Direct answer: FERS federal employees have a three-part retirement: the basic benefit pension (1% per year of service times high-3 salary), Social Security, and the TSP. Contributing at least 5% to the TSP captures the full 5% employer match. FEHB healthcare coverage can continue into retirement if enrolled for 5 years before retirement.
Government Employee Investing: FERS, TSP, and Federal Retirement Planning
Key Takeaways
- FERS pension formula: 1% of high-3 average salary per year of creditable service (1.1% per year if retiring at 62 with 20 or more years). Social Security and TSP are the other two components.
- TSP employer match: FERS employees get 1% automatic contribution plus matching up to 4% when they contribute at least 5%. Always contribute at least 5% to capture the full match.
- TSP 2026 limit: $23,500 ($31,000 for those 50 and older). Low-cost index fund options (C, S, I, F, G funds) make the TSP one of the lowest-expense retirement plans available.
- FEHB healthcare in retirement: federal employees enrolled for 5 years before retirement can continue FEHB coverage into retirement, which is one of the most valuable federal benefits.
- FERS Supplement: employees who retire before age 62 may receive a FERS Supplement (also called the Special Retirement Supplement) that approximates the Social Security benefit earned during federal service, payable until age 62.
FERS Three-Part Retirement
FERS (Federal Employees Retirement System) replaced CSRS for federal employees hired after 1983. FERS consists of three components: (1) the basic benefit pension, a defined benefit based on years of service and high-3 average salary; (2) Social Security, to which FERS employees contribute and from which they receive benefits like any private sector worker; and (3) the Thrift Savings Plan, the federal government's 401(k)-equivalent. The combination of all three is designed to provide comprehensive retirement income.
TSP Investment Strategy
The TSP's core fund lineup is remarkably low-cost: the G Fund (government securities, effectively risk-free), F Fund (Bloomberg US Aggregate Bond Index), C Fund (S&P 500 Index), S Fund (Dow Jones U.S. Completion Total Stock Market Index, small/mid-cap), and I Fund (MSCI EAFE Index, international developed markets). L Funds are lifecycle/target-date funds that automatically shift toward more conservative allocations as the target retirement year approaches. Expense ratios across these funds are among the lowest available to any retirement account in the United States, often below 0.05%. A standard approach for employees early in career is heavy C, S, and I fund allocation; as retirement approaches, L funds or a manually shifted allocation toward G and F provides appropriate derisking.
FEHB in Retirement
Continued FEHB enrollment in retirement requires: enrollment in FEHB at the time of retirement; and enrollment for the 5 consecutive years immediately before retirement (or for the full period during which coverage was available, if less than 5 years). Once in retirement, the federal government continues to pay its share of premiums, and the employee's (now retiree's) share is deducted from the monthly pension payment. This is particularly valuable for federal employees who retire before Medicare eligibility at age 65.
FERS Supplement
FERS employees who retire before age 62 (when Social Security benefits could begin at reduced rates, or at 67 for full benefits) may be eligible for the FERS Supplement, which approximates the portion of Social Security earned during federal service. The supplement is payable until the retiree reaches age 62 and is subject to reduction if the retiree earns income above an annual threshold ($22,320 in recent years, indexed annually). This provides income bridging between early retirement and Social Security eligibility.
Frequently Asked Questions
How does the FERS pension benefit work?
The Federal Employees Retirement System (FERS) basic benefit pension uses the formula: 1% of high-3 average salary times years of creditable service (or 1.1% per year for employees who retire at age 62 with 20 or more years of service). For example, an employee with 30 years of service and a high-3 average salary of $90,000 would receive 30% of $90,000 = $27,000 per year in basic FERS pension. FERS is a three-part system: the basic benefit pension, Social Security, and the Thrift Savings Plan. The pension is available at minimum retirement age (MRA, currently 57) with 30 years of service, or at age 60 with 20 years, or at age 62 with 5 years.
What is the TSP and how much should federal employees contribute?
The Thrift Savings Plan (TSP) is a tax-advantaged retirement savings plan for federal employees, similar in structure to a 401(k). FERS employees receive an automatic 1% employer contribution and matching contributions up to 4% more (for a total of up to 5% employer contribution when the employee contributes at least 5%). Contributing at least 5% captures the full match. The 2026 TSP contribution limit is $23,500 ($31,000 for those 50 and older). The TSP offers a choice of traditional (pre-tax) and Roth contributions, and a set of low-cost funds including L (lifecycle) funds, C Fund (S&P 500), S Fund (small/mid-cap), I Fund (international), F Fund (bond index), and G Fund (government securities).
Can federal employees keep FEHB healthcare coverage in retirement?
Yes. Federal employees enrolled in the Federal Employees Health Benefits (FEHB) program can carry their coverage into retirement, provided they were enrolled in FEHB for at least 5 years immediately before retirement (or for the full period during which they were eligible). This is one of the most valuable benefits of federal employment: coverage continues at the same premium-sharing arrangement as active employees, with premiums paid from the federal pension rather than requiring separate out-of-pocket payment. FEHB coverage in retirement provides significant financial security compared to private sector retirees who must find their own coverage between retirement and Medicare eligibility at age 65.