Your finances after leaving the federal government
The first change you’ll notice is that your pension – which is just a percentage of what you’ve earned as an employee – will be paid to you on the first of every month for 12 months of the year. Image: Jennifer G. Lang/Shutterstock.com
There are big differences between employment and retirement. I’m not talking about the obvious ones, like not having to set the alarm to go to work anymore. Instead, I want to explain how your financial picture is changing.
The vast majority of federal employees are paid biweekly, and from each of those payouts (typically 26 per year) your agency deducts money for things like required contributions to the pension fund (and for FERS and CSRS offset employees, Social Security deductions), Medicare, state (and sometimes state) income tax and for most premiums under state insurance programs. Most of you will also be deducted from savings plan investments, and some will be taken into account for certain other voluntary deductions such as union dues and flexible spending reserves.
If you have a problem with this, your human resources or finance/payroll office is your first port of call.
When you retire, the picture changes. HR management becomes your combined HR and finance office. The first change you’ll notice is that your pension – which is just a percentage of what you’ve earned as an employee – will be paid to you on the first of every month for 12 months of the year.
And unlike your salary — which is usually increased by annual pay increases set by Congress and the White House, and at other times by events such as promotions or increases within the grade — your pension is increased annually by changes in the consumer price index. When that happens depends on whether you were a CSRS or FERS staffer – COLAs start immediately for the former system, but in most cases not until after age 62 in the latter (where those adjustments are reduced when the number is over 2 percent).
The deductions from your pension are also different than those taken from your paycheck. For example, you no longer have to make contributions to the pension fund after you retire. You have already paid for this benefit through wage deductions and are now enjoying it. And there are no deductions for the Social Security you paid under FERS or CSRS Offset.
Union dues deductions also end when you retire, and as a retiree you can no longer have a flexible spending account or make new investments in the TSP (although you can still manage your money by moving it between funds and now a have different ways to withdraw the money).
On the other hand, deductions for federal income tax (and state tax, if applicable) are still required. Deductions will continue to be taken from your pension if you are still enrolled in the Federal Employee Health Benefits program and/or the FEDVIP Vision Dental Insurance program. However, if your bonuses were paid in pre-tax dollars—as is the case for nearly all active employees under FEHB and all under FEDVIP—you lose that benefit when you retire. Although the premium rates are the same, the premiums are effectively more expensive because the tax benefit is lost.
If you are insured under the Federal Employees’ Group Life Insurance Scheme, the deductions will also be taken from your pension until you reach the age of 65, or until retirement if you are older than 65. It no longer has to pay premiums and begins declining by 2 percent monthly until it reaches 25 percent of its face value. If you opted for the 50 percent discount, it will decrease by 1 percent per month until it reaches 50 percent of its face value. If you have elected to leave the policy value unchanged, you will continue to be deducted from your pension until you cancel that enrollment or die.
If you took out Option A (standard elective insurance) at age 65 — a rarity these days — you no longer have to pay premiums and the value is reduced by 2 percent monthly for 50 months after Point Option A coverage ends.
If you have chosen option B (optional supplementary insurance) or option C (optional family insurance) and choose to continue with this insurance, you will continue to pay the premiums until age 65. You then have the option to continue the insurance in full and pay the appropriate premiums for that level of coverage.
With FLTCIP long-term care insurance, the premiums remain the same as long as you continue to pay them. As with FEGLI, these premiums are paid after tax for both employees and pensioners.
Planning ahead – Deferred and deferred annuities
Planning ahead – CSRS retirement
Planning ahead: FERS retirement
Federal COLA Count Hits 6 Percent
Impact on retirement at age 59 1/2
Thanks to a pension, feds do better than most when it comes to retirement savings
Basics of sick leave for federal employees
Annual leave, one of the top benefits for federal employees
FERS Retirement Guide 2022