Retirement Savings Tips for Federal Employees

By on February 15, 2011 in Current Events, Retirement with 21 Comments

There are many benefits to working in the federal sector.  One reason why many people choose to work in federal jobs is that they tend to offer better retirement benefits than the majority of positions in the private sector.  If you take full advantage of the benefits while you can, even eight or ten years spent in a federal job can help boost your retirement income when it comes time.

If you want to retire in comfort, however, you need to have an active plan for saving for your retirement now, while you still hold your federal position.  While you can do nothing and still have some amount of financial support when it comes time to retire, depending on how long you’ve worked in the federal sector, the system works best when you actively plan and contribute to your own retirement.

Here are a few tips to help you make the most of your federal retirement benefits.

1) Understand the Benefits

The first thing you need to do as a federal employee is make sure that you understand your retirement benefits, and how they work.  Federal retirement benefits are a three-pronged system that is designed to provide a pension and Social Security benefits for long-time employees, but also to help you save for your own retirement.

Known as the Federal Employees Retirement System, or FERS, your retirement benefits are made up of 3 parts:

  • The Basic Benefit Plan,
  • Social Security, and
  • The Thrift Savings Plan, or TSP.

The Basic Benefit Plan is your pension with the federal government, which you are eligible for once you have worked there for five years.  Unlike the other two pieces to the puzzle, you must be working in the federal sector when you retire in order to take advantage of it.  (Your benefits with Social Security and the Thrift Savings Plan can be taken with you if you take a different job.)  Your contributions to the Basic Benefit Plan are automatically deducted from every paycheck.

The amount you get from the Basic Benefit Plan is based on your salary, the number of years you worked in the federal sector, and what age at which you retire.  In other words, the longer you work for the government, the better your pension will be.  The pension is calculated by taking 1 percent of the average salary for your three highest-paid consecutive years, and multiplying it by your total years of service.  If you put in at least 20 years and work until you are 62 or older, however, the pension is figured using 1.1 percent of the average of your highest-paid years, instead of just 1 percent.

The Thrift Savings Plan, or TSP, on the other hand, operates like a 401(k).  If you don’t do anything, the government will give you an amount equal to 1 percent of your basic pay every pay period, deposited into your TSP account.  Like many big companies do with their employees’ 401(k) accounts, some agencies will also match your contributions to your TSP account, up to a certain amount.  For instance, they will match 100 percent of your contributions up to 3 percent of your pay, and 50 percent of your contributions up to 5 percent of your pay.

Because you make before-tax contributions to your TSP account, reducing your tax liability for the year, there is an annual cap on how much you can contribute.  In 2011, for example, you can only contribute up to $16,500.  If you are 50 or older, however, you are allowed an additional $5,500 in “catch-up” contributions throughout the year.

Much like a 401(k), you have some choices in how to invest your money in your TSP account.  Currently there are 10 different funds to choose from, and you can change how you have invested your money at any time.  You are not taxed on the money in your TSP account until you withdraw it, presumably starting at retirement age, as you will incur penalties if you make withdrawals too soon.  You can start making a limited amount of withdrawals at age 59 ½ without having to pay any penalties, and at age 70 ½ you can withdraw freely without paying any penalties at all.
2) Take Advantage of Employer Match

One of the most powerful advantages to the TSP is the employer match.  This is essentially free money from your agency; even though you won’t be able to use this money for years to come, it’s essentially a bonus on top of your regular salary, and it’s earning interest as we speak.

Remember, the agency pays 1 percent of your basic pay into your TSP account every pay period.  On top of that, if you contribute 3 percent of your pay to your account, most agencies will match that amount by 100 percent.  If you contribute 5 percent of your pay, on the other hand, they will match the first 3 percent at 100 percent, and the next 2 percent at 50 percent, for a total of 4 percent of your pay.  When you consider the base 1 percent that you are given before making any contributions, your agency will essentially give you an extra amount equal to 5 percent of your pay toward your retirement every pay period — IF you take full advantage of the employer match.

3) Know Your Limits
Once you take advantage of the employer match on the first 5 percent, the only benefit of contributing more of your pay toward your TSP account is that you will be lowering your taxable income from the year.  There is a cap, however, on how much you can contribute to your TSP account in a one-year period.  In 2011, for example, you can only contribute a maximum of $16,500 to your account.  If you are 50 or older, you are allowed an additional $5,500 a year in “catch-up” contributions; however, these contributions must be designated as such, and spread out throughout the year, as your TSP account will simply stop accepting contributions once the regular $16,500 limit is reached.

