Federal Retirement

Maximizing Income with a Pension Preservation Strategy

Posted on by Cassie Graves
Federal Retirement Pension Max Life Insurance Survivor's Benefits Strategy

Are FERS Survivor Benefits for Feds Worth It? Explore Pension Preservation strategies for federal retirement planning.

Strategies to Avoid FERS Pension Reduction for Survivor Benefits

The strategy seems relatively simple at first: keep the retiree’s full FERS pension and use the avoided survivor‑election reduction to fund a life insurance policy that protects the spouse instead. The higher monthly income created by declining the election is either partially or entirely redirected into premiums, and the policy’s death benefit is sized to match or exceed what the spouse would have received from the federal survivor payment.

Advisors use pension preservation strategies when clients want more income while both spouses are alive, more control over the benefit, and the possibility of leaving a larger, tax‑free lump sum. It also offers flexibility if the spouse passes first, since the policy can be repurposed or surrendered, unlike a locked‑in federal election. But the approach carries risks: the retiree must qualify for coverage, sustain premiums long‑term, and understand their survivors cannot continue FEHB if the spouse needs continued health insurance.

Here’s the whole breakdown:

How FERS Survivor Benefits Can Be the Most Expensive Election in the Federal Retirement Application Process

For federal employees, the survivor benefit election is one of the most consequential choices in the entire retirement package and it becomes an irrevocable decision. It’s expensive, with the cost growing the longer the annuitant lives, and often misunderstood, even by seasoned professionals. Electing the full 50% FERS survivor benefit permanently reduces the retiree’s gross pension by 10%. On a $40,000 pension, that’s a $4,000+ annual reduction every year for the rest of their life.

This election becomes locked in 30 days after OPM finalizes the retirement package, leaving no opportunity to correct a mistake later. That’s why many advisors look to pension preservation strategies: they want to help clients keep more of their income while still protecting the spouse.

But the strategy only works when it’s built on a foundation of accuracy, suitability, and respect for the surviving spouse’s long‑term security, especially when it comes to their healthcare.

Fed Options can help you guide federal employees through the online retirement application process with OPM so costly mistakes are avoided, including decisions around survivorship. Schedule a meeting now.

Survivor Benefit Optimization Explained

Survivor Benefit Optimization, sometimes referred to as pension maximization, is built on a simple idea: instead of accepting the 10% pension reduction to provide a government survivor benefit, the retiree keeps their full  or partially reduced (5%) pension and uses part of the savings to purchase an outside life insurance policy.

The mechanics are straightforward:

  • The retiree elects no or partial FERS survivor benefit (with notarized spousal consent).
  • They retain their full or lessened reduced
  • A portion of the increased income funds permanent or temporary life insurance coverage with the spouse as the owner and beneficiary.
  • The death benefit replaces, or exceeds, the income the spouse would have received from the survivor annuity.

When structured correctly, the couple enjoys higher income while both are alive, and the spouse receives a tax‑free lump sum at the retiree’s death. But keep in mind this is not universally appropriate, and it is never risk‑free.

What Happens if Federal Retiree Dies After Spouse?

In the case that a FERS annuitant’s spouse dies first, the 5 or 10% reduction is restored going forward, once OPM is notified, but previously reduced pension payments are not reimbursed. If the federal retiree gets remarried, they can add a survivor’s benefit within two years of the marriage date. In this case, pension preservation strategies pan out as the retiree keeps FEHB eligibility. But due to the uncertainty over which spouse will pass first, both outcomes must be properly planned for. Furthermore, adding a survivor spouse benefit when the employee remarries may also add extra penalties. Thus, this may be cost prohibitive for the retiree.

How Pension Preservation Can Create More Income and Flexibility

If performed correctly, preserving the FERS pension allows for more income at the onset of retirement and more opportunities for flexibility later.

A traditional FERS survivor annuity pays the spouse a taxable monthly benefit. Life insurance pays a tax‑free lump sum. That difference alone can dramatically change a surviving spouse’s financial trajectory.

Private life insurance products can also include living benefits that the FERS system simply doesn’t offer. Cash value accumulation, policy loans, and potential dividends give the couple tools they can use while they’re still alive. For some households, that flexibility is worth far more than the guaranteed, but rigid, structure of the survivor annuity. The biggest kicker here is coordinating FEHB and/or outside health care benefits, which may be more expensive, but the surviving spouse might have more income to afford that. There are several factors at play here and barely any facet is wholly predictable.

Still, the strategy’s advantages only matter if the plan is built on a complete understanding of the rules that govern federal retirement benefits. And no rule is more critical than the one tied to FEHB and the survivor income.

Make it Clear: Waiving Survivorship Jeopardizes FEHB for the Surviving Spouse

This is the part advisors and other financial professionals must make abundantly clear: a surviving spouse cannot keep FEHB unless they are entitled to a FERS survivor annuity.

It doesn’t matter how long they’ve been covered via their spouse under an FEHB plan.

If the retiree waives the survivor benefit entirely, the spouse loses FEHB permanently upon the retiree’s death. There are no appeals possible, no exceptions available, and no chance of reinstatement. Unless the spouse has their own pension from their own federal service, or they remarry another federal retiree, they cannot re-enroll in an FEHB plan. A temporary continuance of coverage (TCC) might be granted, but this coverage is usually as costly as going with outside health insurance and/or Medicare.  

This is where integrity matters. Advisors who recommend pension preservation strategies without addressing FEHB are putting a surviving spouse’s healthcare at risk during the most vulnerable years of their life.

For many households, the solution is a partial survivor benefit. It preserves FEHB eligibility while reducing the pension reduction. It’s not as income‑efficient as a full waiver, but it protects the spouse’s healthcare benefits. Unlike with CSRS, where as little as a 1% survivorship could be elected, the lowest a FERS survivor’s benefit can go is 25% of the pension for the survivor at the cost of a permanent 5% reduction of benefits.

