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: 

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

Calculating your “Magic Retirement Number”

One of the first steps in knowing whether early retirement may work for you is knowing how much income you'll need after the working career:

1. Add up your monthly expenses and subtract fixed income sources (FERS pension & Social Security)

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

2. The remaining gap can be filled with the 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. 

Part-time work also gives you structure and purpose in your post-career life. Whether it’s consulting in your field, pursuing a passion project, or working seasonally, many federal retirees find it rewarding—both financially and personally.

Why it helps:

• Preserves your TSP and IRA balances by reducing early withdrawals
• Let's you delay Social Security, potentially increasing your benefit
• Offers social connection and a smoother lifestyle transition
• Helps manage taxes and cash flow during early retirement years

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 income gaps. Just remember, withdrawals before age 59½ may be subject to penalties—unless you qualify for an exception. 

One key benefit: if you retire in the year you turn 55 or later (or age 50 for certain federal employees like law enforcement), TSP withdrawals can avoid the 10% early withdrawal penalty.

Ways to use your TSP for an early retirement:

• Utilize the Rule of 55 to avoid early withdrawal penalties
• Set up monthly payments to control your cash flow
• Tap into your Roth TSP balance for tax-free withdrawals
• Consider pairing withdrawals with part-time income to stretch funds longer 

Maintaining Health Benefits in Early Retirement

One major concern is healthcare. If you meet the FEHB 5-year rule, you can carry your federal health insurance into retirement—even if you retire early. This is a significant benefit and offers continuity until Medicare kicks in at age 65. 

FEHB in retirement continues with the same coverage and government premium contribution as while employed—something few private-sector plans offer.

What to know about FEHB in earl retirement:

• Must be enrolled in FEHB for at least 5 years before retiring
• You must retire on an “immediate annuity” to keep it
• The government still pays around 70-75% if your premium
• Once Medicare-eligible, many retirees keep FHEB as a supplemental benefit

Keep in Mind: The Cons of Retiring Early 

There's freedom in retiring early, but also trade-offs to consider: 

• Smaller pension due to fewer years of service and lower high-3 average salary
• No COLA for FERS annuitants until age 62 
• Retirement savings must last longer, increasing risk of outliving assets
• Social Security benefits are permanently reduced if claimed before full retirement age
• Loss of identity of purpose can be challenging during the transition

Conclusion

Early retirement is achievable for federal employees—but it requires strategic planning. By blending part-time work, smart use of TSP, and keeping your FEHB intact, you can create a sustainable and fulfilling early retirement path. 

Start by knowing your numbers, understanding the eligibility rules, and testing your income strategy through different market scenarios. With the right mix of flexibility and foresight, you can retire on your terms—without unnecessary stress

Sources:

• https://www.opm.gov/retirement-center/ 
• https://www.tsp.gov/  
• https://www.opm.gov/healthcare-insurance/healthcare/ 

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