Leaving Federal Employment Before You Are Eligible to Retire

What happens to your federal benefits if you leave before you are eligible to retire?

It makes sense for many people to stay with the federal government for their entire career. But for others, it simply does not. For these individuals it is important to know what happens to your federal benefits if you decide to leave before you are eligible to retire.


You have two different options when it comes to your pension. You can apply for a refund for all of your contributions that you made during your career. This refund will generally include interest if you had more than one year of service. 

If you had more than 5 years of service, you may be eligible for a deferred retirement. This means that you could potentially start drawing a pension at age 62.

Under FERS, if you have at least 10 years of service, you may be eligible to receive a pension once you attain your minimum retirement age. This age is between 55 and 57 depending on the year you were born. With this option you would see a 5% decrease to your pension for every year that you start drawing your pension before you turn 62. If you have more than 20 years of service you may be eligible for different types of retirement. 


Once you separate from service, you have the ability to continue your coverage up to 18 months after your separation date, but you will have to pay your normal premiums plus your employer portion as well as an extra 2% fee. 

You also have the option of converting your plan to individual coverage. Your coverage may not be identical to what it was before and you will have to talk to your insurance company to know what it would cost.


There are very few options to keep this benefit once you leave the government. If you have at least 10 years of service you may be able to re-enroll once your annuity begins. But other than that, there is no way to extend coverage, temporarily continue coverage, or even convert to an individual policy.


You have 31 days after your separation date to convert this benefit into an individual policy if desired. If you wait longer than the 31 days then you may have to provide medical information. If you chose to convert, you could choose how much coverage you’d like but you will have to pay full premiums at individual rates.

Long-Term Care Insurance

You can continue your coverage under this benefit as long as you pay the premiums. If your premiums had previously been deducted straight from your pay, you should call your long-term care insurance provider to arrange to pay those premiums directly.


First, you can keep your money in the TSP if you’d like. Once you are separated, you will still have the ability to change how it is invested. You also have the option of doing a direct rollover into an IRA or your next employer’s retirement plan. If you transfer your TSP funds in any other way other than a direct transfer, the TSP will withhold 20% of your account for tax purposes.

If you leave the government before age 55 you will not be able to withdraw any money from the TSP before age 59 1/2 without being subject to a 10% penalty in addition to taxes. A direct rollover to another retirement account does not count as a withdrawal for the purposes of this rule.


Working for the government has many perks, but sometimes it makes sense to move on to something bigger and better. Knowing how your benefits will work after the switch will help the transition be that much smoother.

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.