Here Are the Best Candidates for a Survivor Benefits Optimization

Pension preservation is best for candidates that share several characteristics:

They are insurable at favorable rates. The entire strategy hinges on qualifying for outside life insurance coverage. Ideally, the client applies 10–20 years before retirement to lock in better underwriting.

Their premium cost matches the survivor income need. The spouse may need more than the 50% maximum, which would be 10%. Identifying the need of income and staying within a realistic cost range for the employee is key.

They value liquidity and control. Some households prefer a lump-sum payout over a monthly benefit. Others want access to cash value or living benefits. These are features not offered by FERS survivor benefits.

They understand the FEHB rule and plan accordingly. This is non‑negotiable. If the spouse needs, or thinks they may need, FEHB – then the plan must include at least a partial survivor benefit.

They have a stable financial profile. Debt, inconsistent income, or poor cash flow can undermine the strategy.

When these conditions are met, the strategy can be a powerful, ethical, and client‑centered solution.

Bottom Line: Pension Preservation Requires Proper Planning

At the end of the day, optimizing survivor benefits with private life insurance products is a strategy that rewards careful modeling, transparent communication, and a deep understanding of how the mechanics of FERS operate.

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Federal Retirement

The 2 Most Important Items to Keep in Mind for Federal Retirement Process

Posted on by Ben Derge
Top 2 Federal Retirement Process Mistakes - Service Deposits and OPM Timeline

Federal employees who don’t want to see their applications delayed should make sure they don’t miss these two crucial aspects of the federal retirement application process.

#1 Deposits and Redeposits

For financial professionals serving federal employees, few areas create more anxiety, or more opportunity, than the retirement application process. A federal retirement claim is a multi‑step, documentation‑heavy, error‑sensitive process that can derail even the most prepared employee if a single detail is missed or an error is overlooked. When a client has prior military service, refunded civilian service, or any period of non‑deduction time, the complexity increases dramatically. And in today’s environment of extended OPM processing delays, the margin for error has never been thinner.

This is where advisors can deliver extraordinary value. Federal employees rarely receive proactive guidance from their agencies, and HR departments are often too overwhelmed to provide the level of clarity clients require – Federal agency HR managers also aren’t allowed to give any personalized recommendations to their employees. When an advisor can step in, untangle the rules, and help clients avoid the mistakes that lead to months of delayed income, you become an indispensable partner in one of the most consequential transitions of their lives.

Fed Options is here to help with the process so nothing falls between the cracks – Schedule a Meeting to learn more.

BOOK YOUR APPOINTMENT NOW

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Military Service Deposits & Redeposits for Federal Retirement

The first major challenge for many federal employees is understanding whether their past service counts toward their FERS pension, what they must do to make it increase their pension, and whether or not any increase is worth making the necessary deposit or redeposit. Military or federal service deposits and civilian redeposits are among the most misunderstood parts of the federal retirement system, and the consequences of misunderstanding them can be severe.

Military Deposits: Timing and Process

A military service deposit must be paid in full before the employee can retire from federal service. If a deposit is not completed at the time of separation, this will delay the retirement process. And if the deposits stop, the money is refunded and the service simply does not count toward the pension. Advisors who catch this early can save clients from losing years of creditable service and thousands of dollars in lifetime income. In fact, the earlier into a federal career that these deposits are made, the better. This is due to the fact that the deposit amount due starts to gain interest after 3 years of working for the government. By the time a client reaches retirement age, the interest alone can double the cost of the deposit. Advisors who encourage clients to complete their buybacks early in their careers can save them thousands of dollars and eliminate a major administrative hurdle later on.

The process itself is straightforward but tedious. Clients must request their estimated military earnings by submitting an RI 20‑97 form to the appropriate military finance center, attaching their DD214, and waiting for the earnings statement to be returned. Once received, the agency HR office calculates the deposit amount, and informs the employee of their deposit options. Advisors who guide clients through this process early prevent last‑minute scrambles and reduce the risk of errors that can delay retirement.

Making Redeposits for Past Service

Civilian redeposits operate slightly differently. If a client previously left federal service, withdrew their CSRS or FERS retirement contributions, and later returned, they can make a redeposit. For FERS, this will help boost their eligibility and pension amount, but for CSRS this service time may already count towards both their eligibility and pension but still affect the pension benefit with a penalty reduction. So understanding how a redeposit affects the federal employee’s pension and determining if it is “worth it” to make the redeposit are key questions that advisors can help employees understand. Especially, because after submitting their retirement application OPM will give the employee an opportunity to make a redeposit before finalizing their retirement application. And the redeposit must be completed before OPM finalizes the pension. In practice, this means advisors should encourage clients to resolve redeposits well before retirement to avoid becoming trapped in OPM’s adjudication queue. This also helps to avoid more interest being accrued for the redeposit amount owed as well.

Overcoming HR Hurdles and Correcting Service Deposit Errors

Even when clients follow the rules, HR complications can derail the process. Advisors must be prepared to step in when HR cannot.

One of the most common issues is a DD214 that contains the wrong separation code or incorrectly categorizes service such as active duty vs. reservist credits. A single miscoded DD214 can cause HR confusion or incorrectly determine how the service is creditable.

By reviewing service documents, identifying inconsistencies, and helping clients gather the correct paperwork, financial professionals can catch errors that would otherwise delay the retirement application for months. And you do not have to do this alone.

Fed Options was built to support advisors in exactly these situations. With access to the Benefits Command Center, advisors can receive expert guidance and hands‑on support for resolving service deposit issues, and other application mistakes. Fed Options provides the infrastructure to ensure your clients’ applications are clean, accurate, and ready for OPM.

Enroll in the Federal Benefits Basics Online Course now!

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#2 Preparing Clients for the OPM Waiting Game

Even a flawless retirement application cannot escape the reality of OPM’s current processing environment. DRP and VERA offers have been continuing into 2026. With more than 38,000 pending retirement claims in the backlog as of May 31, federal retirees must be prepared for a slow and sometimes frustrating adjudication process. Advisors play a critical role in setting expectations and preparing clients financially and emotionally for the waiting period.

