7 Costly Federal Retirement Mistakes
Real numbers, real consequences. Each one is easy to check with the calculator.
1. Not contributing enough to get the full TSP match
The government matches up to 5% of your salary into TSP — but only if you contribute at least 5%. The match structure is 1% automatic, dollar-for-dollar on the next 3%, and 50 cents on the dollar for the next 2%.
If you contribute less than 5%, you leave free money on the table every pay period. Over a career, that can add up to tens of thousands of dollars in lost match plus investment growth.
2. Ignoring the earnings test on your retirement supplement
The Retiree Annuity Supplement (RAS) bridges the gap between your retirement date and age 62 when Social Security kicks in. But if you earn too much from a post-retirement job, it gets reduced.
Earning over $24,480/year reduces your supplement by $1 for every $2 over the threshold. A $50,000 side job could wipe out the supplement entirely.
3. Assuming your pension keeps up with inflation
FERS cost-of-living adjustments are capped below actual inflation. If CPI is 2% or less you get the full adjustment, between 2–3% you're capped at 2%, and above 3% you get CPI minus 1%.
In a year with 5% inflation, your pension only grows by 4%. Over 20+ years of retirement, this gap compounds and your purchasing power steadily erodes.
4. Comparing salaries without comparing total compensation
A private-sector salary number doesn't include the value of your pension, TSP match, or FEHB health insurance subsidy. Comparing raw salary to raw salary dramatically understates what you'd give up.
Your total federal compensation — pension value, TSP match, and FEHB subsidy — can be worth 30–50% on top of your base salary. A $120k offer might actually be a pay cut.
5. Not knowing your deferred benefit exists
If you leave federal service after 5 or more years, you're entitled to a deferred annuity starting at age 62 — even if you leave decades before that. Many people forfeit this by withdrawing their retirement contributions.
The deferred benefit pays 1% of your high-3 salary for each year of service, starting at age 62. Ten years of service on a $90,000 salary means $9,000/year for life.
6. Retiring at MRA+10 without understanding the penalty
You can retire at your Minimum Retirement Age with just 10 years of service, but your annuity is permanently reduced by 5% for each year you're under age 62.
Retiring at 57 with MRA+10 means a 25% permanent reduction to your annuity. On a $20,000/year pension, that's $5,000 less every year for the rest of your life.
7. Forgetting that sick leave adds to your pension
When you retire, your unused sick leave is converted to additional service credit. Every 174 hours counts as one extra month toward your annuity calculation.
An employee with 2,088 hours of sick leave (about 1 year) adds a full year of service credit. At 1% per year on a $100,000 high-3, that's an extra $1,000/year for life.