The Human Resources Administration is predicting a surge in resignation applications due to a rise in federal employees using the Voluntary Early Resignation Agency (VERA) and the delayed Resignation Program (DRP). In a recent statement concerning new contracts aimed at updating the HR system, OPM noted an expected doubling of the backlog for resignation applications.
With so many employees moving towards retirement, it’s actually a great time for federal workers to get a better handle on the retirement process.
Misunderstanding: Retirement benefits start soon
Fact: The resignation agent won’t send the resignation packets to OPM until the retirement date itself. Only then does OPM begin processing those packets. There’s a backlog at OPM, which means it might take up to 90 days for them to act on it.
Retirees can anticipate their first estimated pension payment within two to three months. This payment is referred to as “tentative” and typically amounts to about 60-70% of the actual pension. While precise calculations are in progress, there’s often more conservativeness in estimating taxes and benefits than is really necessary. The final amounts will be adjusted once calculations are completed.
Misunderstanding: TSP is the only need post-retirement
Fact: Federal employees have three major retirement income sources: pensions, Social Security, and savings accounts.
When budgeting for retirement, they can easily forecast how much the first two will provide each month. The TSP needs to fill the gap between their desired retirement lifestyle and monthly expenses. So, there’s really no straightforward answer regarding how much should be in a TSP account at retirement—it varies widely.
Moreover, TSPs offer multiple withdrawal options—whether partial, full, installment, or annuity. Staff nearing retirement are advised to consider moving some or all of their TSP funds into a private sector IRA or Roth IRA, which incurs no taxes, penalties, or fees as long as they transfer to those accounts.
Misconception: FEHB will end or become costlier at retirement
Fact: Federal employees may continue receiving FEHB coverage if they meet certain eligibility requirements, such as being enrolled in FEHB for at least five consecutive years leading up to retirement. Importantly, eligible spouses, dependent children, and children with disabilities may still receive coverage without adhering to the five-year rule. After retirement, employees become classified as pensioners, and the government continues to cover roughly 72% of FEHB premiums.
Additionally, retirees can enroll in Medicare parts A and B, which provide near-comprehensive coverage—here, Medicare is the primary payer, while FEHB serves as secondary. To save costs, some retirees opt for a basic FEHB plan.
Misconception: FEGLI remains at the same cost post-retirement
Fact: Basic FEGLI insurance can cost anywhere from $10 to $30 per salary period. While it’s very affordable when employed, the price significantly increases during retirement. The extent of the hike depends on the specific plan. There are four FEGLI options, including Basic, Option A, Option B, and Option C. Many federal employees may not fully understand their plans or the costs associated with them. Being informed is key for maximizing FEGLI benefits in retirement.
Misconception: Survivor benefits are automatic and free
Fact: Federal employees need to make specific choices about survivor benefits when submitting their retirement applications. Pensions are where retirees should pay particular attention to their options and potential beneficiaries, usually spouses, unless certain special scenarios apply. Costs in the form of monthly deductions from the pension accompany these options. The options and percentages vary based on different federal employee retirement systems.
Misconception: Spouses automatically retain FEHB after retirement
Fact: This is a major consideration for survivor benefits. If a survivor is part of a federal retiree’s health insurance plan, that coverage will cease if they do not qualify for benefits. As survivor benefits directly affect health insurance, retirees and their spouses should consult with federal retirement advisors to discuss any additional financial obligations they might have, such as assets, spouse income, needs, budgeting for life insurance, college debt, and children.