It is important to know your limits, and to plan your contributions for the year accordingly.  If you want to take full advantage of the employer match, you won’t want to contribute too much per pay period.  Your agency matches up to 5 percent contributions each pay period, so if you contribute too much and reach your $16,500 limit, say, halfway through the year, you lose the employer match on the remaining half of the year.  That’s six months of employer contributions you are missing out on!

4) Make Career Decisions with Your Retirement in Mind

The impact on your retirement should be a major consideration in every career move you make.  How long do you plan to work in your job?  Will a job move be beneficial to your retirement, or will it hurt it?  For instance, as a federal employee, your TSP plan earnings and the non-matched 1 percent employer contributions are only vested after you have worked in the federal sector for two or three years.

What are you giving up if you take a job in the private sector?  What do you have to gain if you remain a federal employee?  There are questions to ask yourself before making any significant decision about your career.  It is important to make sure you have a plan for your retirement, and that any career change you make will benefit your future, or at least not hurt it.

Retirement is an important, and for some people, scary time in your life.  As we get older, we need to have a system in place — a pension, savings, or generous children — to take care of us when we are no longer able to support ourselves.  As a federal employee, the best way to make sure you are prepared for your retirement is to understand how you can make the most of the benefits available to you.

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© 2016 Jason Kay. All rights reserved. This article may not be reproduced without express written consent from Jason Kay.

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Jason Kay is a professional resume writer and regular contributor to, a professional federal resume service and repository of sample KSA statements.

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  1. Goober says:

    Can anyone enlighten me on the FERS Social Security Annuity? I understand that working in the private sector may reduce the annuity at a certain age after a federal retirement? There is not much info out there and wondered if anyone could post on it>>> thanks

  2. HR Manager (Retired) says:

    I like that this article is geared towards Federal employees in all stages of their career and not just those nearing retirement. All employees, but especially those who are FERS employees, need to pay close attention their retirement benefits. Employees should remember that while today they may not be be eligible or interested in retiring that day will eventually come. Thus, the sooner employees devote your attention to your retirement benefits the better off they will be when the day comes to return the keys to the office and their employee ID badge.

  3. Tim says:

    You know, it always offends me when HR people tell me social security is a part of my retirement benefits as a result being a federal employee. I think it’s a disingenuous claim because ALL citizens who worked during their lifetime are eligible for social security….and should not be touted as a part of the retirement package of a federal employee.

    In reality, there are only two legs to the FERS stool…the basic benefit…and the TSP…

    • Bill T. says:

      Actually not. It’s called the “windfall reduction act” which severely limits or eliminates benefits some people have earned. She has her 40+ quarters in because of her work before she became a teacher. If my wife had worked for private enterprise entirely she could draw on my SS, or her full SS. Because she has been a teacher she can only draw about 1/3 of the benefits she has earned (latest take, she may not be eligible even for this, I was just more confused after taking the retirement class).

  4. JD says:

    If you aren’t already members of the National Association of Active and Retired Federal Employees (NARFE), you should investigate the possibility. NARFE gives up to date analysis of what’s before the Congress that impact Federal Employees — changes Congress wants to make to retirement and current salaries. They also answer questions or give resources for further information.

  5. Jimbo says:

    I received a retirement estimate from my HR office. It shows what the reduction will be in my CSRS retirement annuity to provide a full 55% survivor benefit for my wife. My wife is a “Trans-FERS” federal employee too (12 years under CSRS and over 22 years under FERS) and the FERS survivor benefit rules are different. I also qualify for TRICARE (as a retired military reservist) and this will replace my FEHB health insurance after I retire. So I’m thinking we should be pretty well situated and be fairly debt free. I am leaning towards waiving the survivor benefit for my wife as she will have all her FERS benefits plus my life insurance benefits. Has FedSmith published any article that would cover all my particular circumstances?

  6. Phoebek8 says:

    “Once you take advantage of the employer match on the first 5 percent, the only benefit of contributing more of your pay toward your TSP account is that you will be lowering your taxable income from the year.”

    If you contribute the max you can each year, you’ll have the benefit of earning returns on the money invested (unless there’s another big stock market crash) and will end up with a much larger fund than if you contributed only 5 percent.