Note that after the potential retiree submits their application via the new ORA system, on the retirement date, it then goes to their agency’s HR department for review, and from there goes to their payroll provider who certifies their service history and pays out the lump sum payout for unused annual leave. Only after these 3 steps are completed will the retirement claim be sent to OPM for processing. While an error-free application can take as little as 7 business days after reaching this point, even one error can lead to delays that can extend to several months.

Most retirees receive their first interim payment within three to six weeks of separation. These payments are typically 30 to 60 percent of the final pension amount and continue until OPM finalizes the calculation. The final adjudication can take three to five months or longer, depending on the complexity of the case and the volume of applications OPM is processing on a “normal” basis. With the current backlog employees are waiting several more weeks for their interim payment and several more months for their final pension amounts to arrive.

Clients who are not prepared for this timeline may panic when their first interim payment does NOT arrive or when they do not receive immediate confirmation of their claim. Financial Professionals should encourage clients to monitor their mail for their CSA claim number, which typically arrives within a few weeks. If it does not, the client must contact OPM directly. Calling early in the morning, before peak hours, increases the likelihood of reaching a representative.

If OPM remains unresponsive, clients will probably need to escalate the issue. And we have the resources to assist in this.

Advisors Who Prepare Clients for this Process Become Indispensable During Retirement

Federal retirement can often be a complex, multi‑layered process that requires precision, patience, and expertise. Advisors who proactively manage service deposits, help clients resolve HR challenges as timely as possible, and prepare them for OPM delays provide a level of value that few federal employees have ever experienced.

By partnering with Fed Options, you gain access to tools and support systems that streamline the process, reduce administrative burden, and ensure your clients’ retirement applications are as clean and accurate as possible.

And to make your job easier, we’ve included a resource you can share directly with your clients.

Download the OPM Contact Sheet below so your clients always know exactly how to reach OPM Retirement Services when the squeaky wheel needs grease.

DOWNLOAD OPM CONTACT SHEET

Other Helpful Links:

Contact information: https://www.opm.gov/support/retirement/contact/

OPM Resource Center: https://www.opm.gov/retirement-center/

OPM Services Online (log-in required): https://www.servicesonline.opm.gov/

Contact Information for HR Officers: https://www.opm.gov/retirement-services/benefits-officers-center/agency-benefits-officers/

Federal Retirement

FEGLI in Retirement: Guide for Financial Professionals Serving Feds

Posted on by Cassie Graves
FEGLI and Life Insurance Retirement Planning Guide for Financial Firms

FEGLI premiums, especially for Option B, can rise sharply in retirement. Advisors who proactively compare FEGLI to private alternatives can help clients avoid overpriced coverage.

How Advisors Can Help Decipher FEGLI Choices in Retirement

FEGLI is one of the most misunderstood components of the federal benefits package, and the transition into retirement is where the biggest mistakes occur. Keeping, reducing, or dropping coverage altogether can be a decision hinging entirely on an individual’s health and financial circumstance.

If advisors don’t step in early to review FEGLI’s age‑banded premiums, reduction rules, and long‑term cost trajectory, clients may discover that their once‑affordable coverage has become unsustainable – often when it’s too late to make a change. By the time the financial impact is realized, their health profile may no longer support competitive private underwriting, leaving only two routes: drop coverage altogether (meaning decades paid into the program were essentially wasted) or keeping FEGLI at a steep price.

Are you a financial professional who needs back-office support for serving federal prospects and clients? Schedule a Free Consultation with Fed Options to learn more.  

 

Advantages of FEGLI Coverage While In Service

During active federal service, FEGLI (especially Basic) is often a simple choice, being more accessible, and often more cost‑effective, than obtaining an outside individual policy in its place:

  • Basic Coverage: Salary rounded up to the next $1,000 + $2,000. Partially subsidized by the government.
  • Option A: A flat $10,000 of additional coverage. (Amount has not changed since 1968 when option A was established and $10,000 had much more purchasing power. In today’s dollars, it would be equivalent to over $95,000.)
  • Option B: One to five multiples of salary. Usually affordable early in a career but increases every five years, gradually becoming very costly.
  • Option C: Family coverage for spouse and eligible dependent children.

No medical underwriting is required if elected at hire or during a qualifying life event, creating an important safety net for employees with health concerns.

Advisors should also ensure clients keep their FEGLI beneficiary form updated. FEGLI pays strictly according to the form on file, not the will.

Stay up-to-date with Federal Employee Retirement Benefits news and updates – Subscribe to the Fed Options Newsletter

 

FEGLI Gets Expensive Fast as Feds Approach their Retirement Years

FEGLI premiums spike dramatically as covered individuals approach the ages at which they are eligible to retire comfortably, potentially eroding the value of their FERS or CSRS benefits. This is especially the case when it comes to Option B.

  • Age‑Banded Premium Spikes: Option B costs jump at ages 55, 60, and 65. These increases can be dramatic, doubling or more within a single band.
  • Automatic Reductions:
    • Option B reduces 2% per month starting at 65 unless the retiree elects the costly “No Reduction” option.
    • Option A gradually reduces automatically in retirement to 75% at age 65 unless it is dropped completely – a move that is highly advised against in almost all cases.
  • Basic Coverage Reduction Choices: Retirees must choose a 75% Reduction, 50% Reduction, or No Reduction. The 75% Reduction eliminates premiums at 65 but leaves only 25% of Basic coverage.

For many retirees, FEGLI becomes one of the most expensive benefits they carry into retirement, often without fully realizing it until the bills arrive.

Infographic to Help Feds see cost of Life Insurance in Retirement

Advisor Strategies for FEGLI and Retirement

FEGLI was designed as a workforce‑protection benefit, not a permanent retirement solution. To address this, financial planners should help feds with following, ideally when they’re 5 years out or later from retirement, as to lock in better rates.

