Financial Advisor for Federal Employees

For informational purposes only — not tax, legal, or investment advice. Your situation may differ.

Federal employees under FERS — the Federal Employees Retirement System — have one of the most complex retirement structures in the country: a defined-benefit pension calculated on your high-3 salary and years of service, a TSP account that mirrors a 401(k) but with unique investment and withdrawal rules, Social Security (now fully available without WEP or GPO reductions since January 2025), and FEHB health coverage that can carry into retirement. A FERS supplement bridges income from retirement to age 62 for those who leave before Social Security eligibility.

Most AUM advisors are a poor structural fit for federal employees. The reason is simple: your FERS pension and Social Security income stream cannot be managed. Neither can your TSP balance directly — TSP is a government-administered plan, and no outside advisor can charge an AUM fee on it. Your retirement security is substantially housed in accounts and streams that generate zero advisory fees. An AUM advisor who manages only your taxable brokerage account is charging a full percentage on a fraction of your wealth while the complexity lives elsewhere.

The Three-Part FERS Retirement System

FERS replaced the older Civil Service Retirement System (CSRS) starting in 1987. Virtually all federal employees hired since 1984 are in FERS. CSRS employees — a small and shrinking group — have no Social Security and no TSP matching contributions, and face different planning challenges. This guide focuses on FERS.

FERS has three parts that must be planned together:

• FERS Basic Annuity (pension) — A defined benefit, payable for life, calculated as 1% of your "high-3" average salary multiplied by your total years of service. If you retire at 62 or older with at least 20 years of service, the multiplier increases to 1.1%.¹
• Thrift Savings Plan (TSP) — A defined contribution retirement account. The government contributes 1% of your salary automatically, plus dollar-for-dollar matching on the first 3% you contribute, and 50 cents per dollar on the next 2% — effectively a 5% match if you contribute at least 5% of your salary.²
• Social Security — Standard Social Security eligibility based on your federal earnings and any prior private-sector work. Since the Social Security Fairness Act was enacted in January 2025, WEP and GPO have been fully repealed — FERS employees no longer face any benefit reduction for their government pension.³

Most planning decisions interact across all three. A Roth TSP vs. traditional TSP choice affects your taxable income in retirement alongside your pension and Social Security. Your survivor benefit election permanently reduces your pension to provide income for a surviving spouse. Social Security timing interacts with your pension income and IRMAA Medicare premium exposure. These decisions cannot be made in isolation.

TSP Planning: More Complex Than a Standard 401(k)

The TSP offers five core funds (G, F, C, S, and I), lifecycle L funds, and — as of 2023 — a mutual fund window for those who want access to outside funds. The investment menu is limited but the expense ratios are among the lowest available anywhere (typically 0.04–0.06%, compared with 0.4–1.0% for comparable retail mutual funds). Most federal employees should default to TSP over any outside account for most contributions.

Contribution Limits

For 2026, the TSP elective deferral limit is $24,500.⁴ Participants age 50 and older can contribute an additional $8,000 in catch-up contributions, for a total of $32,500. Participants aged 60–63 qualify for a higher "super catch-up" of $11,250 (instead of $8,000), bringing the total to $35,750 for those ages.⁴

Starting in 2026, federal employees who earned more than $150,000 from their federal employment in 2025 are required to designate catch-up contributions as Roth (after-tax) rather than traditional pre-tax under SECURE 2.0.⁵ This is automatic for eligible participants — your plan administrator handles the designation, but the tax impact (paying tax now on catch-up amounts) requires planning.

Roth TSP vs. Traditional TSP

The decision between Roth and traditional TSP contributions is identical in structure to the Roth 401(k) decision in the private sector, with one FERS-specific wrinkle: your FERS pension and Social Security will already produce substantial taxable income in retirement. A federal employee with a $70,000/year pension plus Social Security may have very little room for tax-deferred TSP withdrawals before hitting higher brackets. For many mid-career FERS employees, Roth TSP contributions — paying tax now — make more sense than traditional, because the pension already fills the lower brackets at retirement.

