Avoiding 10 Common Retirement Planning Mistakes Made by Federal Employees

Are you aware of the different retirement benefits that are available specially to federal employees? Do you know how to maximize them?

In this blog, I’ll dive into some of those benefits and highlight 10 common mistakes that federal employees can avoid by timely retirement planning.

These ideas are inspired by federal benefits expert Arrin Crain, MBA, RICP®, ChFEBC℠, financial planner at Bluecrest Financial Alliances. Arrin has worked strictly with military and federal employees for several years now.

In fact, in one of our recent episodes of the Retirement Revealed podcast, Arrin shares meaningful insights into various federal benefits.

Before we get started with this blog, a big thank you to every federal employee for your service!

Are you ready to learn more about federal benefits? Read on to uncover 10 not-so-obvious planning mistakes while managing your federal benefits –– and ways to avoid them.

1. Thrift Savings Plan (TSP) Selection

A lot of federal employees regularly set money aside from day one. However, oftentimes, it is saved in a G Fund — a type of savings account under the thrift savings plan (TSP).

Why is this a concern? Because the returns in such accounts are usually extremely low. For instance, the current annual returns for G funds are nearly less than 1%!

So, while managing your TSP plan, it’s important to address questions such as:

  • Do you understand the difference between C, S, I, F, L, and G funds –– and what works best for you?
  • Are you selecting a Roth contribution or a traditional one?
  • Are you maximizing the 5% match available to every federal employee?

Also, these decisions can have a direct impact on your taxes down the road.

2. Not Planning for FEHB Early

In order to continue in the Federal Employee Health Benefits (FEHB) program as a retiree, you need to be enrolled in it at least five years prior to retirement.

Several federal employees are unaware of this requirement, and miss out on these amazing health benefits!

Now, Arrin Crain asks you to go one step further and think about the benefits for the surviving spouse.

Ask yourself: If you were to pass away as a retired federal employee with FEHB, would you be fine with your spouse losing their health coverage? Probably not!

Remember, a surviving spouse is not eligible to continue FEHB after the retired federal employee dies, unless they have selected that survivor benefit pension beforehand.

Due to this very reason, I encourage you to start planning at least five years prior to retirement.

(You change your coverage later at a future Open Season.)

3. Expecting Pension Payments Right After Retirement

If you think, “I retire today and I’ll get my pension tomorrow,” that’s not necessarily the case.

There can be a 2-6 months delay before you actually receive your full retirement pay. This is usually caused by the OPM adjudicating your retirement benefits.

So, until you start getting your pension payments, you are essentially living without any paychecks to cover your monthly living costs!

The reason I’ve included this in the list is to ensure every federal employee is aware of this.

This way, they can prepare sufficient savings (or other provisions) to cover their general expenses, as well as get through any emergencies during this period.

4. Failing To Check SF50s

The SF50 (Notification of Personnel Action) Form contains a lot of valuable data that can significantly affect your employee benefits.

It’s your responsibility to check these forms to ensure that the records are up to date. Notify the HR department right away in case of any errors or missing information.

Here’s a quick story that Arrin shared on our podcast about a client who avoided a huge mistake by checking their SF50 form:

In the client’s family, both husband and wife were federal employees. When they had to move to a different location, the wife started earning nearly $30,000 more compared to her previous income.

A few years later, they moved back. Then, when they retired, her increased income during those years wasn’t reflected on her SF50 form!

Your retirement formula is based on years of creditable service plus the high three salary. So, as soon as they got their records updated, it made a huge difference for their retirement benefits.

5. Not Buying Back the Military Time

Many people serve in the military but not long enough to receive a military pension. They eventually move to being a federal employee.

If that’s the case with you, don’t worry. You can buy that time back and have it count towards calculating your federal retirement.

To get the credit, you need to make your deposit in full before you retire. It’s just a bit of paperwork, but it’s absolutely worth the time and effort!

6. Being Unprepared For Life Insurance Premiums

There are great group term life insurances available for both military and federal employees during their active years.

For federal employees, it’s the Federal Employees’ Group Life Insurance (FEGLI). For those in the military, it’s the Servicemembers Group Life Insurance (SGLI).

But the moment you retire, you are no longer eligible for those inexpensive premiums. In fact, military veterans need to transfer to a different plan –– the Veterans’ Group Life Insurance (VGLI).

As your insurance premiums grow over time during retirement, it can be challenging to keep up with them.

In such a situation, taking a holistic approach to retirement planning and finding the right insurance plan that suits your financial needs is crucial.

7. Not Planning for the Survivor Benefit Program (SBP)

When a federal employee passes away in retirement, their spouse can receive a percentage of their retirement pension.

You might often hear that the surviving spouse can get a “100% survivorship pension.”

But be careful! As this is a joint pension between you and your partner, the federal government gives you only up to 55% of the pension. (Think of it this way: you receive a 100% of the 55% pension you’re eligible for.)

Unlike life insurance, the Survivor Benefit Program (SBP) is taxable, and it is paid out as a monthly payment instead of a lump sum.

You also lose 21-50% of your Social Security. So while just 55% of the pension doesn’t sound appealing, the minimum SBP option can be devastating too!

The decision regarding your SBP is usually permanent. It’s definitely something you want to discuss with a professional, working through the pros and cons of electing it. (To learn how to find the right advisor for you, check out our guidebook: 3 Things You Should Know Before Choosing A Financial Advisor.)

After all, you ought to know what the pension is going to be –– not just for you, but also for the surviving spouse!

8. Failing To Have an Estate Plan in Place

This rule applies not just to federal employees, but for every retiree.

Some things that are often overlooked are:

  • Your beneficiaries should be updated regularly.
  • It’s critical to have the estate plan in writing.
  • Make sure you have advocates on your behalf who’ll handle everything in case of any disability issues.

9. Mismanaging Sick Leaves

Have you ever thought about optimizing your sick leaves?

At least two to three years before retirement, if not more, I encourage you to take the time to project the maximum sick leave balance –– and determine how you’ll use it.

Leave some for retirement computation. The hours that you’re not putting towards your retirement, use them.

I believe in first maximizing what you already have –– and sick leaves are a part of it!

10. Not Building a Financial Plan

Are you afraid to bring your TSP statements to a financial advisor because all you have to show is your G funds? Or that you haven’t started saving at all?

There is zero judgement involved in working with a financial advisor! Once you have open conversations about your finances, it’s much easier for us to help you reach your financial goals.

The earlier you start your financial planning, the better. Not only do you get to optimize your retirement taxes, but you also avoid missing out on some great benefits (such as the FEHB we talked about in the beginning.)

Although the above 10 planning mistakes are directed towards federal employees, they can also be applicable to other retirees to some extent.

If you have any questions regarding retirement, investment, and tax planning, feel free to contact us and we’ll be more than happy to help you achieve your ideal retirement!


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