How Much Is Your Federal Retirement Pay?

Federal retirement provides financial security for individuals who have dedicated their careers to public service. It combines various elements, forming a comprehensive retirement income and benefit package. Understanding these different components is fundamental to grasping the overall financial picture of retirement for federal employees.

Key Components of Federal Retirement

Federal retirement benefits use two main systems: the Federal Employees Retirement System (FERS) and the older Civil Service Retirement System (CSRS). Most federal employees hired since January 1, 1987, are covered by FERS. FERS integrates a basic annuity, Social Security benefits, and the Thrift Savings Plan (TSP).

CSRS is a defined benefit plan that does not include Social Security participation for its retirees. Individuals under CSRS contribute a higher percentage of their pay directly to the retirement system, between 7% and 8%. The specific benefits an individual receives in retirement depend significantly on which of these systems they are covered by and their total years of creditable service.

Federal Annuity Calculation

The basic annuity is calculated differently under FERS and CSRS. For FERS employees, the annuity formula involves three factors: High-3 average salary, years of creditable service, and a multiplier. The High-3 average salary represents the highest average basic pay earned during any three consecutive years of federal service, which may not always be the last three years.

For FERS retirees, the multiplier is 1% of the High-3 average salary for each year of service. If a FERS employee retires at age 62 or older with at least 20 years of service, the multiplier increases to 1.1%. For example, a FERS employee retiring at age 62 with 30 years of service and a High-3 salary of $80,000 would have an annual annuity of $26,400. Unused sick leave can be converted into additional creditable service for annuity calculation purposes, though not for determining eligibility.

CSRS annuities are more generous, designed as the primary retirement income source, without Social Security integration. The CSRS formula uses a tiered multiplier: 1.5% of the High-3 for the first five years of service, 1.75% for the next five years, and 2% for all years over ten. For instance, an employee with 30 years of CSRS service and a $80,000 High-3 would have a higher annuity than their FERS counterpart. The maximum CSRS annuity cannot exceed 80% of the High-3 average salary, unless additional credit from unused sick leave is applied.

Social Security for Federal Retirees

Social Security plays a significant role in the retirement income for federal employees covered under FERS. These employees contribute to Social Security through payroll taxes, similar to private sector workers, and are eligible for Social Security benefits based on their earnings history. The Social Security benefit calculation considers an individual’s average indexed monthly earnings (AIME) over their career, and the claiming age impacts the monthly benefit amount.

Previously, two provisions, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), could reduce Social Security benefits for individuals receiving non-covered pensions, such as those from CSRS. WEP previously affected a retiree’s own Social Security benefit if they also received a pension from employment not covered by Social Security. GPO affected spousal or survivor Social Security benefits for individuals who also received a pension from non-covered government employment. However, the Social Security Fairness Act, signed into law on January 5, 2025, eliminated both the WEP and GPO. This means that federal retirees who were previously subject to these reductions will now receive their full Social Security benefits without offset, with retroactive payments back to January 2024.

Thrift Savings Plan in Retirement

The Thrift Savings Plan (TSP) is a defined contribution plan, similar to a 401(k), and is a major component of federal retirement savings. Employees can contribute a portion of their pay to the TSP, and for FERS participants, the agency automatically contributes 1% of basic pay. The agency also provides matching contributions on the first 5% of pay an employee contributes, with the first 3% matched dollar-for-dollar and the next 2% matched at 50 cents on the dollar.

TSP offers various investment options, including the G, F, C, S, I, and L Funds, ranging from government securities to domestic and international stock index funds. The balance grows through contributions and investment returns. Upon retirement, participants have several withdrawal options to access their funds. These include:
Monthly payments
Partial withdrawals
A single lump sum
Purchasing an annuity

Retirees can choose to withdraw from their traditional (pre-tax) or Roth (after-tax) balances, or a proportional mix, providing tax flexibility.

Healthcare and Life Insurance Post-Retirement

Beyond direct income streams, healthcare and life insurance benefits provide financial protection for federal retirees. The Federal Employees Health Benefits (FEHB) program allows eligible retirees to maintain comprehensive health insurance coverage. To continue FEHB into retirement, an individual must be enrolled in FEHB for the five years of service immediately preceding retirement, or since their first opportunity to enroll.

Similarly, the Federal Employees’ Group Life Insurance (FEGLI) program can be continued into retirement, providing financial security to beneficiaries. Eligibility for continued FEGLI coverage requires enrollment for the five years of service immediately preceding retirement. While retirees pay premiums for both FEHB and FEGLI, the ability to retain these group benefits at lower costs than comparable private plans is a benefit. For those enrolled in FEHB, Medicare becomes the primary payer once a retiree is eligible for Medicare, with FEHB acting as secondary coverage.