TSP In-Plan Roth Conversion (New for 2026)

TSP added an in-plan Roth conversion feature in 2026, allowing participants to convert traditional TSP balances to Roth TSP inside the plan without taking a distribution. This is significant: federal employees approaching retirement with large traditional TSP balances can now begin Roth conversion work within TSP itself, rather than waiting to roll over to an IRA. Conversion amounts are taxable income in the year of conversion and interact with your pension, IRMAA thresholds, and Social Security taxation — coordination with a planner is important before initiating.

TSP Withdrawal Options at Retirement

TSP withdrawal flexibility has improved substantially since 2019. You can take a single withdrawal, monthly installment payments (fixed dollar or life-expectancy-based), a TSP life annuity, or a combination. One frequently overlooked option: leaving your TSP in place after retirement and drawing on other accounts first, especially during a Roth conversion window before RMDs begin at age 73 or 75. TSP's expense ratios make it worth keeping even after separation from service.

The FERS Pension: High-3, Survivor Benefit, and Retirement Eligibility

How the Pension Calculates

Your FERS annuity equals 1% (or 1.1% at 62+ with 20 years) multiplied by your "high-3" salary — the average basic pay from your three highest consecutive years. High-3 is basic pay only; locality pay, overtime, and bonuses are excluded. Small salary choices in your final years (grade level, locality area, part-time election) have a permanent effect on every pension check for the rest of your life.

Example: A GS-13 employee retiring at 60 with 30 years of service and a $110,000 high-3 salary receives a pension of $33,000/year (1% × $110,000 × 30). If instead they wait to 62 with 32 years: 1.1% × $110,000 × 32 = $38,720/year — an $11,520/year permanent increase.

Retirement Eligibility

Standard FERS eligibility requires reaching your Minimum Retirement Age (MRA) with at least 30 years of service, or age 60 with at least 20 years, or age 62 with at least 5 years. The MRA is 57 for anyone born in 1970 or later.¹ Immediate retirement (with full benefits) at MRA+30 is the most common path for career federal employees who want to leave before 62.

The Survivor Benefit Election — Irrevocable and Expensive to Get Wrong

At retirement, you choose a survivor annuity benefit for your spouse. The options are:

This election is largely irrevocable. If your spouse predeceases you, you can stop paying the premium — but you cannot add a survivor benefit after retirement if your spouse's circumstances change. For married federal employees, getting this decision right at retirement is worth hundreds of thousands of dollars over a joint life expectancy. It must be modeled alongside Social Security survivor benefit analysis, not in isolation.

The FERS Supplement: Income Between Retirement and 62

Federal employees who retire before age 62 with at least 10 years of FERS service receive the Special Retirement Supplement (SRS), often called the FERS supplement. It approximates the Social Security benefit you would have earned based entirely on your FERS-covered earnings, multiplied by a fraction: your FERS years divided by 40.

The supplement fills the income gap between retirement and age 62, when actual Social Security becomes available. It stops completely at 62 — there is no prorating. It is also subject to a Social Security-style earnings test: in 2026, if you earn more than $24,480 in wages from post-retirement employment, your supplement is reduced by $1 for every $2 earned above the limit.⁶

For federal employees who retire early and plan to consult, freelance, or take a private-sector job, the earnings test can eliminate the supplement entirely — erasing potentially $15,000–$25,000/year in income. Planning the transition carefully around this limit matters.

FEHB in Retirement: The Five-Year Rule and Medicare Coordination

Federal employees who have been continuously enrolled in FEHB for at least five years immediately before retirement can carry their FEHB coverage into retirement.⁷ The government continues paying approximately two-thirds of the premium — the same cost-share structure as active employees. This is one of the most valuable federal benefits and substantially changes the retirement health insurance calculus relative to private-sector retirees, who typically lose employer coverage at separation.

FEHB and Medicare Part A

Medicare Part A (hospital coverage) is free at 65 for federal employees who paid Medicare taxes throughout their federal career (those hired after 1983 did). FERS employees should enroll in Part A at 65 — it's free and layers with FEHB as secondary coverage for hospital stays.

