Four retirement mistakes federal employees can avoid and why they matter more than you think

BlackHays

47 minutes ago

Originally published Four retirement mistakes federal employees can avoid and why they matter more than you think on July 19, 2025 15:46 by https://federalnewsnetwork.com/commentary/2025/07/four-retirement-mistakes-federal-employees-can-avoid-and-why-they-matter-more-than-you-think/ at Federal News Network

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Retirement is often imagined as a clean transition from service to rest. For federal employees, that vision is complicated by an intricate web of decisions, each one linked to benefits accumulated over decades. But retirement is not a checklist. It is a pivot point. Too often, people navigate it based on partial information, assumptions or rushed advice.

In my work with federal professionals, I have come to believe the core issue is not complexity, it is fragmentation. The retirement system is full of valuable tools, but few people know how to fit them together. This is not a how-to; it is a what-not-to-ignore. These are four common and preventable mistakes I have seen, and why the real cost is not just financial, but psychological and strategic.

Rolling over the TSP without a strategic framework

The Thrift Savings Plan is often the most substantial asset federal employees accumulate. Yet, when it comes time to retire, many are encouraged, sometimes by well-meaning advisors, sometimes by institutions, to roll over their TSP into an IRA without a clear understanding of the tradeoffs.

The issue here is not whether a rollover is good or bad. It is whether it fits. The TSP offers some of the lowest-cost investment options in the country. It has unique withdrawal features, particularly for retirees separating in the year they turn 55. It is not subject to the same custodial fees or conflicts that can emerge elsewhere.

Yet people roll it over because they believe they are supposed to. The real question should be: What are you gaining, and what are you giving up? Are you entering an IRA for access to better planning tools, or to buy high-fee funds? Are you coordinating this with Roth conversions, estate goals, or just reacting to a suggestion?

The moment of realization for many retirees is when they understand they do not need to move their money to access advice. But by then, the rollover is complete and irreversible.

Treating survivor benefit elections as a quick decision

At retirement, employees must decide whether to provide a survivor benefit to their spouse through the Civil Service Retirement System or Federal Employees Retirement System. The choice seems mathematical: Pay less now, get more later. But it is really a values-based decision disguised as a form.

Too many retirees make this decision in isolation. They do not fully understand how the benefit integrates with life insurance, pension reductions and long-term care needs. Even fewer consider how it plays out over time, not just the cost to the retiree, but the stability it provides the surviving spouse.

One client once told me, “I thought I was choosing between giving my wife a safety net and taking a little more home each month. I did not realize I was choosing between stability and uncertainty for the rest of her life.”

When structured correctly, the survivor benefit can anchor a broader legacy strategy. But if chosen hastily, it becomes a permanent regret, not because of the numbers, but because of the impact on trust, clarity and financial autonomy for the surviving spouse.

Misunderstanding the coordination of FEHB and Medicare

Health coverage is one of the great advantages of federal retirement. But it is also one of the least understood. Most federal employees assume they will keep the Federal Employee Health Benefits forever, which is true. But how that interacts with Medicare, particularly Part B, is nuanced.

Some skip Part B entirely to save on premiums, thinking FEHB is enough. Others enroll out of fear, not strategy. What few people realize is that the best approach depends on their specific health trajectory, income in retirement and risk tolerance.

Here is the subtle but critical piece: Medicare becomes primary once enrolled, and FEHB acts as secondary. This shifts how claims are processed and what is covered. In many cases, combining Part B with FEHB can eliminate nearly all out-of-pocket costs. In others, it becomes redundant.

The real risk is not just financial. It is bureaucratic. Once you decline Part B and try to enroll later, you may face lifelong penalties and enrollment delays. Making this decision without understanding the full context, including future income, health needs and spousal coverage, can create a burden that is hard to undo.

Focusing on accounts instead of strategy

Perhaps the most widespread mistake is not one bad decision; it is the lack of a cohesive plan. Many federal employees treat each decision — TSP, FEHB, insurance, pensions — as separate. But retirement is not a collection of accounts. It is an integrated system that either works in harmony or drifts into friction.

I have seen retirees with maxed-out TSPs but no estate plan. Others have clear cash flow projections but no tax strategy for required minimum distributions. What is missing is not information, it is integration.

This is where the concept of financial planning often fails to resonate. It is marketed as budgeting and pie charts, when in reality, it is strategic thinking. It is understanding how a survivor election affects your tax situation, how a Roth conversion might coordinate with Medicare premiums, and how legacy planning intersects with your current withdrawal strategy.

The most meaningful plans are not spreadsheets, they are frameworks. They allow people to make confident decisions because they see the full picture. That clarity reduces stress, aligns couples, and turns financial choices into intentional acts rather than reactionary ones.

Closing reflection

Federal employees dedicate careers to serving something larger than themselves. But when they step away from service, they often do so without the structured guidance they provided to others for decades.

The goal of retirement is not just to stop working, it is to step into the next phase of life with clarity and confidence. Avoiding these common mistakes requires more than technical knowledge. It requires slowing down, asking better questions, and seeing the system as a whole.

The decisions made at retirement ripple across decades. Understanding them deeply and connecting them intentionally is not just wise. It is transformative.

Johnny Medina is the founder and managing partner of Nhabla.

Originally published Federal News Network