Key Takeaways:

• Preparing for federal retirement in 2024 requires updated knowledge of retirement benefits, healthcare changes, and financial planning options.
• Reviewing your benefits, maximizing savings, and preparing for lifestyle changes are crucial steps for a smooth retirement transition.

Getting Ready to Retire from Your Federal Job? Here Are the Most Important Things You Can Do

Retirement is an exciting time, especially for federal employees, who have access to a variety of retirement benefits. As we move through 2024, it’s more important than ever to stay informed about potential changes in your retirement system and how they may affect your financial security and healthcare in your post-retirement years. Federal employees need to start planning well in advance, ensuring they maximize the benefits available and prepare for a financially stable retirement.

1. Know Your Retirement System: FERS or CSRS?

The Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS) are the two primary systems covering federal employees. Since 2024, most federal employees are enrolled in FERS, while only those who began their federal service before 1984 may still be under CSRS.

FERS in 2024

FERS provides a three-part retirement package that includes:

• Basic Benefit Plan: This defined benefit is calculated based on your years of service and the highest three years of average pay, commonly referred to as your “high-three salary.” Your pension depends on the number of years you’ve worked, typically calculated at 1% of your high-three for each year of service.
• Thrift Savings Plan (TSP): Your TSP is similar to a private-sector 401(k) plan, and it includes automatic and matching contributions from the government. In 2024, you can contribute up to $23,000 in catch-up contributions if you are 50 or older.
• Social Security: FERS employees are eligible for Social Security benefits based on their earnings, which can supplement their pension.

CSRS in 2024

While fewer employees are covered by CSRS, those who are should still carefully plan their retirement. CSRS is a standalone pension system that does not include Social Security coverage but offers a more generous annuity formula. If you’re a CSRS retiree, it’s critical to understand the impact on your benefits, particularly the Windfall Elimination Provision (WEP), which could affect any Social Security benefits you’re eligible to receive based on non-federal work.

2. Maximize Your Thrift Savings Plan (TSP)

In 2024, the Thrift Savings Plan remains one of the most important tools for federal employees planning for retirement. Your TSP contributions, employer matching, and the compounded growth of your investments over time can have a significant impact on your financial security during retirement.

Considerations for 2024:

• Catch-Up Contributions: If you’re 50 or older, you’re allowed to contribute an additional $7,500 to your TSP, beyond the $23,000 standard limit.
• Review Your TSP Allocation: As you near retirement, consider adjusting your TSP portfolio to a more conservative mix. Many employees shift from high-growth stocks to more stable government securities or the G Fund to protect their investments from market fluctuations.
• Take Advantage of the Lifecycle Funds: The TSP’s Lifecycle Funds automatically adjust your asset allocation based on your retirement timeline. For 2024 retirees, the “L Income Fund” may be an appropriate option, designed to preserve capital while still offering modest growth opportunities.

3. Plan for Healthcare After Retirement

Healthcare is one of the most important aspects of planning your retirement. As a federal employee, you have access to the Federal Employees Health Benefits (FEHB) program, which is a significant advantage. However, there are several things you need to know about healthcare coverage as you transition into retirement in 2024.

Keeping Your FEHB Coverage

One of the most valuable benefits of federal employment is the ability to carry your FEHB coverage into retirement. To qualify, you must have been enrolled in an FEHB plan for at least five years prior to your retirement. In retirement, you can continue your coverage, and the government will still pay a portion of your premiums, just as they did while you were working.

Medicare Enrollment in 2024

If you are approaching 65 in 2024, you’ll also need to consider your Medicare options. While FEHB provides robust coverage, many retirees opt to enroll in Medicare Part A (hospital insurance), which is premium-free for most people, as it can work alongside FEHB coverage. You may also want to consider enrolling in Medicare Part B (medical insurance), although this comes with a monthly premium.

Weighing Medicare Part B Costs

The decision to enroll in Medicare Part B can be tricky. In 2024, the standard premium for Part B has increased slightly, and it may continue to rise in future years. However, many federal retirees find it beneficial to have both FEHB and Medicare to minimize out-of-pocket expenses. Be sure to evaluate your healthcare needs, potential costs, and what each plan covers before making this decision.

4. Plan for Your Federal Employee Group Life Insurance (FEGLI)

Another important consideration is your life insurance. The Federal Employees’ Group Life Insurance (FEGLI) program provides low-cost group life insurance to federal employees, but the coverage changes when you retire. Before retiring, it’s important to review your life insurance options, especially as you begin preparing for your family’s financial security in the future.

• Basic FEGLI Coverage: This includes a payout equal to your annual salary, rounded up to the next $1,000, plus an additional $2,000. You can continue this coverage into retirement, but premiums will increase as you age.
• Optional Coverage: FEGLI also offers three levels of optional coverage that can significantly boost the payout to your beneficiaries. However, premiums for this optional coverage rise dramatically as you grow older, so you’ll need to weigh the costs carefully.

In 2024, many retirees are exploring private life insurance as an alternative, since FEGLI premiums can become expensive in retirement. Investigate your options and consult with a financial planner to determine the best choice for your circumstances.

5. Evaluate Your Social Security Benefits

Social Security plays a critical role in your retirement income. While FERS employees are eligible for Social Security benefits, those under CSRS may be impacted by the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO).

If you’re planning to retire in 2024, here’s what you need to consider:

• Full Retirement Age (FRA): In 2024, full retirement age is 67 for anyone born in 1960 or later. If you start taking benefits before this age, your monthly payout will be reduced. Delaying benefits past your FRA can increase your monthly payments by up to 8% per year until age 70.
• Impact of WEP: If you’re a CSRS employee with non-federal Social Security-covered earnings, the WEP could reduce your Social Security benefits. Be sure to calculate how this will affect your retirement income.

6. Plan Your Retirement Date Wisely

Choosing the right retirement date can have a significant impact on your benefits. Federal employees who retire toward the end of the year may benefit from accruing the maximum amount of annual leave, which can be paid out in a lump sum. This can provide a financial cushion as you transition into retirement. In addition, selecting a retirement date that aligns with your work anniversary can maximize your high-three salary, which directly impacts your FERS pension.

Maximize Your Annual Leave Payout

In 2024, federal employees can carry over up to 240 hours of annual leave into the next year. If you time your retirement date correctly, you could receive a lump-sum payout for this leave, potentially boosting your retirement income.

Preparing for the Next Chapter

Retiring from federal service is a major life transition, and 2024 brings new opportunities and challenges. By understanding your retirement system, maximizing your TSP, planning for healthcare, and reviewing life insurance options, you can ensure a smooth transition into retirement. Take the time to evaluate your financial situation, consider the impact of Social Security and Medicare, and plan your retirement date strategically. The decisions you make today will affect your financial security and lifestyle for years to come.