By B. Steven Bass | Financial Advisor

Are you considering retiring from federal service? There’s a lot to think about. Here are six important things you need to know before you take the plunge into retirement life.

1. You are permitted to continue Federal Employees' Group Life Insurance (FEGLI) basic insurance when you retire as long as you meet eligibility requirements, including retiring on an immediate annuity (this includes VERA retirees), being enrolled in FEGLI on the date of your separation and having FEGLI for the five years immediately prior to your retirement. However, after retirement (or age 65 and older), you may not know that FEGLI will be more expensive. Determine whether you really need to keep it. Are your kids grown and self-sufficient? Does your spouse have enough assets to live comfortably without you? If you do need it, you may also consider private life insurance coverage where you have the ability to combine life insurance needs and long-term care expense mitigation through a hybrid policy.
    
2. Speaking of FEGLI, be sure to update your beneficiaries on all of your federal benefit accounts before retiring.
    
3. Waiting until age 62 will result in a larger pension (with 20 years of service).
    
4. You can leave your funds in the TSP. But keep in mind that the TSP has limited investment options and withdrawal flexibility. Carefully consider what to do with these funds to maximize them in the future. If you don’t leave the funds in your TSP, you may cash them out, roll them over to an IRA or roll them over to another employer plan.
   
   In addition, if you are considering withdrawing Roth TSP funds under the Rule of 55, which eliminates the 10% penalty for those 55 years of age or older, you’ll want to do additional research or seek guidance on the potential taxation of those funds.
    
5. You can keep your Federal Employees Health Benefits (FEHB) program benefits (for yourself and your dependents) if you are eligible to retire on an immediate annuity, and as long as you have been enrolled in FEHB for at least five consecutive years immediately before retirement (or since your first opportunity to enroll). If you and your spouse are not both independently covered under the FEHB, you must elect a survivor option on your annuity for the surviving spouse to continue FEHB eligibility if the primary annuitant passes away.
   
   Retirees (or annuitants) must review and adjust coverage during Open Season, which typically runs from mid-November to mid-December each year, or if experiencing a qualifying life event (QLE).
   
   Here’s what you may not know: While you receive a tax deduction on the FEHB as an employee, you will not receive it as an annuitant. And, while you do not have to take Medicare, you have the option to do so.
    
6. Social Security may be federally taxable, although seniors are now eligible for a $6,000 tax deduction (through 2028) that can help mitigate taxation. This deduction is reduced by 6% (but not below zero) for adjusted gross income (AGI) over $75,000 for single filers or $150,000 for joint filers.

Only a handful of states impose a Social Security tax. These are CO, CT, MN, MT, NM, RI, UT, and VT.

Of course, there’s so much more to consider and several important actions to take before you retire from federal service. It’s critical to get the guidance you need to support your long-term financial well-being, so please reach out to your advisor before you hang up your federal employee hat.
 

Northwest Financial Advisors and LPL Financial are not endorsed by or affiliated with the United States federal government or the Office of Personnel Management (OPM). The securities products and advisory services offered or provided by LPL Financial are not being provided or offered on behalf of the federal government. The offer of such products and services is not sanctioned, recommended or encouraged by the federal government.

This article is provided for general information purposes only. For advice specific to your individual situation, please speak with a qualified financial or tax advisor.

SOURCES:

https://www.kiplinger.com/retirement/what-federal-employees-should-know-for-retirement

https://www.narfe.org/wp-content/uploads/2021/12/0221_Pre-Retirement_NARFE_WP.pdf

https://www.opm.gov/support/retirement/faq/health-care-coverage/

https://federalnewsnetwork.com/federal-insights/2026/06/fehb-and-medicare-understanding-how-they-work-together-in-retirement/

https://www.opm.gov/healthcare-insurance/life-insurance/reference-materials/publications-forms/feglihandbook.pdf