Fed Life Cycle: Final 1-3 Years Before Retirement

These are some tips for federal employees who are planning to retire in less than five years.

Jen, I followed your articles and I MADE IT!!!!!. Nothing left to do but turn in the papers now, right?

First, CONGRATULATIONS! Now let’s talk.

Much like how a runner picks up speed when the finish line is in sight, these final years will be full of anticipation and excitement! However, you need to be careful! You have come so far and are very close to achieving your retirement goals. Do not let the excitement and anticipation distract you from completing the last few steps to ensure there are no last second surprises! 

If you have followed my steps for the early, mid and late career phases of your federal career, you should be in great shape for the retirement you have dreamed of. 

Now, follow these final steps and lock it in! 

1. KYN (Know your numbers)

Begin working on your retirement budget and cash flow well before your retirement date. The earlier the better. You can even “try it on for size” a year or more before you turn in your paperwork. Work out what you expect your retirement income to be, and then try living on it. Place any extra cash in a savings account to see how long you can go without needing to withdraw from it. 

2. Make sure you have plenty of available cash on hand for the transition

It will take the Office of Personnel Management (OPM) anywhere from 2-9 months to process your retirement application. I have seen it take longer as well!

In this interim period, you will receive partial retirement checks. It is critical that you have enough cash on hand to cover your projected expenses in this timeframe. The key here is that you do not want to have pull money from investments to meet projected expenses. Remember that in the event of a market downturn, you are potentially selling in a down market. This can be catastrophic for your retirement! 

3. Understand your Medicare decisions and timelines

If you are 65 or older when you retire, you have an 8-month window in which you can pick up Medicare Part B with no penalty. During this last year before retiring, do your research! Some health insurance companies will reimburse Medicare B premiums, so explore the options to see if it makes sense to use one of these plans. Also, you should be able to make at least a rough estimate of your potential Medicare B premium. It is income based, so if you are going to be in a higher bracket, you may pay several hundred dollars a month in premiums! Plan ahead! (see the Medicare B premiums chart)

4. Tax planning

I am often told that the biggest retirement surprise for Feds is taxes! Going from an employee to a retiree is a completely different mindset when it comes to taxes. Even if you have never consulted a tax advisor in the past, it is usually worth the cost to have your situation evaluated to make sure you are not hit with big surprises come April of the year following your first full year of retirement.

Here are a few things to keep in mind – 

  1. OPM will not withhold any state taxes during the adjudication process. It usually makes sense to pay some estimated state taxes if your state has an income tax. 
  2. TSP never withholds state taxes from withdrawals. Hopefully, you are not drawing from TSP early in retirement, but if you are- do not overlook this! 
  3. Your annual leave payout is fully taxable and is also subject to FICA taxes. 
  4. Your pension and Social Security will be taxable at the federal level. The estimates you get from HR and Social Security are gross figures. Your net income will be much less than what the estimates show. 

5. Pick your retirement date and understand how your sick leave works! 

There are many strategies around picking the best retirement date; remember that your pension starts accruing the first day of the month following your retirement date. This argues for a retirement date as close to the end of the month as possible.

Also, you should account for the sick leave you have accrued during your career. While your annual leave gets paid out in a lump sum, your sick leave will be converted to years and months of service and added to your service time. Use the 2087 chart to make sure you are not leaving behind too much sick leave!

6. Don’t forget about COLA rules!

If you are retiring before age 62 under the FERS retirement system, no COLA’s until age 62! Be sure to work this information into #1 above.

7. Gather your paperwork early!

The application for retirement is SF-3107 for FERS employees and SF 2801 for CSRS and CSRS Offset. If you have not previously confirmed your Retirement Service Comp date (RSCD), do so as soon as possible. You can confirm this with your HR contact. When preparing your retirement application, make sure that you have the necessary supporting documentation for any service time, for example temporary service or military service which was bought back. In addition, if you are divorced and your ex-spouse is entitled to any of your benefits, ensure that all paperwork is in good order for submission to OPM.

8. Lock down your FEHB coverage

Confirm that records are clear, showing that you have been enrolled for the 5 full calendar years prior to retirement to maintain your coverage once retired. In addition, if you have a spouse who would want to keep the federal health insurance if you predecease them, make sure that you are leaving at least a partial survivor benefit on your annuity. Most couples will elect the maximum survivor benefit which also will provide health insurance coverage to a surviving spouse. 

9. Don’t forget about FEGLI life insurance options

Hopefully you have already made the decision how to handle your life insurance in retirement by now. If not, do not waste any time in evaluating your life insurance needs once retired. FEGLI life insurance will become very expensive in retirement if you want to keep it as it is while working. There are options to keep part of your coverage after age 65 at no cost to you. If you are not familiar with these options, waste no time in getting educated about the alternatives you have. 

10. Confirm Beneficiary forms are complete

These are the key forms to check: 

  1. SF2808 (CSRS contributions) or SF3102 (FERS contributions) 
  2. TSP 3 (Beneficiary for TSP account) 
  3. SF 2823 (Beneficiary of any FEGLI life insurance) 

11. Pay attention to Healthcare Flexible Spending accounts

Once retired, you can no longer contribute to these accounts. In addition, any services received post retirement are not eligible for reimbursement. Ensure any expenses you want to use these funds for are incurred prior to retirement and promptly submit reimbursement requests as applicable. 

12. Finally, manage your TSP correctly! 

There are many landmines in the transitions from employee to retiree in terms of your TSP. Hopefully, you have built a nest egg that should last you for the rest of your life.

While working and contributing to TSP, it may have felt fairly automatic. However, the rules change when you retire and start withdrawing from TSP.

It is not an exaggeration to state that for many retirees, the effective management of their TSP can be the difference between a worry-free retirement and one of financial stress. In the last year before retirement, educate yourself on how to take funds out of TSP. There are several options available.

It is also critical to develop and stick to an appropriate spending strategy. Your strategy should account for continued growth but also be prepared to withstand the market downturns which will occur. Did you know that on average there is a market correction every 1.5 years and there is a bear market every 7 years? However, avoiding these downturns by staying in the G fund can be even a bigger mistake! The G fund most likely will not keep up with inflation over the course of your retirement.

The most sophisticated investors struggle with how to manage TSP in retirement. The good news is there are resources available to you – once again, educate yourself! If you need additional help, a financial advisor with federal benefits expertise can be a worthwhile investment. Oftentimes I hear that the cost of advisor is a hurdle for TSP participants who are used to the low fees of TSP. My reply to this is that just one mistake could be way more costly. Is it worth the risk? For some it may be, but if not, it is wise to seek counsel. 


I hope that this checklist will help you as you reach for the finish line of your federal career. Ideally, if you have followed this series, you should be in great shape to cross the finish line with confidence that you have done everything you could do to ensure a great retirement. Take advantage of the resources available to you at Serving Those Who Serve. We are committed to helping every federal employee understand their benefits and make the best decisions for their individual situation. I wish you the very best as you transition from employee to retiree, and as always, thank you for your service to our government and country. 

The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.

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About the Author

Jennifer Meyer, CFP®, AIF®, ChFEBC℠ has over 20 years of experience, many specifically working with Feds. Growing up in a family of Federal employees, she is extremely proud to serve the Federal community. You can read additional articles for Feds by Jennifer at Serving Those Who Serve.