    • Bill T. says:

      Many of the posts strongly implies to me that lots of the readers understand what’s going on at least as well and probably better than the “gurus” posting the aritcles. Yous is one of those cogent posts.

    • Bill T. says:

      Many of the posts strongly implies to me that lots of the readers understand what’s going on at least as well and probably better than the “gurus” posting the aritcles. Yous is one of those cogent posts.

  7. Don_1016 says:

    What is a professional resume writer doing writing articles that involve Federal retirement benefits? Agency benefit officers are sometimes confused, so this needs to be left to the people who regularly work in this arena.

  8. Vintner1 says:

    Great article for FERS but as noted, there are still quite a group of CSRS folks still keeping the wheels and gears of govt machinery moving. Perhaps a CSRS article will be in the offing?

  9. Shaneeqa says:

    Can’t wait to retire. don’t care about the $$, just want to retire. Most people define success as who makes the most money, how much power and authority they have. Not me, I define it as NOT having to work. Of course, that means welfare bums are successful to by my definition. ha ha

  10. Randy Carollo says:

    Just a couple of notes: from my understanding, if you retire in the year in which you turn 55 years old (or later) there are no penalties on TSP withdrawals (but you still pay income tax). Also when/if you draw on TSP at 55 there are no “limited amounts of withdrawals”, if you can withdraw you can withdraw with a variety of options. Also, from my understanding the phrase “some agencies” regarding TSP matching does not make sense to me. If you are a Federal employee you are eligible for matching, all agencies participate (they can’t opt out, it is a benefit if you are a Federal employee). Also in TSP you have five investment choices (not ten). The five “L” funds are target date retirement funds using the original five TSP investment funds, they are not separate investment funds themselves. The five “L” funds vary by the different investment allocations of the five TSP funds. All the info I have shared above I have read over the years in numerous sources and believe the info to be factual and accurate. Thank you.

    • KiloWhiskey says:

      Not strictly correct. You can withdraw monies from your TSP (or 401k) before you’re 59 1/2 without penalty, but there are strict conditions attached. You would do well to consult your tax advisor/CPA before taking out funds prior to 59 1/2 – the penalty can eat you alive.

      • Randy Carollo says:

        There is no penalty for withdrawing any 401k (including TSP) before age 591/2! You can withdraw when you retire as long as it is the year in which you turn 55. We are not talking about an IRA or an annuity, but 401k’s (including TSP) which have slightly different rules. You can get this info from many numerous financial articles and from the TSP fact sheet on withdrawals. Give me your email address KiloWhiskey and I will scan and email you the TSP fact sheet with the appropriate areas highlighted. I am 100% percent certain of this and you are giving out bad info that can impact employees ability to plan properly.

  11. Bill T. says:

    Point 3: Actually there is another POTENTIAL benefit to taking that money out of your current taxable income. If you expect to be in a lower bracket at the time you actually withdraw the money you may not only defer the taxes but actually pay less (inflated) dollars in tax. If you expect to pay more in taxes (are you betting that taxes will be increased?) than you would immediately pay then a Roth is worth considering (pay less up front).

  12. Fed Peasant says:

    In the first paragraph, the deferred pension was hinted at, in the 8 to 10 years reference. Nothing else was explained. If a person works for the federal government for only 5 years, & then leaves, they have probably qualified for a deferred pension. This is true for both FERS & CSRS. These pensions can be collected from OPM at age 60 or 62, depending upon years worked. Many people may leave for a variety of reasons. Typically, they are told nothing about a deferred pension, as they out-process, & this should be a crime!! There are many people walking the street today, who haved earned a federal pension, & do not have any idea or awareness of it!! It saves the government money by them not knowing & not collecting!! One key factor is to have not taken their own deposit/contribution into CSRS or FERS (not TSP). If you took that money, you forfeit the deferred pension. Again, I would bet that those people were not fully informed. It may be a small pension, but for many older people, any extra money is most helpful.

  13. Frances says:

    I noticed there was no mention of the CSRS employee. I continue to glean whatever information I can about our benefits and retirement planning strategies. Although there may not be many of the CSRS employees left, we are still around and need guidance more than ever with possible upcoming changes in the formula from High 3 to High 5 and the effect of the pay freeze. I want to know in the next 1-5 years what are the critical things to consider to maximize my retirement benefit, i.e., annual leave payout, sick leave, time to retire (end of pp, first of month, end of month). There are different articles. I would like to see something more concise covering all these issues. Heaven knows we don’t get this information from the HR department. Unless we are within 1 yr or less of retiring, they won’t even respond to an estimate request or provide information to assist in making the right decision for our own circumstances. Make it simple and understandable. Thank you.