  • Compare FEGLI Option B to Private Term: Private carriers offer level premiums that don’t escalate with age.
  • Customize Coverage: Private policies allow precise tailoring of survivor needs without FEGLI’s reduction rules.
  • Review Option C: If a spouse passes away or children age out, coverage should be dropped. Retirees may even qualify for a refund if they paid for ineligible dependents.

Your role is to help clients understand what FEGLI really costs over time, and whether it still will fit in their retirement plan.

Strengthen Your Firm With Fed Options

Fed Options provides the back‑office support that makes federal benefits planning scalable and repeatable.

How Fed Options Supports Your Firm

  • Benefits Command Center: Automated FEGLI comparisons, cost modeling, and strategy notes.
  • Advisor‑Ready Reports: Clean, client‑facing visuals that simplify complex FEGLI decisions.
  • Federal Benefits Basics Course: A foundational training program covering CSRS, FERS, TSP, FEHB, FEGLI, and survivor benefits.

Meet With Fed Options

Schedule a meeting with Fed Options. We’ll show you how our back‑office support can help your firm deliver deeper value to federal prospects and clients.

Federal Retirement

Why Working Until 60 Might Be Worth It Under FERS

Posted on by Ben Derge
Working Until 60 Might Be Worth It - Federal Retirement

Federal employees who reach their Minimum Retirement Age with fewer than 30 years of service face steep, permanent reductions if they retire too early.

Recently, we described why age 62 is the sweet spot for federal retirement but for many feds, that could mean working another 5 years when they could technically claim their pension at 57. If that’s the case, especially for those with less than 30 years of service, waiting to at least 60 could result in much more retirement income down the road.

Working Longer Has Pay-Offs for Federal Employees

Federal employees who have worked most or all of their career in the government often look forward to reaching their minimum retirement age (MRA) as the main assumption is that’s when they’ll be good to go, leave service, and head to the beach. But whether a given employee has 30 years of service or less, retiring early under FERS is more about immediate gratification with long‑term consequences than the result of proper planning. A little more diligence and patience can deliver dramatically stronger retirement economics. For advisors serving the federal workforce, helping clients understand the difference is one of the highest‑impact interventions you can make.

This article will cover why federal employees who have reached their MRA should consider working at their agency longer, if possible. With more years of service, the impacts of retiring early are less severe, but still apply to all regular FERS employees. Special Provisions workers are subject to mandatory retirements, but retiring before this milestone is reached – such as when they reach 50 with 20 years – could still be advised against unless they are dead-set on leaving their government job ASAP, possibly to take advantage of recent VERA and DRP offers. For a regular retirement under FERS, though, there’s a lot to take into consideration before applying to OPM.  

The Allure and Risks of the Retiring Too Early

Retiring before age 60 is appealing to many employees for a multitude of reasons. But whether a client reaches MRA with 10–29 years of service (MRA+10), 30 years, or less than 10, this fact remains – each additional service year adds more to the FERS pension calculation, boosting monthly income for life. As service time gets lower, the rules become far less forgiving.

Take a look at the following scenarios where continuing to work is compared with the pension received had they claimed their benefits sooner:

Age + Service Years Pension Calculation
(retiring immediately) 		Annual Pension Amount
(retiring immediately) 		Pension Calculation
(waiting 3 years) 		Annual Pension Amount
(waiting 3 years) 		Pension difference
(annual)
MRA (57) with
30 years 		   
$100,000 x 30   x 1%   		    
$30,000   		 $101,000 x 33 x 1%
(Age 60) 		   
$33,330   		    
$3,300    
MRA (57) with
20 years 		   
$100,000 x 20   x 1%   		 $15,000
(with age-based reduction) 		$101,000 x 23 x 1%
(age 60) 		$23,230
(no reduction) 		   
$8,230   
Age 53 with
20 years
(Special Provisions) 		   
$100,000 x 20   x 1.7%   		 $34,000 $101,000 x 20 x 1.7% = A

$101,000 x 3 x 1% = B

A + B

$37,370

$3,370

into a $66,000 total difference. Not only were extra years added to the calculation, but a larger high-three salary as well (due to in-grade and annual raise increases). Retiring immediately at the MRA with 20 service years includes the permanent age-based reduction (5% for every year under 62, so 25% in this case). Over 20 years, $164,600 would be the total price tag for leaving 3 years earlier.  

These permanent, irrevocable reductions are applied to the base pension before any survivor election or FEHB premium. By contrast, reaching age 60 with at least 20 years of service eliminates the reduction entirely.

Schedule a meeting with Fed Options to see how our Benefits Analysis Strategy helps advisors model these breakpoints with clarity and confidence, ensuring clients make decisions rooted in long‑term financial stability rather than short‑term emotion.

What to Remember about the SRS and Postponed Annuity Options

Many feds will turn to postponing their pension to avoid the age-based penalty or assuming the FERS supplement will provide enough additional income to make-up the financial windfall of leaving earlier. Here’s what to keep in mind regarding these solutions.

The FERS Special Retirement Supplement (SRS)

The FERS Supplement is one of the most misunderstood components of retirement system. These Social Security “bridge” payments are funded by OPM, designed to replace the income gap between retirement and age 62, when Social Security can be claimed. But it is only available to employees who retire under immediate, unreduced provisions. Anyone retiring under MRA+10, whether they take the reduced pension immediately or postpone it, loses access entirely. Reaching age 60 with 20 years of service restores eligibility, often adding thousands of dollars per year during the early retirement window. However, the earnings test is overlooked in some cases and a former fed who takes a job outside of the federal government might see their SRS reduced or completely eliminated by outside earned income. (Reminder: earned income doesn’t include passive income like that gained from investment growth.)

