FERS Benefit Overview
There are five key pillars of a FERS employees’ future:
1. Pension
A guaranteed lifetime income paid by the federal government: The cornerstone of retirement. Federal retirement income comes from three sources, each one with different rules, tax treatment, and different decisions to make. The current MRA (minimum age of retirement) is 55-57 depending on birth year, or alternatively, 30 years of service.
FERS Pension
Earned benefit, calculated by income. Lifetime, government-paid annuity.
Social Security
Earned through 40 quarters of credits plus the FERS Annuity Supplement (if applicable).
Thrift Savings Plan
The 401(k)-style account with up to a 5% government match. How it’s invested can be adjusted and customized.
2. Social Security Supplement
The FERS Annuity Supplement is a monthly payment from OPM that approximates the Social Security benefit earned through federal service, paid from age 57 – 62.
Who qualifies:
- Those retiring at MRA with 30+ years of service
- Those retiring at age 60 with 20+ years of service
3. TSP (Thrift Savings Plan)
The TSP is a defined contribution plan similar to a 401(k). The ultimate retirement income received will match the amount put in. By contributing 5% of normal pay, the government will automatically match up to 4%; combined with an automatic, guaranteed deposit of 1%, this becomes a total return.
Distribution options:
- Leave in TSP
- Full withdrawal (large tax risk)
- Installments (monthly, life expectancy, etc.)
- Annuity (irrecovable)
- Rollover to IRA / Roth (more options, specialization strategies)
4. FEGLI (Federal Employees’ Group Life Insurance)
FEGLI is term life insurance offered through an employer. The policy is typically put in place automatically, but its costs and coverage aren’t. FEGLI can be a useful default plan, but doesn’t always fit the needs of the individual.
Basic Coverage: Salary + $2,000
The basic coverage is required to select any other FEGLI option; premiums grow only modestly with age.
Option A: $10,000 flat
A small additional benefit. The costs increase with age but stay modest.
Option B: 1x – 5x Salary
Premiums rise every 5 years starting at age 40 – The biggest cost surprise in FEGLI.
Option C: Family Coverage
Spouse capped at $25,000 and child at $12,500. Coverage for children ends at age 22.
5. TAXES
Where retirement dollars actually live. Keeping money in different ‘buckets’ is extremely important:
Taxable
Tax going in, tax growing, tax coming out.
- Stocks
- Bonds
- Bokerage/Mutual Funds
- Crypto
- Checkings/Savings
- Real Estate Equity
Tax-Deferred
No tax now. Grows tax-free. Taxed at withdrawal.
- Traditional TSP
- Traditional 401(k)/403(b)
- Traditional IRA
- Annuity
- FERS Pension
- Social Security (mostly)
Tax Favorable
Tax now. Grows tax-free, distributes tax-free.
- Roth TSP
- Roth 401(k)
- Roth IRA
- Municipal Bonds
- Permanent Life Insurance
- Service-Connected Disability
What Next?
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202-681-0190
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