Why Federal Employees Over 60 Should Consider Early Retirement

By: Conor O'Malley, CRPC

Many federal employees over age 60 assume they must work until full retirement age, but early retirement may be more realistic than you think. The key is understanding your “magic retirement number” and how to bridge the income gap between leaving federal service and collecting full retirement benefits.

Key Takeaways

•  Early retirement is more achievable than most think.
• Use part-time work to fill income gaps until Social Security starts.
• TSP can provide liquidity if used strategically.
•  You can keep FEHB if you meet the 5-year rule.

Calculating Your Magic Retirement Number

The first step is knowing how much income you’ll need in retirement:

•  Add up your monthly expenses and subtract fixed income sources like your FERS pension and Social Security

[Monthly Expenses] - [FERS + Social Security] = X 

or 

[Monthly Expenses] - [CSRS + Social Security] = X 

• The remaining gap can be filled with savings, part-time income, or TSP withdrawals.

X = [TSP monthly withdrawal + savings + part-time income]

Bridging the Gap with Part-Time Work

Many federal employees can retire early and supplement their income with part-time work. This flexible income helps reduce the need to draw heavily from your TSP and allows your investments to keep growing until Social Security kicks in.

Using the TSP for Liquidity

Your Thrift Savings Plan (TSP) can act as a bridge to full retirement. With proper planning, you can set up monthly withdrawals to cover any shortfall. Just remember, withdrawals before age 59½ may be subject to penalties unless exceptions apply.

Maintaining Health Benefits in Early Retirement

One major concern is healthcare. If you meet the FEHB 5-year rule, you can keep your federal health insurance into retirement—even if you retire early. This benefit is a huge asset and provides continuity in coverage until Medicare eligibility.

Conclusion

Early retirement is possible with smart planning. It starts with knowing your numbers, using part-time income or TSP strategically, and maintaining your health benefits.

 

Sources

• https://www.opm.gov/retirement-center/

• https://www.tsp.gov/

• https://www.opm.gov/healthcare-insurance/healthcare/