Preserving FEHB Without Interruption

Health insurance continuity is one of the most powerful reasons to guide clients toward age 60. An MRA+10 retiree who postpones their annuity to avoid the penalty must surrender FEHB coverage until the annuity begins. For a 56‑year‑old, that could mean four years of private‑market premiums, ACA navigation, or COBRA… none of which compare favorably to FEHB’s pricing or relative stability. Retiring at age 60 with an immediate unreduced annuity keeps FEHB intact, provided the client meets the five‑year enrollment rule. After considering FEHB, there are other issues with postponing the pension, mainly: what will provide income before the FERS benefit begins? The TSP? It might be drained too quickly. Even if leaving the government, most people in this situation will need some employment or other source of funds.

Other Financial Benefits to Delaying Retirement to Age 60

Delaying retirement from a position at a federal agency can have apparent positive outcomes. Here are two more financial consequences to think about when helping feds with their retirement plan.

Mind the COLA Gap

FERS retirees do not receive Cost‑of‑Living Adjustments until age 62, which means early retirees face several years of flat income. In a low‑inflation environment, this is inconvenient. It can be downright punishing in a high‑inflation environment (like some would argue we’re experiencing now). Retiring at MRA can lock a client into four or five years of erosion before their first adjustment. Retiring at 60 reduces that window to just two years, allowing the pension to begin keeping pace with rising costs much sooner. Advisors who model inflation scenarios often find that the COLA gap alone can justify delaying retirement.

Giving More Time for TSP Investments to Grow

Working until age 60, or longer, actively strengthens the retirement foundation. Continued Thrift Savings Plan contributions, combined with the 5% agency match, add meaningful compounding growth during the final years of peak earnings. Simply not touching these retirement savings funds preserves the cash for future use. And if the money continues to grow through proper investment, that’s even more preserved income for later years.

Helping Fed Avoid a Costly Retirement Decision

Retiring at MRA may feel emotionally satisfying, even liberating, but the financial trade‑offs are steep, permanent, and should not be overlooked. For clients with fewer than 30 years of service, reaching age 60 with at least 20 years is one of the more powerful levers in FERS planning. It preserves FEHB, grants eligibility for the SRS benefit, eliminates the age penalty, narrows the COLA gap, and strengthens both the pension and the potentiality of the TSP. Advisors who guide clients through this decision can help reshape the trajectory of their retirement lives, leading to a stronger relationship built on trust.

Stay Ahead of Federal Retirement Strategy

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Federal Retirement

2026 Federal Retirement Guide for VERA, VSIP, and the DRP

Posted on by Ben Derge
2026 Federal Retirement Guide: Deferred Resignation and VERA Offers for FERS Retirement

What Financial Advisors Need to Know as DRPs Return and Downsizing Accelerates

The federal workforce is entering another year of restructuring. This time around, the pressure is higher, the timelines are tighter, and the decisions are more consequential. Agencies across government are rolling out early‑out options, buyouts, and separation incentives to reduce headcount without resorting to mass layoffs. For many federal employees, these offers with only a few weeks to decide whether to stay, resign, or retire.

For financial advisors and insurance professionals who serve federal employees, your clients in the federal workforce are facing choices that will permanently shape their income, benefits, and retirement trajectory. They need clarity, accuracy, and someone who understands the difference between a VERA, a VSIP, a DRP, and a DSR.

Need help assisting federal employees with retirement decisions? Schedule a free consultation with Fed Options here.

 

The Return of the Deferred Resignation Program (DRP)

After causing major changes throughout the federal government last year, the Deferred Resignation Program (DRP) has returned in 2026, and it’s already creating confusion among employees and advisors alike.

Similar to last year’s DRP waves, where pay ended on September 30 or December 31 for those who chose to accept the offer, feds who are eligible to retire by date can do so. Once they do, however, the interim pay ends so timing is really key here. For employees who want to maximize income while preparing for their next step, having a financial planner who they trust and who has expertise with federal benefits can make all the difference.

Main takeaway: retirement overrides resignation. Advisors must make this distinction crystal clear.

Voluntary Early Retirement Authority (VERA)

VERA temporarily lowers the age and service requirements for an immediate FERS pension.

Eligibility:

  • Age 50 with 20 years of service, or
  • Any age with 25 years of service

There is no age‑based pension reduction, unlike MRA+10 retirements, and OPM typically grants waivers allowing employees to keep FEHB and FEGLI even if they haven’t met the five‑year enrollment rule. When it comes to the Special Retirement Supplement (SRS), clients who retire under VERA before reaching their Minimum Retirement Age (MRA) do not receive the SRS until they’ve reach their MRA. This gap can create a significant income shortfall that catches many employees off-guard.

Voluntary Separation Incentive Payment (VSIP)

Sometimes offered with a VERA, a VSIP is a lump‑sum buyout designed to encourage voluntary separation.

  • Standard maximum: $25,000
  • DoD maximum: $40,000
  • Fully taxable (net often $15,000–$19,000)

One important aspect to remember, especially if a client wants to return to federal service, is that if they do return within 5 years, the full VSIP amount must be paid back. Planners should help clients evaluate whether the short‑term cash is worth the long‑term loss of salary, service credit, and benefits.

RIFs and Discontinued Service Retirements (DSR)

If voluntary measures fail, agencies experiencing a Reduction in Force (RIF) can eliminate some positions, leaving some feds out of the job through no fault of their own. For clients who experience a separation involuntarily, a Discontinued Service Retirement (DSR) might be their only option when it comes to collecting an immediate pension.

  • Eligibility rules are identical to VERA
  • Because a DSR is involuntary, VSIP buyouts are never offered.

Advisors should prepare clients for the possibility of a RIF and help them understand how a DSR compares to VERA, MRA+10, and deferred pension options.

Financial Implications Advisors Must Address

Retiring from the federal government earlier than anticipated can result in long‑term financial consequences. Here is what retirement planners should focus on to ensure feds are on track financially to reach their post-career goals.

TSP Access and Penalties

Clients who retire under regular FERS before age 55 face a 10% IRS penalty on TSP withdrawals before age 59½. If retiring at 55 or older, however, there is no penalty. This means a 54 year old FERS retiree will have to wait until 59.5, not 55, to access their TSP account without an age-based fee. If the retiree has a Roth TSP component, and the 5-year rule has been satisfied, penalty-free withdrawals can be taken from Roth contributions (but not the growth portion).

