Waiting to retire could be worth thousands of dollars

Federal employees are no different from other workers. Sometimes leaving a 9-to-5 grind can be very enticing, especially if you are eligible to receive your retirement benefits. There is nothing wrong with retirement; in fact, many retirees I talk with wish that they would have done it sooner. However, there are employees who might benefit from sticking around a little longer. The benefit of a few more months, or maybe a couple of years, can be surprising.

For many federal employees, the retirement question isn’t “Can I retire?” so much as “Should I retire now, or is it smarter to wait?” The answer is rarely about being in a hurry. It’s about trade-offs between guaranteed lifetime income, access to health insurance, taxes and lifestyle priorities. Because federal retirement income is typically built from three pillars — your pension (CSRS or FERS), Social Security and the Thrift Savings Plan (TSP) — the best timing choice is often the one that coordinates all three instead of optimizing just one.

1) Your federal retirement benefit: Why waiting can increase lifetime security

Your FERS benefit is retirement income that behaves like a traditional paycheck replacement: It’s predictable and designed to last your lifetime. This is also the benefit where your insurance premiums for FEHB, FEGLI, FEDVIP and FLTCIP will be deducted. That stability is exactly why waiting — when you can — often improves outcomes.

In broad terms, the pension grows in two main ways: (1) by adding more creditable service time and (2) by raising your “high-3” average salary, which is the daily average of your highest basic pay rates paid over 36 consecutive months. Even a modest pay increase in your last few years can permanently increase your annuity because the formula is applied for life.

There is an additional computation “bonus” for employees who retire at age 62 or later with 20 or more years of service (the 20 years can include credit for unused sick leave). Instead of the calculation providing 1% of your high-3 times your years and months of service, the formula changes to 1.1%. This means that 20 years of service is now worth 22% of the high-3 rather than 20%. If the high-3 were $120,000, this is an increase of $2,400 per year or $200 per month.

Where people get caught is not always the formula — it’s the eligibility rules. Under FERS, an “immediate, unreduced” retirement generally happens when you meet one of the big combinations (such as minimum retirement age — or MRA — with 30 years, age 60 with 20 years or age 62 with at least 5 years).

If you separate at your minimum retirement age with at least 10 years but less than the combinations above (often called “MRA+10”), you can be eligible for an immediate annuity, but it may come with a permanent age reduction equal to 5 percent per year you are under age 62, prorated monthly. In many cases, separating at your MRA with 10 or more years of service (but less than 30 years) and then postponing the start of the annuity is a way to avoid some or all that reduction — so “retiring” and “starting the pension” don’t always have to be the same date.

Two other timing issues matter for many FERS employees. First, cost-of-living adjustments (COLAs) on the FERS basic annuity typically do not start until age 62 (with exceptions in certain circumstances). That means leaving at, say, 57 or 60 can create a multi-year period where your pension check stays flat while inflation marches on. Second, some retirees are eligible for the FERS annuity supplement — an additional payment intended to bridge the gap from retirement to age 62, when Social Security becomes available. Eligibility for the supplement depends on your retirement type and timing, so it’s another reason not to retire “in a hurry” without confirming which rule set you are under. The supplement is only payable for employees who retire under age 62 with an immediate, unreduced retirement. MRA + 10 and disability retirements do not qualify and early retirements under VERA and DSR are not eligible for the supplement until reaching the FERS MRA.

That said, retiring sooner can still be a rational choice if you’ve already locked in what you most value — such as eligibility to continue Federal Employees Health Benefits (FEHB) into retirement, or if you’re leaving under an early retirement authority. The key is to separate the emotional reason to retire (time, health, family or burnout) from the financial mechanics and then decide whether the income trade-off is “worth it” for you.

2) Social Security: The strongest “wait” incentive (but not always)

Social Security is where “waiting to claim” can have the biggest impact on the size of your monthly check. You can start as early as age 62, at your Full Retirement Age (FRA) or as late as age 70. Claiming early permanently reduces your benefit; delaying past FRA increases it for each month you wait, up to age 70. For people born in 1943 or later, delayed retirement credits increase benefits by up to 8 percent per year (credited monthly) beyond FRA. After age 70, there is no further increase for delaying. These rules turn Social Security into a longevity hedge: a larger, inflation-adjusted benefit later in life helps protect you if you live longer than average.