    • Fellow_American says:

      As a retired CSRS employee, after a 40 year career, here’s my (unofficial – I’m not a HR person) advice after having gone through the CSRS retirement process myself.

      First, it is critical to understand that you have no retirement benefit “contract” with the govt until _after_ you are in a retired status. This means that the govt can change/eliminate, on a whim, any and all retirement benefit provisions at any time. Writing this off the top of my head, I can’t remember the specific court decision that determined this, but maybe some other reader can.

      Thus, it is in your own best interests to pay close attention to and track the status and timing of any and all congressional debates, hearings, and submitted bills having the potential to affect your CSRS (and FERS too) retirement benefits. A good way to do this is to join The National Association of Active and Retired Federal Employees, NARFE (this is not a union) to get their monthly magazine and to have access to their web site and staff of knowledgeable retirement benefits counselors. They are current on the regulations and will readily provide accurate advice by e-mail or by telephone. Their web site is:… Even after retirement, it is a good idea to keep on paying attention via NARFE, since it is their mission to testify before and lobby congress to protect and defend federal retirement benefits in an active manner.

      My agency (years ago) allowed us to take their retirement counseling seminar, conducted by a knowledgeable federal benefits contractor, twice – first time was 5 years before retirement and the second time was one year (or later) before retirement. Do not wait until the last minute to take such a course! Take it as soon as you can in order to avoid simple but potentially costly mistakes in selecting among various options, etc, and to insure that you have all your documented service, beneficiaries, etc. in order. Unfortunately, there is not ” . . something more concise covering all these issues.” that can be presented in just a few brief paragraphs – thus the need for the week-long retirement seminar.

      The most important items in “what are the critical things to consider to maximize my retirement benefit” is the set of documents you should have kept in your personal file (in addition to the official one the HR department maintains, which can be incomplete, etc.). You must be able to document all the time, e.g., entry on duty date, interruptions in service, different agencies worked for and their periods of employment, military time, etc. that you want to credit to your total service. Odd items, like being in the Peace Corps, for example, can be counted toward your annuity, but you must be able to prove, via documentation, that your served. Don’t overlook these easily forgotten about periods of good service.

      There is also a federal retirement planning web site, which has several calculators that allow you to estimate your retirement benefits yourself – you may have to become your own HR person, depending upon your agency and their current workload – which may become very large if lots of feds decide to retire at once because of contemplated adverse changes to the retirement system!

      Last, you probably know that the new congress, and the administration, are talking about making drastic cuts to the budget – translation, “federal employees look out!”. There are good chances for periodic furloughs (without pay!), a 5-year pay freeze (President’s new budget), increases in employee share of health insurance premiums, change to a high 5 vs high 3 calculation, eliminate or reduce the annual annuity inflation adjustment, and possible miscellaneous changes to Social Security (just might happen).

      Thus, waiting another 5 years to retire may or may not increase your annuity, or may severely reduce it to the point that not retiring may be a costly mistake (depending on which changes occur) if you plan a career change to non-federal post-retirement employment. Even if you don’t plan another job, you don’t want to get caught in a pre-retirement status after such changes have already been made. As a result, as already stated, it is in your own best interests to pay close attention, track legislation, get NARFE advice, and perform your own estimated calculations using the web calculators, and be ready to submit the paperwork _before_ the last-minute stampede out the door has already started!

      Just my 2 cents – I hope it’s helpful.

      ice time

      • Fed Peasant says:

        You are on target!! Especially so with the documentation, legislation, & NARFE. I would not just track legislation. You must also make regular contact with your two US senators & US congressional representatives.

      • Ally V says:

        You are absolutely right about taking the retirement seminar as soon as possible in your career (upon arrival to set yourself up from the beginning). There are so many things I wish I had done sooner, but did not know. Also, keeping track of previous service and payback of that service should be done as soon as possible. I found out about paying back on some former time wayyy too late!!! Fortunately it would have only amounted to $5 per month, but that is now almost a gallon of gas!!!!!