Federal retirement is complicated enough that even careful, well-intentioned employees make decisions that cost them more than they realize. At Federal Retirement Advisors, we don’t say that to be discouraging — we say it because we’ve seen the same situations come up again and again, and most of them were entirely avoidable with a little more information at the right moment. The mistakes we see most often aren’t the result of carelessness. They’re the result of making permanent decisions without fully understanding the tradeoffs. Here’s what to watch for.

Leaving Too Early Without Running the Numbers

One of the most frequent situations is retiring before fully understanding what the income picture looks like. Federal employees sometimes submit their retirement paperwork based on a date that feels right — a round number of years, a milestone birthday, what they heard from a coworker, or simply because they’re ready — without first learning what their monthly income will actually be.

Your FERS pension, FERS Supplement eligibility, TSP balance, and Social Security timing all interact with each other. A retirement date that makes sense on the surface,  or based on what a coworker did, can look very different once you see how those pieces add up — or don’t. Taking the time to run your numbers before you commit to a date is one of the simplest ways to avoid a mistake you can’t reverse.

Misunderstanding the MRA+10 Penalty

Federal employees who retire at their Minimum Retirement Age with at least 10 but fewer than 30 years of service are eligible to retire — but their pension is reduced by 5 percent for every year they leave prior to full eligibility (MRA with 30 years of service, 60 with 20 years or 62 with 5 years). That reduction is permanent.

This is a surprise to many retirees. Someone who retires at 57 under the MRA+10 provision could see their pension reduced by as much as 25 percent for the rest of their life and permanently lose their FEHB health insurance. In some cases, waiting even a year or two — or finding a way to reach 30 years of service — can substantially change the outcome. It’s essential to understand these consequences before making any decisions.

Not Accounting for Healthcare Costs

Healthcare is one of the largest expenses in retirement, and it’s one that federal employees sometimes underestimate. Carrying Federal Employees Health Benefits coverage into retirement is one of the most valuable benefits of federal retirement — but FEHB premiums don’t stop, and they tend to increase over time, just like they have throughout your career.

The Medicare question adds another layer that is unique to federal retirees. They become eligible for Medicare at 65, but unlike most Americans, they get to decide whether to add Medicare Part B, keep FEHB only, or coordinate the two. These decisions have tremendous coverage implications. Not understanding your options in advance can result in higher out-of-pocket costs later or losing coverage entirely, during the years you need it most.

Overlooking the Tax Picture

Many federal employees are surprised to learn how much of their retirement income is taxable. Your FERS pension is subject to federal income tax. TSP withdrawals are taxed as ordinary income. If your combined income is high enough, a portion of your Social Security benefit will be taxable as well.

What this means in practice is that your gross retirement income and your take-home retirement income can look quite different. Planning only for the gross number — without understanding how your taxes affect what you’re actually paid each month — is a common oversight that forces many retirees to find part-time jobs to make ends meet.

Treating the TSP as a Lump Sum Rather Than an Income Source

Your Thrift Savings Plan is one of the most valuable assets federal employees carry into retirement. One of the more common mistakes is thinking about it primarily as a lump sum rather than as an income source that needs to last for decades.

This matters because how you withdraw from your TSP — the timing, the amounts, the sequencing relative to other income sources — affects how long those assets last and what your tax situation looks like along the way. A large early withdrawal that seems manageable in the moment can create tax consequences and reduce the longevity of your savings in ways that are difficult to recover from later.

Waiting Too Long to Get a Clear Picture

Perhaps the most common pattern of all is simply waiting too long to sit down and work through the details. Many federal employees spend years intending to get a handle on their retirement plan and arrive at their retirement date without a clear picture of what their income will look like. By then, some of the most important decisions have already been made by default.

The earlier you understand how your federal benefits work together — your pension, your TSP, your FEHB options, your Social Security timing — the more flexibility you have. Decisions made with time to spare tend to look a lot different from decisions made under pressure.

Avoiding Common Federal Retirement Mistakes Starts with a Conversation

None of these mistakes are inevitable. Most of them come down to timing and information — and both of those things are within your reach. If you’re approaching retirement and want to make sure you have a clear picture before you make any decisions, we’d be glad to walk through it with you. Reach out to schedule a consultation with Federal Retirement Advisors – we look forward to speaking with you!