The Federal government is one of the largest employers in the world, and its retirement plans and associated benefits affect literally millions of employees. Most current Federal government employees (hired after January 1, 1997) fall under the Federal Employee Retirement System, or FERS. While there are other systems, particularly within the Department of Defense, the summary below provides information helpful for most Federal employee readers.
Please note that this is merely a summary of a massive benefit program, and we’re not representing any Federal service or Agency with this writing. We happen to work with numerous clients within the FERS system, and many may find this high-level summary helpful. For detailed information and to confirm what you read here, you can consult the US Office of Personnel Management website or the Thrift Savings Plan website, respectively.
FERS is made up of three components: the “Basic Benefit” (pension), Social Security, and the Thrift Savings Plan (TSP). In addition to these FERS components, we’ll cover some of the other benefits many Federal employees utilize both during their years of service and in retirement.
Civil Service Retirement System (CSRS) note
If you were hired into Federal service before 12/31/1986, you may fall under the prior retirement system, known as the Civil Service Retirement System (CSRS). While some CSRS employees have converted to FERS, some members remain in that system. This article does not cover CSRS details; the main differences are found within the pension calculation and the fact that CSRS employees are not eligible for Social Security for their years of service within that system.
“Basic Benefit” (Pension)
As noted earlier, one of the main differences between CSRS and FERS is the manner of calculating the basic benefit, or pension. Because CSRS retirees were not eligible for Social Security, the pension amount tended to be higher. Under FERS, and with Social Security inclusion, the benefit calculation provides different results, though still based on a function of the employee’s age and years of service.
Eligibility for a FERS pension is based on age and years of service, described as Minimum Retirement Age (MRA), with distinctions made for retirement categories that include “immediate”, “early”, “deferred”, and “disability”. You can view the definitions and eligibility charts here, and further definitions of types of retirement may be reviewed here.
The benefit is computed using a function of an average of the employee’s 3 highest-salary years and their years of creditable service. Most Federal employees get 1% of their “high-3” for each year of service if they separate from service before age 62 or at/after age 62 with less than 20 years of service; and 1.1% of their “high-3” for each year if they separate from service at/after age 62 with more than 20 years of service. Calculations will vary for employees in special categories and can be found at the “computed” link above in this paragraph.
The computed page also has explanations for reductions in benefits on for those who begin to receive benefits before age 62 (but at/after their MRA) with less than 30 years of service (or 20 years of service and retirement between the ages of 60–62). In addition, employees may have a reduction in benefits if married, to account for future survivor benefits (reduced by 10% for a survivor benefit of 50%, reduced by 5% for a survivor benefit of 25%). Other nuances and an explanation of Disability Retirement Benefits may be found on the same page.
Thrift Savings Plan (TSP)
The TSP plan within FERS is similar to a private sector 401(k) plan, or “defined contribution plan”. Employees can defer (or save) income annually, subject to IRS limits. For example, in 2026, TSP participants are limited to $24,500 in employee deferrals. For those over 50 years old, an $8,000 “catch-up” contribution is also allowed, bringing the annual total to $32,500. And under SECURE 2.0 rules, those aged 60–63 can contribute a “super catch-up” amount of $11,250 (in place of, not in addition to, the “normal” catch-up), for a total contribution in 2026 of $35,750. These income limits increase annually, so be sure to verify specific annual amounts in the future.
Employees can choose to contribute to the Traditional TSP (contributions are pre-tax, and your annual reportable income is reduced) or Roth TSP (contributions are post-tax). They may also choose to split contributions between both options. The decision point between these options often depends on the employee’s current income tax bracket compared to their projected retirement tax bracket and their current cash flow needs. Please consult your tax and/or financial planning professional to discuss what’s best, based on your circumstances.
In addition to the employee deferrals, the Federal government typically contributes to accounts in two ways:
Agency Contributions: typically the equivalent of 1% of annual income, these contributions are not dependent on employee contributions to the account. These contributions are subject to vesting requirements before they become fully available to the employee.
Matching Contributions: salary deferrals will be matched by the Federal government, with a dollar-for-dollar match on the first 3% of salary, and a $0.50-for-$1 match on the next 2%. Effectively, the employee needs to contribute 5% of annual income to get the full match, and the government will contribute 4% of annual income.
