Federal employees are navigating a wave of changes that could reshape their careers and retirement plans. Government layoffs, budget cuts, and return-to-office (RTO) mandates have forced many to rethink their future. While some employees are bracing for uncertainty, others see the disruption as an opportunity — an early exit from federal service. Whether by choice or necessity, early retirement has become a more prominent consideration, and understanding the right strategy can make all the difference.
For those weighing their options, there are several early retirement pathways, including Voluntary Early Retirement Authority (VERA), Discontinued Service Retirement (DSR), and 6(c) retirement for special categories of federal employees. The key to making the right move isn’t just knowing the options — it’s taking the steps necessary to financially prepare for leaving the workforce.
Early Retirement Options for Federal Employees
While federal employees have several pathways to early retirement, each option has distinct eligibility requirements and implications. The best way to create a plan that works for you is to consult with a professional financial advisor who can help align your strategy to your needs and vision. Some programs you may be eligible for include:
Voluntary Early Retirement Authority (VERA): Agency-Approved Early Retirement
VERA enables federal agencies undergoing restructuring, downsizing, or reorganization to offer early retirement to employees. To be eligible under VERA, an employee must:
- Be at least 50 years old with at least 20 years of creditable service
- Have at least 25 years of creditable service at any age
There are other eligibility requirements, including that an employee must:
- Hold a position included in the agency’s approved early retirement plan for at least the minimum duration specified by OPM (typically one month before the agency’s request date).
- Be employed in a role that falls under the organization’s VERA authorization scope.
- Leave their federal job before the end of the designated early retirement window.
It’s important to note that while VERA provides an opportunity for early retirement, accepting it may result in reduced annuity benefits. Always conduct a thorough financial assessment with your advisor before making a final decision.
6(c) Retirement: Special Provisions for Specific Roles
Certain federal positions, such as law enforcement officers (LEOs), firefighters, and air traffic controllers, qualify for enhanced early retirement. Referred to as “6c” for the section of the law in which this retirement system was established, qualifying first responders can retire when:
- At age 50 with at least 20 years of service
- At any age with at least 25 years of service
This benefit acknowledges the demanding nature of these roles, allowing eligible employees to retire earlier with potentially higher annuities than standard Federal Employees Retirement System (FERS) employees.
Discontinued Service Retirement (DSR): Involuntary Separation
Discontinued Service Retirement or DSR applies to federal employees who are involuntarily separated from service due to factors like:
- Reduction-in-force (RIF)
- Abolishment of position
- Lack of funding
- Relocation outside their commuting area without a mobility agreement
Much like VERA and the 6(c) program, to qualify for DSR, you must meet one of the following criteria:
- Age 50 with at least 20 years of creditable service
- Any age with at least 25 years of creditable service
Employees who opt for Discontinued Service Retirement are eligible to leave the workforce and immediately start collecting their CSRS or FERS annuity. However, it’s critical to understand that some benefits may be reduced, necessitating careful planning.
Considerations for an Early Government Retirement
Remember, a successful retirement isn’t about reaching a magic age — it’s about leveraging your savings and benefits for long-term support. If you’re considering early retirement, some planning suggestions include:
Know Your Retirement Number
Before you retire, make sure your income and assets can cover your expenses for the long haul. Calculate what you’ll receive from FERS/CSRS, Social Security, TSP withdrawals, and any additional savings. Track your spending to see what you truly need, and don’t forget to account for inflation. The cost of living will rise over time, so your plan needs to keep pace.
Understand TSP Rollovers and In-Service Distributions
Your TSP is one of your most valuable retirement assets, but withdrawing too early or too aggressively can create tax consequences. Your financial and tax advisors can help you map out a plan that supports your needs and helps reduce your overall tax burden. You may also consider rolling your TSP into an IRA. Doing so will not be a taxable event in most cases. You should consider the pros and cons of such a decision and work with a financial advisor who has a deep understanding of the TSP if you’re considering this option.
Pro tip: If you’re over 59½, you may be eligible for an in-service distribution. An in-service distribution allows you to move funds from your TSP to an IRA without leaving federal employment, potentially giving you more control over your retirement investments while continuing to contribute to your TSP. An in-service distribution can be a powerful planning tool, especially if you’re preparing for early retirement or want to fine-tune your portfolio with the help of a trusted financial advisor.
Build Cash Reserves & Reduce Debt
Stepping away from a steady paycheck can be stressful, making it important to build a cash buffer to avoid tapping into investments before you have to. Before retiring, consider establishing a six to twelve-month emergency fund to help cover unexpected expenses and provide liquidity as you begin this new chapter. Additionally, paying off high-interest debt before retirement will ease financial strain, and setting up a home equity line of credit (HELOC) while still employed can provide an additional financial cushion. It may take a while for OPM to get your FERS annuity started, so you want to make sure and have enough cash on hand or lines of credit to get you through that time.
Plan for Healthcare Costs
Healthcare can be one of the biggest financial risks for retirees. To keep FEHB coverage in retirement, you must have been enrolled for at least five consecutive years before leaving federal service. If you’re retiring before 65, COBRA might be an option, but marketplace plans could be more cost-effective. If you’re retiring at 65 or later, understand how FEHB and Medicare work together to avoid coverage gaps. Also, be sure to check directly with your specific FEHB provider to confirm whether enrolling in Medicare Parts B and D is necessary for your plan.
Take the Next Step Toward a Secure Retirement
Early retirement is a major financial decision, and working with a professional can help ensure your plan is sound. A financial advisor can help you structure withdrawals efficiently, leverage FERS pension and Social Security benefits, and create an investment strategy that supports long-term stability.
At Good Life Financial Advisors of NOVA, we work with federal employees to assess their options, structure retirement income, and navigate financial transitions. If early retirement is on your horizon, let’s talk. Schedule a consultation today to discuss your options and create a plan that aligns with your goals.
We’ll have a short conversation to see if we’re a good fit for each other.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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