Federal Retirements Surge Amid Workforce Changes; Key Benefits Retained
The Office of Personnel Management (OPM) has seen a 40% increase in retirement applications by federal employees through June 2024 compared to the previous year. This rise follows federal workforce reduction initiatives including a Deferred Resignation program, which encouraged employees to resign or retire by September 2025, but many opted for earlier retirement spurred by concerns over possible changes to federal retirement benefits. However, significant proposed cuts were not included in the final legislation enacted in July 2024, preserving key benefits such as the high-three salary calculation and Special Retirement Supplement for FERS employees retiring before age 62.
Despite the retention of benefits, many federal retirees are facing challenges in retirement income planning due to a gap between pre-retirement pay and post-retirement benefits. For example, employees with 30 years of service under FERS can expect about 30% of their high-three salary plus a special supplement, but this often results in a substantial reduction in net monthly income after taxes and survivor benefit elections. This necessitates careful financial planning regarding Thrift Savings Plan withdrawals, long-term care costs, and supplemental savings.
Longevity risks and underestimation of life expectancy add complexity to federal retirement planning. Surveys show low levels of longevity literacy, with many retirees unprepared for extended retirement periods where expenses may increase rather than decrease. Considerations for survivors' income needs, inflation, and the continuation or cost changes of Federal Employees Group Life Insurance (FEGLI) coverage are critical.
Long-term care expenses remain a significant concern as Medicare does not cover these costs, and Medicaid eligibility requires stringent financial thresholds. With average costs projected around $250,000, independent saving strategies are advised instead of relying on potential inheritances.
Behavioral biases and myths about retirement timing and funding very often hinder adequate preparation. Early and consistent saving, realistic lifespan assessments, and comprehensive retirement planning are essential conclusions drawn from current federal employee retirement trends and regulatory contexts. These insights inform both employees and policymakers on the importance of proactive retirement financial management within the federal sector.