Pension and Social Security Reductions

Leaving federal service early entails fewer years of service credit and a lower high‑3 average salary, ultimately leading to a permanently smaller pension and the potential reduction of Social Security benefits. Financial professionals must model these impacts clearly so clients understand the tradeoffs.

Advisors Who Understand These Rules are More Likely to Succeed

The 2026 downsizing wave is creating urgency, confusion, and opportunity. Federal employees are being asked to make life‑altering decisions on short timelines, often with incomplete or misunderstood information. Advisors who can confidently explain DRPs, VERAs, VSIPs, and DSRs will stand out as trusted experts.

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Federal Retirement

Top 5 Reasons Why Age 62 is the Sweet Spot for FERS Retirement

Posted on by Ben Derge
FERS Retirement - Age 62 Sweet Spot

For federal employees who are eligible to retire at their MRA or at 60, waiting until age 62 comes with a handful of perks. While early retirement may seem tempting, waiting until 62 under FERS can unlock a suite of financial advantages that significantly impact long-term stability and income. Before helping feds retire before this key age, financial planners should remind them of the benefits should they continue to work.

1.    Enhanced Pension Formula: The 1.1% Multiplier

Retiring at age 62 with at least 20 years of service boosts your pension multiplier from 1.0% to 1.1%. This seemingly small increase translates to a 10% permanent boost to your pension. For example, a high-3 average salary of $100,000 with 20 years of service yields:

  • At 1.0%: $20,000/year
  • At 1.1%: $22,000/year — an extra $2,000 annually for life.

This example also doesn’t account for the extra service that would come with holding off on retiring for a year or more, which would also most likely translate to a higher average salary used when computing the FERS Retirement annuity. Working longer also often means higher earnings, which directly impact your pension.

2.     Immediate Cost-of-Living Adjustments (COLAs)

FERS retirees under age 62 do not receive COLAs until they reach that age. Waiting ensures your pension begins adjusting for inflation right away, preserving purchasing power. Skipping COLAs for 5 years (e.g., retiring at 57) can lead to thousands in lost income in the long run.

Exceptions include:

  • Disability retirees
  • Survivor annuitants
  • Special Provisions employees (e.g., law enforcement, firefighters, air traffic controllers)

There’s also compounding growth to consider. Each year’s COLA builds on the previous year’s adjusted amount. Missing five years of COLAs means losing out on compounding increases.

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3.    Social Security Eligibility

Age 62 marks the earliest eligibility for Social Security benefits. While delaying Social Security can increase monthly payouts, retiring at 62 offers the flexibility to start benefits if needed. And although an earlier exit might mean collecting the special retirement supplement (SRS), this can be limited by earnings received if a federal retiree decides to work elsewhere after leaving government service. Delaying Social Security can also increase spousal or survivor benefits, which would be based on your higher delayed amount.

4.  Delay FERS Retirement, More Time to Grow TSP

Continued employment allows for additional contributions to the Thrift Savings Plan (TSP). Federal employees that hold off retirement continue to benefit from the government matching, catch-up contributions, and most importantly, compounded growth over extra years. Delaying withdrawals means extending potential for growth When FERS employees retire later, they postpone accessing retirement savings in their TSP, meaning investments continue to earn returns, potentially increasing the balance significantly. The longer you wait you apply for retirement, the less pressure there is to draw down your savings, helping your TSP money last longer. Also, if contributing to a Roth TSP, a portion of any extra growth would be tax-free upon making qualified withdrawals.

5.    Delayed Onset of Retirement Expenses

When longevity of retirement assets are extended, financial strain is reduced. It’s all about making that nest egg last as long as retirement does. The goal is to stretch resources across a potentially 30+ year span. The longer assets last, the less strain on your financial goals. Strategic withdrawals can help federal retirees stay in lower tax brackets, and using Roth conversions can optimize taxable income over time.

Healthcare costs often spike as people get older. Preserving assets ensures not having to sacrifice care or lifestyle when expenses rise. Knowing assets are built to last reduces anxiety, allowing federal retirees to enjoy golden years without constantly worrying about money.

Learn more about Federal Benefits and FERS Retirement Strategy when you Enroll in the Federal Benefits Basics Course.

Federal Retirement, Financial Planning for Feds

Everything You Need to Know About Recent Changes to the Roth TSP

Posted on by Cassie Graves
Roth TSP - Recent Changes - 2024 - 2026, SECURE Act 2.0

Reviewing the end of Roth RMDs, in-plan conversions, and the new mandatory contribution rule that went into effect this year.  

Refresher: What Is the Roth TSP?

The Roth Thrift Savings Plan allows federal employees and uniformed service members to contribute after‑tax dollars to their retirement plan. Like a Roth IRA, qualified withdrawals, including earnings, are tax‑free if:

  • The participant is 59½ or older, and
  • The Roth TSP has been open for at least five years

With the removal of RMDs and the upcoming catch‑up rule changes, the Roth TSP is becoming an increasingly central tool in long‑term tax planning for federal employees.

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What Makes a Roth TSP Different from a Roth IRA?

For years, the differences between a Roth TSP and a Roth IRA came down to two major rules:

  • Income limits
  • Required Minimum Distributions (RMDs)

Federal employees have always been able to contribute to the Roth TSP regardless of income, while Roth IRAs phase out contributions at higher income levels. And until relatively recently, Roth TSPs were still subject to RMDs, unlike Roth IRAs. But since tax year 2024, that second difference is gone. Roth balances inside the Thrift Savings Plan no longer require RMDs, aligning the Roth TSP with Roth IRAs for the first time.