It’s worth noting that for those in Uniformed Service, there are different rules for the catch-up contributions. First, they must be to the Roth TSP; and second, contribution amounts can be as much as 100% of special/incentive/bonus pay if service members contribute at least 1% of “regular” pay, subject to overall IRS limits.
Once the funds are in the TSP plan, employees have a limited number of investment options:
- Lifecycle (or L) Funds: provide varying stock-to-bond allocations based on a specified retirement year. These fund allocations are shifted quarterly, from higher to lower risk over the life of the fund.
- Individual Funds: There are five fund options within the TSP plan from which to choose, all of which have very low annual expense ratios. These funds are also used to build the Lifecycle funds. They are:
- Government Securities Investment (or G) Fund: portfolio principal and interest guaranteed by the US Government, considered very low risk;
- Fixed Income Index (or F) Fund: investment-grade bond index fund, generally considered lower risk;
- Common Stock Index (or C) Fund: intended to track the US S&P 500 index, which is predominantly large US company stocks;
- Small Cap Stock Index (or S) Fund: intended to track the Dow Jones US Total Stock Market Index, which includes small US company stocks;
- International Stock Index (or I) Fund: intended to track the MSCI EAFE (Europe, Australasia, Far East) index.
- Mutual Fund Window: For this option, you must meet specified eligibility criteria and pay additional fees, but it is intended to provide additional flexibility related to investment choice. If approved, funds move through your TSP account to an account at an approved vendor for management. You can read more about the mutual fund window here.
Social Security (SS):
Unlike the former Civil Service Retirement System (CSRS), FERS employees are eligible for full Social Security benefits in addition to their FERS basic benefit (pension). There are several considerations when discussing how to approach Social Security benefits strategy, so ask your financial professional how to best coordinate all of your retirement income sources.
Survivor Benefits:
Spouses or family members of a former Federal employee may be entitled to Federal survivor benefits upon that employee’s death. These benefits could include a monthly survivor annuity or a lump-sum benefit, as described here. Employees choose what type of benefit their family may be eligible for upon retirement, and to forgo those benefits, the spouse must consent to a “less than maximum election” within the employee’s benefits filing.
Federal Employee Group Life Insurance (FEGLI):
If the employee participated in the FEGLI program during employment, they may be eligible to carry those benefits into retirement. Employees can choose a reduction in coverage (75% or 50% of prior death benefit), or “No Reduction.” Employees are responsible for premium payments up to their 65th birthday, at which time those premiums will be reduced (or become free if the 75% reduction option is chosen). You can read more about Annuitant FEGLI costs and details at the link above.
Federal Employee Health Benefits (FEHB):
Some Federal retirees are eligible to continue their health coverage under the FEHB into their retirement years. However, there are specific eligibility requirements that must be met. This can be particularly helpful for those retiring before their Medicare age (65). Once a retiree attains Medicare age, they are expected to apply for coverage under the Medicare system, with their FEHB benefits acting as secondary coverage (as a Medicare Supplement would). There may also be options available via the Federal Employees Dental and Vision Insurance Program (FEDVIP), Flexible Spending Accounts, and Pharmacy Incentive Programs.
Long-Term Care Insurance:
Historically, the Office of Personnel Management (OPM) offered long-term care insurance via the Federal Long-Term Care Insurance Program (FLTCIP). However, they have suspended that program for retirees, extending that suspension as of December 2024 for two years, to be reviewed again by the end of 2026. While it’s possible OPM could reinstate this benefit option, in the meantime, employees should discuss their potential need for long-term care insurance and review options on the private marketplace with their financial planner.
Other Savings:
While not unique to federal employment, there are several other savings options available. Contributions to an IRA (traditional or Roth), a traditional brokerage account, and many other savings vehicles are available. Planning for the future is essential for achieving the financial independence that most seek. Integrating federal retirement accounts with “outside” savings is critical to the success of most financial plans.
Disclaimer: As noted earlier, this is not an exhaustive analysis of each of the federal retirement plans; it is intended to provide an overview of the options for which federal employees may be eligible. If you have questions or would like to consider a more comprehensive discussion and planning work, please feel free to contact us for an exploratory conversation.
