Security benefits, so don’t forget to factor this into your retirement planning.
   

When thinking about retirement, it’s essential to plan not only for when to start your FERS pension but also when to tap into your TSP and file for Social Security. The coordination of these three components can make a big difference in your retirement income.

Recently, I was asked by Money Geek how federal employees can maximize their retirement benefits. Two key strategies stand out:

1. 
   
2. Maximize Your TSP Contributions: For 2024, you can contribute up to $23,000 to your TSP, with an additional $7,500 if you’re over 50 (catch-up contribution). The TSP is one of the most cost-effective retirement savings plans out there due to its low fees, so take full advantage of it!
   
3. Know Your Full Retirement Age: Surprisingly, many people I talk to aren’t sure of their full retirement age (FRA) under FERS. Knowing this is crucial because it affects when you can receive your maximum pension benefit. For instance, retiring before age 62 or with fewer than 20 years of service could significantly reduce your pension payout.
   

There are some important distinctions to be aware of, particularly if you retire before age 62 or with fewer than 20 years of service. For example, retiring at 61 with 19 years of service gives you only 19% of your high-3 salary as a pension. However, waiting one more year to reach age 62 and 20 years of service increases that to 22%—a 15% boost in your pension for life! That extra year could be well worth it.

Your pension is based on your high-3 average salary, which is the average of your three highest consecutive years of earnings. While this is often your final three years, it’s not always the case. It’s important to accurately estimate your high-3 salary when planning your retirement.

Additionally, if you’ve had military service, you can potentially add military service credits to your federal service time. This could increase your pension benefit, so be sure to check your service record to ensure all your years are accounted for.

Certain federal roles, such as law enforcement officers, firefighters, and nuclear materials couriers, are eligible for enhanced pension benefits. For example, they receive 1.7% of their high-3 salary for the first 20 years of service, compared to 1% for most employees. Members of Congress are also eligible for the 1.7% rate, making it important to know which category you fall into.

As you approach retirement, there are four steps you should focus on to ensure you’re on track:

1. 
   
2. Maximize Your TSP Contributions: The more you contribute, the more you’ll have for retirement. For those over 50, make sure you’re taking advantage of the catch-up contribution.
   
3. Confirm Your Full Retirement Age: Double-check your FERS records to know exactly when you’re eligible for full retirement. Don’t rely on hearsay—verify the information yourself.
   
4. Estimate Your High-3 Salary and Years of Service: This will help you calculate your expected pension. Make sure your service record is accurate with the Office of Personnel Management (OPM) to avoid any surprises.
   
5. Consult a Financial Advisor: It’s always a good idea to work with someone who understands federal employee benefits. A Chartered Federal Employee Benefits Consultant can help you navigate the specific rules that apply to you.
   

Over the years, I’ve seen federal employees make several common mistakes in retirement planning. One of the biggest is failing to adjust their TSP investments as they approach retirement. Many people keep their TSP allocation at the same risk level they had in their 20s, even when they’re nearing retirement age. Be sure to reassess your risk tolerance as your retirement date approaches.

Another frequent mistake is not planning for the transition from a paycheck to a pension. It can take several months for your FERS pension to start, so having a financial cushion to cover this gap is crucial.

As you prepare for retirement, whether you’re a federal employee, military personnel, or transitioning to corporate work, the same principles apply: know the rules, do the math, and follow the plan.

By maxing out your TSP contributions, understanding your full retirement age, and working with a knowledgeable financial advisor, you can ensure a smooth transition into retirement. Remember, the choices you make in the years leading up to retirement will impact your income for the rest of your life. Make sure you’re making informed decisions based on your specific situation.

Don’t forget to leave a rating for the “Retirement Revealed” podcast if you’ve been enjoying these episodes!

Subscribe to Retirement Revealed to get new episodes every Wednesday.

Apple Podcasts: https://podcasts.apple.com/us/podcast/retirement-revealed/id1488769337

Spotify Podcasts: https://bit.ly/RetirementRevealedSpotify 

Additional Links:

• 
  
• “Understanding Retirement Plans and Options for Federal Employees” – moneygeek.com article
  
• Thrift Savings Plan contribution limits – www.tsp.gov
  
• FERS Information – U.S. Office of Personnel Management
  
• “How to Plan for a Military Retirement, with General Michael Meese” – Retirement-Revealed.com
  
• “Avoiding 10 Common Retirement Planning Mistakes Made by Federal Employees” – Retirement-Revealed.com
  

Connect With Jeremy Keil:

• 
  
• Keil Financial Partners
  
• LinkedIn: Jeremy Keil
  
• Facebook: Jeremy Keil
  
• LinkedIn: Keil Financial Partners
  
• YouTube: Retirement Revealed
  
• Book an Intro Call with Jeremy’s Team
  

Disclosures:

Content

Results and figures presented within the above links are hypothetical, unaudited and are intended for illustrative purposes only.

Liability

Keil Financial Partners assumes no liability or responsibility for any errors, omissions, or other issues with the links and their respective contents. This includes both the website content and any potential bugs, viruses or other technical threats.

No Tax Advice

Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.

No Investment Advice

The content and information provided through the links should not be interpreted as being investment advice or a recommendation of suitability for any particular security, portfolio of securities, transaction, or investment strategy, or related decision. Please seek assistance from a qualified investment professional for any and all investment matters.

Investment Risk

Investments may increase or decrease significantly. All investments are subject to risk of loss.

General Disclosure

Advisory Persons of Thrivent provide advisory services under a “doing business as” name or may have their own legal business entities. However, advisory services are engaged exclusively through Thrivent Advisor Network, LLC, a registered investment adviser. Keil Financial Partners and Thrivent Advisor Network, LLC are not affiliated companies. Please visit our website www.keilfp.com for important disclosures.