How long is average? Consider an unreduced Social Security benefit at FRA of $3,000 per month would be payable at $2,100 per month at age 62 and $3,720 per month by waiting to age 70. Collecting $2,100 per month from age 62 — 82 without adding cost-of-living adjustments or additional earnings after age 62 would add up to $504,000. Collecting $3,000 per month from age 67 — 82 would add up to $540,000; and collecting $3,720 per month from age 70 — 82 would add up to $535,680. Notice that the total amount is not very different. However, if this person lived to age 92, the total amount from age 62 to 92 would be $756,000; from age 67 would be $900,000 and from age 70 would be $982,080. That is more than $225,000 difference in the total received at age 62 compared to waiting until age 70. Cost-of-living adjustments begin at age 62, regardless of the age you claim your benefit.

Work plans matter, too. If you claim Social Security before FRA and continue working, the retirement earnings test can temporarily withhold some benefits when earnings exceed annual limits. This limit is $24,480 in 2026 if under your FRA. Your benefit is reduced by $1 for every $2 earned over this limit. In the year you reach your FRA, the 2026 limit is $65,160 and your benefit is reduced by $1 for every $3 earned over this limit before reaching your FRA. This can surprise new retirees who expected a Social Security check right away while still earning wages. The important nuance is that withheld benefits are not necessarily “lost forever” — your benefit is recalculated later to reflect months when payments were withheld. Still, cash flow timing matters, so it’s wise to consider whether you’re retiring from federal service but continuing in another job.

Social Security claiming is often a household decision, not an individual one. Spousal and survivor benefits can change the best answer — especially if one spouse has a significantly higher earnings record. A practical starting point is to review your Social Security statement and estimate benefits at different start ages. If you’re trying to decide whether you’re “in a hurry,” remember you can retire from federal employment without immediately turning on Social Security, and many people do exactly that to let their Social Security benefit grow. If you can afford to do this without reducing your retirement savings by too much or by working part-time to supplement your FERS retirement, then it is worth considering.

3) TSP: The flexible lever — and the one most affected by taxes

If the pension is the “foundation” and Social Security is the “longevity insurance,” TSP is the flexible middle: It can fill gaps, fund big one-time expenses or provide steady monthly income. That flexibility is also why the timing question isn’t simply “Should I retire?” but “When should I start taking money — and from which bucket?”

Your TSP distributions may include taxable and tax-free payouts. If you receive a TSP distribution or withdrawal before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10% of any taxable portion of the distribution or withdrawal not rolled over.

• If you are a public safety employee as defined in section 72(t)(10)(B)(ii) of the Internal Revenue Code, payments made after you separate from service during or after the year you reach age 50 or have 25 years of service under the TSP.
• Up to $5,000 of any payment received within one year following a birth or qualified adoption in accordance with section 72(t)(2)(H) of the Internal Revenue Code.
• Annuity payments.
• Automatic enrollment refunds.
• Payments resulting from total and permanent disability.
• Payments resulting from death.
• Payments made from a beneficiary participant account.
• Up to $1,000 per calendar year of payments used for emergency personal expenses.
• Up to $10,000 (or 50 percent of the vested account balance, whichever is less) of any payment received within one year following domestic abuse.
• Payments made to an individual with a terminal illness.
• Payments made in a year you have deductible medical expenses that exceed 7.5 percent of your adjusted gross income.
• Payments made as a qualified disaster recovery distribution as defined and limited by section 72(t)(11) of the Internal Revenue Code.
• Payments ordered by a domestic relations court.
• Substantially equal payments over your life expectancy.

In addition, you will be subject to Required Minimum Distributions (RMDs) April 1 of the year after you turn 73 or older and have left federal service if you were born before 1960 (age 75 if born in 1960 or later). A required minimum distribution (RMD) is calculated as illustrated in the following example: If a retired participant reaches age 73 in 2027.

As of Dec. 31, 2026 (the last day of the calendar year immediately preceding the RMD year), the value of the participant’s TSP account is $265,000. Based on the Uniform Lifetime Table for Calculating Minimum Distributions table that can be found on page 23 of the "TSP Tax Rules About TSP Payments" booklet, the expected distribution period (in years) for a 73-year-old individual is 26.5, so the RMD is $265,000 divided by 26.5. Through this calculation, the participant determines that the 2027 RMD is $10,000. RMDs cannot be rolled over to an IRA or eligible employer plan.

If you choose to roll over all or part of a distribution in a year in which you have an RMD, the TSP is required to make sure you satisfy the RMD before any rollover takes place. Distributions of Roth money won’t count toward satisfying your RMD because Roth money in your account isn’t subject to RMDs. In addition to TSP funds, you may also consider other retirement savings and investments that may supplement your lifetime FERS and Social Security retirement benefits.

Because tax rules are complex, you may also wish to speak with a tax advisor or the Internal Revenue Service (IRS). The TSP can assist you with your withdrawal but cannot provide tax advice.