The 5 Biggest Federal Retirement Mistakes And How to Avoid Them
Last reviewed: September 2026 · Educational, not individual advice
The five mistakes that cost federal retirees the most: planning for a 20-year retirement that lasts 30, keeping FEGLI at post-65 prices, running a working-years TSP allocation in retirement, timing the market, and treating FERS, Social Security, and the TSP as separate decisions. Each has a fix, and most are cheap if made before you retire.
Look, I am going to be straight with you. After watching federal employees navigate retirement for years, I have seen the same mistakes happen over and over. They are heartbreaking because they are avoidable. Miss a deadline or make the wrong election and the loss can run to six figures over a lifetime, and you cannot take it back. The good news is that these mistakes follow patterns. Once you know what to watch for, you can sidestep them. To keep the numbers concrete I will use a hypothetical composite couple, Sam and Dan, who are two years from Sam's retirement from NIH; they are not clients.
Mistake #1: Planning like you will only live 20 years in retirement
You plan to retire at 62 and live to 82. Twenty years, done. Except what if you are wrong? For a couple in average health at 65, the Society of Actuaries' Longevity Illustrator puts the odds that at least one of you lives past 90 at roughly a coin flip. That is not 20 years of retirement; it is 30 to 35. Plan for 20 and live 30 and the gap is not a rounding error; in our planning work it is routinely in the six figures before long-term care, which now runs $100,000 to $150,000 a year for a private nursing-home room, with Maryland above the national median.
What to do instead: break retirement into phases. Your 60s are not your 80s. Spending, health, and needs change, and the plan should too; we wrote up the three stages of retirement (go-go, slow-go, no-go) separately. The structure that makes the phases workable is buckets.
| Bucket | Covers | Where it sits | Job |
|---|---|---|---|
| 1 | Years 1 to 5 of withdrawals | G Fund, money market, savings | Cash you can spend in a crash without selling stocks |
| 2 | Years 6 to 15 | Balanced: F Fund plus some C and S Fund | Moderate growth; refills bucket 1 |
| 3 | Years 16 and beyond | Mostly stock funds | Growth with decades to recover |
Each year you refill bucket 1 from bucket 2: from stocks when markets are up, from bonds when they are down. You never have to sell stocks at the bottom. Long-term care belongs in this phase plan too; long-term care planning before you need it covers the options.
Mistake #2: Not really understanding your federal benefits
FERS is complicated. Pension, TSP, Social Security, FEGLI, FEHB, survivor benefits: many of these elections are permanent once you retire. The big ones people get wrong:
Should you keep FEGLI in retirement?
Group life insurance is a decent deal while you work. After retirement, and especially after 65, it is priced like what it is: insurance on an older person. OPM's annuitant rates, illustrated for $50,000 of Basic and $300,000 of Option B:
| Election | What happens to coverage | Cost |
|---|---|---|
| Basic, 75% reduction | Drops 2% a month from 65 until it reaches 25% of the original | About $17 a month per $50,000 until 65, then free for life |
| Basic, no reduction | Stays at $50,000 | About $1,473 a year after 65 ($2.455 per $1,000 monthly) |
| Option B, no reduction, $300,000 | Stays at $300,000 | $3,744 a year at 65–69; $6,707 at 70–74; $14,040 at 75–79; $22,464 at 80+; about $235,000 from 65 to 85 |
| Option B, full reduction | Drops 2% a month from 65 to zero in 50 months | Free after 65 |
What to do: two to three years before retirement, decide whether you still need life insurance at all. If your spouse has a pension and you have assets, you may not. If you do, shop a private term policy and get approved before you drop FEGLI. The 75% reduction on Basic is usually worth keeping: it becomes free at 65 and leaves a small final-expense benefit. Keeping Option B with no reduction past 70 is the expensive habit; note that the Option B age-band rates step up every five years.
The survivor benefit election
A retiree who declines the survivor annuity to maximize the monthly check leaves a spouse with no pension and, if the spouse is not otherwise entitled, no FEHB. The full survivor benefit costs 10% of the annuity and preserves both. Decide it as a couple, on paper, before the retirement application.
Missing service records will haunt you
Every year of federal service you cannot prove is roughly 1% of your high-3 in lost pension, about $1,000 a year on a $100,000 high-3, for life. Six to twelve months before you retire, pull your eOPF and check every job, every military deposit, and the high-3 calculation. Save copies to a personal computer. After you leave, corrections become a bureaucratic nightmare; I have seen people spend years on it.
Mistake #3: Using the same TSP strategy in retirement that you used while working
What got you to retirement will not get you through it. The C Fund has been phenomenal for decades. But once you are withdrawing, volatility becomes your enemy, because a bad market early in retirement is not the same as a bad market late.
Illustration, computed with stated assumptions: two retirees start with $1,000,000, withdraw $45,000 in year one rising 2.5% a year, and earn the same average return of about 6.2% over 25 years. The only difference is the order. The retiree whose first three years are −15%, −10%, and −5% runs out of money before year 25. The retiree who gets those same three bad years at the end finishes with about $1.55 million. Same average return, same withdrawals, a difference of the entire portfolio. That is sequence-of-returns risk.
| Phase | Stocks (C, S, I) | Bonds and G Fund |
|---|---|---|
| 5 to 10 years before retirement | 60% to 70% | 30% to 40% |
| 1 to 3 years before | about 50% | about 50% |
| First 10 years of retirement (the danger zone) | 40% to 50% | 50% to 60% |
| After 10 years retired | Can rise again | Can fall |
A FERS pension changes the numbers, not the logic: the more of your spending the pension covers, the more stock exposure you can afford, because you are not forced to sell in a downturn.
