Financial Advisor for Federal Employees: FERS, TSP & Benefits Explained

The Federal Employees Retirement System (FERS) has three components:

• FERS Basic Annuity (pension): 1% of your high-3 average salary per year of service. If you retire at 62 with 20+ years of service, the multiplier increases to 1.1%. Requires minimum retirement age (MRA, between 55 and 57, depending on birth year) plus years of service.
• Social Security: Unlike many public pensions, FERS employees pay into Social Security and receive full benefits based on their earnings history.
• Thrift Savings Plan (TSP): A 401(k)-equivalent with some of the lowest expense ratios in the world. The federal government matches up to 5% of salary.

A financial advisor who works with federal employees should model all three components to show total retirement income at different retirement ages.

The TSP offers five core funds:

• G Fund: Government securities, extremely low risk, low return. Good for the last few years before retirement.
• F Fund: Bond index fund. Moderate stability.
• C Fund: S&P 500 index, tracks large US company stocks. Historically ~10% annually.
• S Fund: Small/mid-cap US stocks.
• I Fund: International stocks.

For most federal employees more than 10 years from retirement, a heavy allocation to C Fund (S&P 500 equivalent) with expense ratios as low as 0.048% is hard to beat. Lifecycle (L) funds automatically rebalance based on your retirement date, a sensible default if you prefer a hands-off approach.

In 2026, the TSP contribution limit is $23,500 ($31,000 if age 50+). Always contribute at least 5% to capture the full employer match, that's an immediate 100% return on the matched amount.

If you retire before age 62 under FERS (which most Special Category employees do), you may receive the FERS Supplement, an additional payment that approximates what your Social Security would be at 62, based on your federal service years.

The supplement stops at age 62 (when you become eligible for actual Social Security) and is reduced dollar-for-dollar by 50 cents for every $1 you earn above an annual earnings test ($22,320 in 2025). This earnings test matters enormously if you plan to work after federal retirement, factor it into your planning.

One of the most overlooked benefits of federal employment: if you retire with 5+ years of federal service and have been enrolled in FEHB for the last 5 years, you can keep your FEHB coverage in retirement. The government continues to pay ~72% of premiums.

For most retirees, keeping FEHB and enrolling in Medicare Part A only (premium-free) is the most cost-effective strategy until age 65. At 65, adding Medicare Part B and switching to a high-deductible FEHB plan that coordinates with Medicare often provides near-comprehensive coverage at very low out-of-pocket cost.

Federal employees benefit most from a financial advisor at three key points:

• Mid-career (15–20 years of service): To model pension projections, optimize TSP allocations, and plan for mortgage/education costs.
• 5 years before retirement: To model total income at different retirement dates, FEHB/Medicare coordination, Social Security timing, and TSP withdrawal strategy.
• At retirement: To finalize the pension survivor benefit election, establish a TSP withdrawal plan, and coordinate all income streams for tax efficiency.