Whether to Enroll in Medicare Part B

Medicare Part B (outpatient/physician coverage) costs $202.90/month per person at the 2026 base premium, plus IRMAA surcharges for higher-income retirees.⁸ For federal retirees with FEHB, whether to enroll in Part B is genuinely complex: FEHB alone covers most services, but FEHB + Part B eliminates virtually all out-of-pocket costs. The break-even analysis depends on your FEHB plan premium, your expected medical utilization, and whether your income triggers IRMAA surcharges on Part B.

One frequently overlooked rule: if you delay Part B past 65, you pay a 10% permanent premium increase for every 12-month period you were eligible but not enrolled. Federal retirees who skip Part B at 65 and later regret it can face permanently elevated premiums. This decision is worth modeling with a planner before age 65.

Social Security: Fully Available for FERS Employees

Prior to January 2025, many FERS employees faced Social Security reductions under the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). The Social Security Fairness Act, enacted January 5, 2025, fully repealed both provisions — retroactive to January 2024 benefits.³ FERS employees now receive their full Social Security benefit without any reduction for their government pension.

For FERS employees, the standard Social Security timing analysis applies: claiming at 62 permanently reduces benefits; delaying to 70 maximizes the benefit and the survivor benefit your spouse receives. Because FERS retirees often retire at 57–60 and have 7–10 years before they must claim, the decision of when to draw Social Security — and how to bridge income in the interim through the FERS supplement, TSP, and taxable accounts — is one of the more consequential planning questions. Social Security claiming strategy in detail here.

The AUM Advisor Problem for Federal Employees

An AUM advisor working with a typical federal employee faces a structural problem: most of the wealth is untouchable.

• Your FERS pension is a government payment — no advisor can manage or charge fees on it.
• Your TSP account is held at TSP, not at Fidelity or Schwab — no outside advisor can hold it in their AUM.
• Your Social Security benefit is managed by SSA.
• Your FEHB coverage is administered by OPM.

The only assets an AUM advisor can charge on are taxable brokerage accounts, IRAs (rolled over from TSP at separation), and any private-sector accounts from prior employment. A federal employee with a $60,000/year pension, $400,000 TSP, and $200,000 in taxable brokerage accounts pays a 1% AUM advisor on the $200,000 in taxable assets — $2,000/year — but receives advice across a much more complex picture that the advisor isn't actually paid to address. Or, if the employee is encouraged to roll TSP into an IRA at retirement so the advisor can manage it, the AUM fee suddenly applies to the full $400,000 — $4,000/year — often with no improvement in the quality of advice and the loss of TSP's institutional expense ratios.

A flat-fee advisor charges a fixed annual retainer or hourly rate to plan across the full picture: pension, TSP, Social Security, FEHB, and taxable accounts together — without any incentive to push rollovers that generate fees.

What Federal Employee Financial Planning Covers

A flat-fee advisor working with a federal employee typically addresses:

• Optimal retirement date modeling — High-3 maximization, MRA + service combinations, the 62/1.1% multiplier threshold, and interaction with FERS supplement eligibility.
• TSP asset allocation and contribution strategy — Roth vs. traditional, super catch-up at 60–63, in-plan Roth conversion modeling, and whether to leave TSP in place or roll to IRA at retirement.
• Survivor benefit election analysis — Actuarial modeling of the cost vs. income protection across different life expectancy scenarios and spousal ages.
• FERS supplement planning — Earnings test management for those planning post-retirement work; bridge strategy through TSP and taxable accounts.
• FEHB/Medicare coordination — Part B enrollment decision, IRMAA exposure modeling, and long-term premium cost analysis by plan type.
• Social Security timing — Break-even analysis and spousal/survivor benefit optimization coordinated with FERS supplement timing and TSP drawdown sequencing.
• Withdrawal sequencing and Roth conversion — For FERS retirees, the conversion window between retirement (age 57–60) and RMD age (73 or 75) offers 13–18 years to convert pre-tax TSP and IRA balances, filling lower tax brackets that the pension partially occupies. Roth conversion strategy in detail here.

What This Engagement Costs

For a FERS employee with a $50,000/year pension, even a one-time $3,000 planning engagement that identifies the optimal survivor benefit election or avoids an unnecessary TSP rollover can have a 10–20× return in lifetime value.