Therefore, the biggest remaining contrast between the Roth accounts now is that you can’t contribute to a Roth IRA if income is above a certain level ($168,000 for single filers and $252,000 for joint filers in 2026), but no there are no income restrictions

Plus, thanks to SECURE Act 2.0, two additional TSP contribution changes are now shaping how federal employees plan for retirement.

We’ll also look at how in-plan TSP Roth conversions might work for your financial plan.

Learn how Fed Options can elevate your firm or agency to next level – Schedule a free consultation.

No More RMDs for Roth Accounts in the Thrift Savings Plan

Beginning in the 2024 tax year, Roth TSP accounts are no longer subject to lifetime RMDs. This is one of the most significant improvements to the federal employee savings plan in years.

Historically, RMDs were required because TSP withdrawals had to be taken pro‑rata from Traditional and Roth sources. That rule made it impossible to isolate Roth dollars from distribution requirements. But now, the rules are far more flexible. Withdrawals must still be taken proportionately from the funds (G, F, C, S, I) you’re invested in. But you can now choose how much comes from Traditional vs. Roth. This gives federal retirees significantly more control over:

  • Tax‑efficient withdrawal sequencing
  • Managing taxable income in retirement
  • Preserving Roth dollars for long‑term, tax‑free growth

For advisors, this opens the door to more nuanced income‑planning strategies, especially when coordinating TSP withdrawals with Social Security, pensions, and outside IRAs.

Catch‑Up Contributions Must Go to Roth TSP for High Earners

2026 will be the first tax year where all catch‑up contributions for federal employees earning above a certain threshold must be made after‑tax into the Roth TSP. So, for IRAs, high income could restrict access to a Roth account, but with the TSP (for catch-up contributions at least), high income mandates the use of a Roth account.

Here’s the rule:

  • If a federal employee’s federal salary exceeds $145,000 (indexed), their catch‑up contributions (age 50+) must be put in a Roth TSP.

Important clarifications for advisors:

  • Only federal salary counts toward the $145,000 threshold
  • Spousal income does not matter
  • Outside income does not matter
  • If a federal employee’s AGI is high but their federal salary is below the threshold, they may still make Traditional catch‑up contributions
  • All agency matching contributions remain Traditional, regardless of employee choice

This rule will push many high‑earning federal employees toward larger Roth balances, which is a point advisors should proactively model for tax‑diversification and bracket‑management purposes.

Increased Catch‑Up Amounts for Ages 60–63

Another SECURE Act 2.0 change that went into effect for the 2025 tax year gives federal employees ages 60 to 63 a temporary “super catch‑up” window.

For 2025:

  • Standard catch‑up (age 50+): $8000
  • Additional age‑60–63 catch‑up: $11,250 ($8000 + additional $3,250)
  • Regular TSP contribution limit: $24,500

This means employees ages who turn 60 – 63 this year can contribute up to $35,750 total in 2026.

This is a powerful planning window for late‑career savers, especially those preparing for early retirement, VERA offers, or RIF exposure.

Enroll in the Federal Benefits Basics Course to start learning about federal benefits online, at your own pace.

When Feds Should Consider Utilizing New In‑plan TSP Roth Conversions

Now fully available inside the Thrift Savings Plan since the end of January 2026, in-plan TSP Roth conversions allow federal employees to convert existing Traditional TSP balances into Roth TSP dollars without rolling funds out into an IRA first. The converted amount is added to taxable income for the year, so clients must have outside cash available to cover the tax bill.

A Roth conversion is generally most attractive when a client expects to be in a higher tax bracket later, but is currently in a low‑income year (such as the gap years between retirement and Social Security), wants to reduce future RMD exposure from Traditional accounts, or wants to build a tax‑free income “bucket” for long‑term planning and estate efficiency. Conversions are less appealing when the tax hit pushes the client into a higher bracket, triggers IRMAA surcharges, or strains liquidity.

The key is modeling the tax impact over multiple years so the conversion becomes a strategic move, not an expensive surprise. This is key area where federal employees need guidance from a financial professional they trust.

Federal Retirement

Breaking Down the 5-Year Rule Waiver for FEHB

Posted on by Cassie Graves
FEHB 5 year rule waiver

What is the 5-year rule for keeping FEHB in retirement? Learn in which circumstances it can be waived to keep health insurance.

How Federal Employees Can Keep Health Benefits in Retirement with Waiver of 5-Year Rule

The waiver of the five-year rule for the Federal Employees Health Benefits (FEHB) in retirement is an exception granted by the Office of Personnel Management (OPM) under specific circumstances. Normally, federal employees must be continuously enrolled in FEHB for the five years immediately preceding retirement or since their first opportunity to enroll to continue coverage post-retirement. However, OPM can grant waivers in limited cases.

LOPM may approve a waiver if:

  • • The employee retires under an early retirement or buyout authority known as the Voluntary Early Retirement Authority (VERA).
    • The employee has been continuously covered under FEHB since their agency’s latest statutory buyout authority or an OPM-approved early retirement/buyout authority.
    • The employee receives a buyout, takes early optional retirement, or faces involuntary separation due to a Reduction in Force (RIF), directed reassignment, reclassification to a lower grade, or abolishment of position.

This waiver is particularly important in 2025 as the federal workforce has undergone a drastic restructuring. The FEHB waiver is being granted to those who accepted a VERA buyout, a deferred resignation offer, or were involuntarily separated and eligible to retire either with a regular pension or a DSR (discontinued service retirement). However, with a deferred retirement, employee are ineligible for an FEHB plan after retiring and this remains the case. Former workers might be able to receive a TCC (temporary continuance of coverage) if not able to retire without deferring. However, the full premium to a 2% administration fee must be paid by the former employee, making the cost much more of a burden. While in service, the government covers 72 to 75 percent of FEHB premiums.
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How to Apply for a Waiver for FEHB 5 Year Rule

  • Employees do not need to write to OPM if their agency has buyout authority.
  • If eligible, the agency will attach a memorandum to the retirement application stating that the employee meets the waiver requirements.
  • Employees should contact their Human Resources Office to determine eligibility and ensure proper documentation is submitted.

