Don't Be Fooled: These Misconceptions About Federal Retirement Benefits Could Cost You

With big changes being made to Social Security its important for retirees, or people who are about to retire, to stay current on how their benefits might be impacted by the Trump Administration's efforts to streamline government and cut spending in ways that will help pay for tax breaks Donald Trump promised in the last presidential election. This includes a growing group of people who are joining the ranks of the retired or, at the very least, the unemployed: the federal worker.

By the end of 2025, the Trump Administration will remove or encourage 300,000 federal employees to leave their jobs, a figure that represented 12.5% of the federal government's civilian workforce, Reuters reported. About 80% of those employees will leave voluntarily, Scott Kupor, director of the Office of Personnel Management, told Reuters. Among those opting to depart include 154,000 people who took out buyout offers in July, per another Reuters report.

If you are one of these federal employees who opted for the early retirement route, you will need a firm understanding of your benefits to avoid costly mistakes.

Among the misconceptions federal employees may have is that they will receive their retirement pay almost immediately. However, that may not occur for up to 90 days, according to the Federal News Network. That's because an employee's benefits packet won't be processed until the day they've retired, and there's a huge backlog at this point. As of August 2025, it takes an average of 70 days for OPM to process a retiring worker, per another report from FNN. In addition, their initial payments may be between 60% to 80% of what that employee's ultimate annuity will be for the first couple of months during what OPM calls the interim payment period.

Federal workers should also be aware that their Thrift Savings Plan account may not be enough to cover the cost of retirement. That's why, prior to retiring, FEBA recommends that federal employees look into how to open an IRA account so they can transfer some or all of their TSP funds into one.

Another myth is that Federal Employee Health Benefits (FEHB) disappear at retirement. If an employee has had health insurance for five straight years leading up to the day of retirement, they'll be able to keep their benefits, according to OPM. This includes their spouse, their children under the age of 26, and other eligible dependents. For those employees pushed to leave prior to being in the plan for five years, OPM could provide a waiver from the five-year rule, but it must be due to what the office describes as "exceptional circumstances." For those who opt to register for Medicare, a basic FEBH plan can be used as a secondary health plan to help pay for medical costs that Medicare won't cover.

Life insurance is another matter. the Federal Employee Group Life Insurance (FEGLI) costs between $10 and $30 per pay period while an employee, but this will go up for most employees upon retirement, according to FEBA. Additionally, an employee should set up their spouse or eligible dependents as survivor beneficiaries, otherwise they could disappear after a federal retiree dies.