Mistake #4: Trying to time the market
"Why not sell when the economy looks bad and buy back when it looks good?" Because nobody can do it consistently, and the cost of being out on the wrong days is enormous. Fidelity's analysis of the S&P 500 from 1988 through 2023: $10,000 fully invested grew to $417,995; missing only the five best days cut that to $264,000; missing the fifty best days left $32,000. Most of the best days arrive during bear markets or in the first weeks of a rebound, which is exactly when a nervous seller is out.
Build the portfolio around when you need the money, not around predictions. Calculate your income gap first. Illustration: FERS pension $45,000 plus Social Security at 70 of $32,000 equals $77,000 of pension and Social Security income against $120,000 of spending, so the TSP must supply $43,000 a year. Bucket 1 holds five years of that. Every year you refill it, from stocks in good years and from bonds in bad ones. No forecasts, no panic. What to do when the market gets volatile is the companion read for the next downturn.
Mistake #5: Treating each income source like it is independent
You have FERS, Social Security, the TSP, maybe a taxable account, maybe a spouse's pension. Most people optimize each one separately. That is where the money leaks: claiming Social Security early, taking TSP withdrawals that push into the next bracket, skipping Roth conversions in the low-income years, and tripping Medicare surcharges that were avoidable.
Should federal employees delay Social Security to 70?
For many, yes. The pension and TSP can cover the bridge years, and waiting from 67 to 70 adds 24% to the benefit for life (62 to 70 adds about 77%).
| Claim at | Annual benefit | Years to 90 | Total to 90 |
|---|---|---|---|
| 62 | $28,800 | 28 | $806,400 |
| 70 | $51,017 | 20 | $1,020,340 |
Waiting puts about $213,940 more in your pocket if you live to 90, and the larger benefit also becomes the survivor benefit for a spouse. Maryland does not tax Social Security, and its pension exclusion at 65 covers a FERS annuity but not TSP withdrawals, so for a Maryland couple the delayed benefit is the most tax-efficient dollar in the plan. When to claim Social Security covers the exceptions.
Use the bridge years for Roth conversions
Between retirement and 70, before Social Security, income is lower; between 62 and 70 it is lower still because the FERS supplement ends at 62. Illustration for a joint return in 2026: FERS pension $45,000 plus TSP withdrawal $20,000 plus a Roth conversion of $30,000 is $95,000 of income, which after the $32,200 standard deduction stays inside the 12% bracket. Eight years of that moves $240,000 into Roth at a low rate. Roth growth is tax-free, Roth withdrawals do not count toward IRMAA, there are no required minimum distributions, and heirs inherit tax-free. The TSP now allows this inside the plan; see TSP Roth in-plan conversions and Roth conversions in the gap years. The two decisions that interact with all of this at 65 are Medicare Part B with FEHB and, for the estate, TSP beneficiary rules.
The bottom line
You have spent 30-plus years building federal benefits that are among the best retirement packages anywhere, but only if you understand how they work together and avoid these mistakes. The difference between getting this right and wrong is measured in hundreds of thousands of dollars over a retirement. Start with how much you need to retire as a federal employee, take it one decision at a time, and if you want the pieces coordinated, book a call. More guides are on our hub for federal employees. You worked hard for this retirement. Make sure you get every dollar you earned.
FAQ: federal retirement mistakes
What is the biggest mistake federal employees make before retirement?
Treating the decisions separately. Claiming Social Security early, withdrawing from the TSP without regard to brackets, skipping Roth conversions in low-income years, and leaving FEGLI on autopilot each cost money on their own; together they compound. A coordinated plan made two years before retirement fixes most of it.
Should I keep FEGLI in retirement?
Usually only Basic with the 75% reduction, which becomes free at 65 and leaves a small final-expense benefit. Basic with no reduction costs about $1,473 a year per $50,000 after 65, and Option B rates step up every five years to $6.24 per $1,000 a month at 80. Replace needed coverage with private term insurance before dropping FEGLI.
How should I invest my TSP in retirement?
Hold the first five years of withdrawals in the G Fund or cash, the next ten in a balanced mix, and the rest in stock funds. Keep stock exposure around 40% to 50% in the first ten years of retirement, when a bad market does the most damage, and refill the cash bucket each year from whichever bucket is up.
Should federal employees delay Social Security to 70?
Often, yes. The FERS pension and TSP can bridge the years, waiting adds about 24% from 67 to 70 and about 77% from 62 to 70, the larger benefit becomes the survivor benefit, and Maryland does not tax it. Health, a spouse's benefit, or cash flow can argue for claiming earlier.
What is the survivor benefit election and why does it matter?
At retirement you choose whether your spouse receives a survivor annuity after your death. Declining it raises your monthly check by about 10% but can leave your spouse with no pension and, in many cases, no FEHB coverage. It is nearly impossible to add later, so decide it together before filing.
Sources
- OPM, FEGLI calculator and annuitant premiums
- Society of Actuaries, Longevity Illustrator
- CareScout (Genworth), Cost of Care Survey
- Fidelity, the cost of missing the market's best days
- SSA, retirement age and early or delayed claiming
- OPM, FERS survivor benefits
Disclaimer: This article is for educational and informational purposes only and does not constitute investment, tax, legal, or insurance advice. Sam and Dan are a hypothetical composite household, not clients. The sequence-of-returns and claiming illustrations are hypothetical calculations with the assumptions stated and do not represent any actual account. Federal benefits, tax laws, and regulations are subject to change. Any strategies discussed may not be suitable for every individual and may involve risks, including the possible loss of principal. Please consult your financial advisor, tax professional, and attorney regarding your specific situation before making financial decisions. Past performance is not indicative of future results.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities and investment advisory services offered through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Allset Wealth.