Breaking Down the Five Year Rule for FEHB in Retirement

The FEHB five-year rule is a key requirement for federal employees who want to continue their Federal Employees Health Benefits (FEHB) coverage into retirement.

To keep FEHB coverage after retirement, an employee must:

  1. Be enrolled in FEHB for the five years immediately before retirement or, if less than five years, for all service since their first opportunity to enroll.
  2. Retire on an immediate annuity, meaning they start receiving their pension right away. With a postponed, but not deferred, annuity, the retiree can resume FEHB coverage upon collecting their pension if they met the requirement above.

How Previous Enrollment Counts

  •  If an employee had breaks in service where they were not eligible for FEHB, previous enrollment can count toward the five-year requirement.
  • If an employee canceled FEHB coverage while continuously employed, they must restart the five-year period upon re-enrollment.

What Happens If You Don’t Meet the Rule?

  • You get a 31-day extension of coverage at no cost.
  • You can convert to an individual policy or request Temporary Continuation of Coverage (TCC) for up to 18 months, but you must pay 100% of the premium plus a 2% administrative fee.
Federal Retirement

Federal Retirement Myths: Debunking Early Retirement for Federal Employees

Posted on by Cassie Graves
Top Early Retirement Myths for Federal Employees

Reviewing three commonly misunderstood rules regarding retiring from the federal government. Which of these did you think was true?

Myth #1: You Need an Application for the FERS Special Retirement Supplement (SRS).

False! Federal employees do not need to apply for the SRS, which supplements social security income until age 62. If eligible, retiring feds receive the benefit automatically at no cost. Eligibility mostly depends on the type of retirement. If the FERS pension is unreduced and immediate, any FERS retiree younger than 62 will get the extra income. It is also important remember, as the current White House continues to reduce personnel at federal agencies, that those retiring under VERA (Voluntary Early Retirement Authority) or with a DSR (discontinued service retirement) will not receive the SRS until they reach their MRA (minimum retirement age, between 55 and 57).

What is the difference between VERA and DSR?

The main difference between the two is that with a VERA, retirement is voluntary and with a DSR, the federal employee left their federal job involuntarily. Another difference is that “early out” retirements under VERA are offered through the employing agency while a DSR has to applied for with OPM. There are also no VSIPs (Voluntary Separation Incentive Payments) with a DSR.

Why do some federal employees believe the SRS has to be applied for?

Some federal retirees expecting an SRS benefit still do not receive it. This is not because they “didn’t apply for it,” and most likely not an error, but because the federal retiree is working another job. Like with social security, the SRS is subject to the earnings test. If earned income is more than $23,480 (in 2026), then the SRS is reduced $1 for every $2 received. If they have a job that pays well above this limit, it could completely cancel out their SRS.

Need to talk with a Federal Benefits Specialist? Schedule a meeting.

Myth #2: There are NO exceptions to FEHB 5-Year Rule to Keep healthcare plan after retiring.

This is also FALSE! A waiver can be requested to override the FEHB 5-year rule, even if the employee’s agency doesn’t already have pre-approval for a waiver. If the agency is pre-approved to waive the requirement themselves, an HR specialist should provide the retiring employee with a memorandum explaining the authority that the agency has regarding its ability to waive the 5-year requirement. If not pre-approved, the federal worker must contact OPM directly at  (202) 606-1535 to request a waiver.

Approval of the waiver is dependent on the following conditions:

  • The federal employee was unable to satisfy the 5-year rule due to circumstances out of their control, and they took reasonable to steps to attain FEHB coverage in the given timeframe.

They must provide evidence that:

  • The individual had a compelling reason to believe they were covered under FEHB during the timespan in question, OR
  • Their employing agency didn’t allow them to enroll despite being eligible,
  • The amount of control the employee had over their FEHB coverage enrollment,
  • If they acted to regain coverage at the “earliest opportunity” after learning about loss of FEHB benefits, AND
  • If they had “substantial” FEHB coverage during their last 5 years of federal service.

What is the FEHB 5 Year Rule?

For a federal employee to retain their FEHB health care plan after retiring, they must maintain coverage for at least the last 5 years that they were employed by the federal government. Note that this rule is based on 5 continuous years of coverage, not consecutive. What this means is that if there was a break in service, the employee could still be eligible for FEHB in retirement even if they did not have FEHB during that break. So if a federal employee had an FEHB plan for 3 years, took a one year leave without pay in which he didn’t not have FEHB, and then came back to the federal government to work 2 more years and reenrolled in FEHB, those 5 continuous years would count despite not being consecutive. And remember, even if the rule is satisfied, a surviving spouse can only maintain FEHB coverage if they receive a survivorship pension after the federal retiree passes away.

Myth #3: Employees retiring under Special Provisions can’t avoid age-based penalty when making TSP withdraws unless they retire the year that they turn 55.

FALSE – another myth DEBUNKED! This rule is often confused with the TSP early withdrawals rules for regular FERS employees. Typically, when retiring with an unreduced immediate FERS pension at age 55 or older, the age-based penalty is not applicable. If retiring early before age 55, however, they must wait until the usual age of 59.5 to take money out of the traditional TSP and not worry about the steep 10% IRS penalty. For workers retiring under special provisions (firefighters, law enforcement officers, and air-traffic controllers), the rules work different.

Retirement Eligibility for Special Provisions

Similar to the eligibility requirements for both DSR and “early-out” retirements under VERA, employees must be at least age 50 with 20 years of service, or any age with at least 25 years. Unlike regular FERS, though, retiring under special provisions means as long as you go out with an unreduced, immediate pension, you can start taking penalty-free TSP withdrawals at ANY age. This means, so long as they had 25 years of creditable service, these employees could start withdrawing from their traditional TSP assets in their 40s and not be impacted by an age-based IRS penalty. (This rule was added in the SECURE Act 2.0)

Become a Federal Benefits Expert! Check out the Federal Benefits Basics Course