The most common federal retirement mistakes
Most federal retirement mistakes are not dramatic. They are quiet, one-time decisions that cost real money for the rest of your life. Here are the ones we see most, and how to avoid them.
1. Assuming HR will walk you through it
Your agency can process paperwork and confirm dates, but they are not there to build your strategy or weigh trade-offs. The employees who retire well treat HR as a resource for facts, and get planning help for the decisions.
2. Picking a retirement date by feel
Leaving a few weeks early or late can change your annual-leave payout, your first pension check, and whether you cross into the 1.1% multiplier at 62. The date is a math decision, not just a calendar one.
3. Dropping or interrupting FEHB before retirement
To carry health coverage into retirement you generally need to be enrolled in FEHB for the five years immediately before you retire. Dropping it to save a little now can cost you one of your most valuable benefits forever.
4. Waving off the survivor annuity without doing the math
Declining a survivor benefit raises your monthly pension, but it can also cut off your spouse's access to FEHB after you pass, and the election is generally irrevocable. Run the numbers before you sign, not after.
5. Ignoring the FEGLI cost cliff
FEGLI premiums rise steeply with age. Coverage that felt free in your 40s can become expensive in your 60s. Decide early which options to keep and which to replace, before the increases arrive.
6. Leaving the TSP on autopilot, or cashing it out
Parking everything in one fund, or taking a lump sum without a plan, are both common and both costly. Your TSP has installment, partial-withdrawal, annuity, and rollover options, each with different tax and flexibility trade-offs.
7. Retiring without a tax plan
Your pension, traditional TSP withdrawals, and Social Security are taxed differently, and stacking them without a plan can push you into higher brackets and make more of your Social Security taxable. The years before Required Minimum Distributions are often the best window to get ahead of this.
8. Claiming Social Security and forgetting the FERS supplement earnings test
Claiming Social Security at the first opportunity is not always best, and if you retire before 62 and keep working, the FERS supplement is subject to an earnings test that can reduce it. Both deserve a deliberate decision.
9. Defaulting on FEHB and Medicare at 65
At 65 you can keep FEHB, add Medicare, or both. Choosing on autopilot can mean paying twice or leaving gaps. The right combination depends on your specific plan and situation.
Avoid the expensive ones
Most of these are simple to sidestep once you see them coming. A complimentary session puts them in the context of your own benefits.