An important step for a federal employee to build a stable retirement income plan is to coordinate the Federal Employees Retirement System (FERS), the Thrift Savings Plan (TSP), and Social Security using a structured, step-by-step framework — and many people overlook this important strategy.
Benefits often get evaluated in isolation. The pension gets estimated on its own. TSP contributions happen without a tax-efficient withdrawal plan. Social Security decisions get based on emotion or an inaccurate understanding of how the program works. Implementing this kind of fragmented approach can lead to avoidable tax issues, cash flow gaps, and missed opportunities to improve long-term income stability.
A coordinated federal retirement strategy typically follows certain guidelines:
- Calculate your FERS pension accurately.
- Align your TSP contribution and withdrawal strategy and tax diversification.
- Choose the best Social Security decision for your circumstances.
- Integrate all three income sources into one holistic income plan.
- Review and adjust regularly as life and markets change.
This guide walks through that process step by step, with a specific focus on Alexandria federal employees navigating Virginia tax rules, federal benefits, and real-world retirement timing decisions.
How Do FERS, TSP, and Social Security Work Together?
Under the Federal Employees Retirement System (FERS), retirement income comes from three distinct sources:
- FERS pension
- Thrift Savings Plan (TSP)
- Social Security benefits
Each source behaves differently from a tax, timing, and flexibility standpoint. The pension provides predictable income but limited control. The TSP offers flexibility but requires discipline and planning. Social Security adds inflation-adjusted income, but the timing of your claim can permanently influence not only what you receive, but what your spouse may receive after you.
FERS retirement planning works best when these components are viewed as one big picture rather than three separate systems. Coordination matters because retirement income is not static. Throughout your life, cash-flow needs will change, tax legislation will evolve, and market returns will vary. A plan that works at age 62 may need adjustment at 68 or 75.
What Is The Most Suitable Retirement Plan for Federal Employees?
The most suitable retirement plan for federal employees is not a product or a single account. It’s a framework that aligns guaranteed income with flexible assets and tax-efficient withdrawals.
That framework prioritizes:
- Reliable baseline income from FERS and Social Security
- Strategic use of TSP assets to fill income gaps
- Tax diversification across pre-tax, Roth, and taxable sources
- Flexibility to adapt as circumstances change
For many federal retirees, the goal is not to maximize one benefit, but to balance all three so no single decision has unintended tax consequences later.
Step 1: Calculate Your FERS Pension Accurately
Your FERS pension is the foundation of your retirement income, but it’s often misunderstood or estimated incorrectly.
The basic formula for non-disability retirements is:
1% × High-Three Average Salary × Years of Creditable Service
If you retire at age 62 or later with at least 20 years of service, the multiplier increases to 1.1%, which can materially increase lifetime income.
Key variables that must be calculated correctly include:
Minimum Retirement Age (MRA)
Your MRA depends on your birth year and determines eligibility for immediate or reduced benefits.
Service Years
Creditable service includes civilian service and may include certain military service if properly bought back. Errors here can permanently reduce your annuity.
High-Three Salary
This is not your final salary year. It’s the highest average of three consecutive years, including locality pay. For NOVA/DC federal employees that qualify for locality pay, that adjustment is included in your high-three calculation and can materially affect your pension.
Survivor Benefit Election
Choosing a survivor benefit reduces your pension but provides income continuity for a spouse. This decision should be coordinated with insurance, assets, and tax planning.
Step 2: Evaluate Your TSP Contribution and Withdrawal Strategy
Your Thrift Savings Plan offers a flexible, but sometimes mismanaged, federal retirement plan.
During working years, TSP contribution decisions should focus on:
- Capturing the full agency match
- Choosing between Traditional and Roth contributions based on current and expected tax brackets
- Assessing the suitability of default Lifecycle (L) Funds
As retirement approaches, the focus shifts to TSP integration and withdrawal planning.
L Funds vs. Individual Funds
Lifecycle (L) Funds automatically adjust over time using a preset formula that shifts from stocks to bonds as retirement approaches. That structure offers simplicity, but it does not account for current market conditions, risk-adjusted opportunities, outside assets, or tax strategy. Investors who value customization over convenience often prefer a more flexible allocation approach.
Traditional vs. Roth TSP
Traditional TSP withdrawals are taxed as ordinary income. Roth TSP withdrawals can be tax-free if the rules are met*.
Expected Withdrawal Rate
Withdrawals should be aligned with income needs, tax brackets, and required minimum distributions (RMDs). Over-withdrawing early can increase taxes and reduce long-term flexibility.
Tax Treatment Overview
| Income Source | Federal Tax | Virginia Tax |
| FERS Pension | Taxable | Taxable |
| Traditional TSP | Taxable | Taxable |
| Roth TSP | Tax-free (if rules are met) | Tax-free |
| Social Security | Potentially taxable up to 85% of benefit | Not taxed by VA |
Virginia’s treatment of Social Security creates planning opportunities, but pension and TSP income still require careful coordination.
Step 3: Choose the Right Social Security Filing Age
Social Security decisions are effectively permanent for most retirees, and timing matters. Some important considerations include:
When Filing Early Makes Sense
Early filing may be appropriate if you need income immediately, have health concerns, or are coordinating benefits with a spouse’s higher earning record.
When Waiting Increases Lifetime Value
Delaying benefits increases monthly income and provides longevity protection, especially for higher earners or married couples planning survivor income.
Special Rules for Federal Employees
Most FERS employees pay into Social Security, but filing decisions should consider pension income, TSP withdrawals, and potential taxation thresholds.
Social Security is not just about maximizing a check. It’s about optimizing income stability within your broader federal retirement strategy.
Step 4: Build Your Combined Retirement Income Plan
Once each component is understood individually, integration begins.
A coordinated plan answers three questions:
- How much guaranteed income do you have each month?
- How much flexible income do you need from TSP assets?
- How do taxes affect net spendable income?
Modeling best-case and worst-case scenarios helps identify pressure points, such as market downturns early in retirement or higher-than-expected healthcare costs.
This is often where many Alexandria federal employees discover that Virginia tax rules, Medicare timing, and RMDs interact in ways that weren’t obvious when benefits were reviewed separately.
Step 5: Review Your Plan Annually (and After Life Events)
Retirement planning is not a one-time event; it’s an ongoing, evolving process. Annual reviews should account for:
Market Volatility
Investment performance affects withdrawal sustainability and tax exposure.
COLA Adjustments
Pension and Social Security Cost of Living Adjustments (COLA) could potentially change income levels and tax brackets over time.
Spousal Scenarios
Survivor benefits, filing strategies, and asset ownership all affect long-term planning.
Beyond the annual assessment, major life events, such as retirement dates, health changes, inheritance, or legislation, should also trigger an immediate review.
FAQs About FERS, TSP, and Social Security Integration
How is my FERS pension taxed?
FERS pension income is taxed at the federal and Virginia state levels.
Are TSP withdrawals taxable?
Traditional TSP withdrawals are taxable. Roth TSP withdrawals may be tax-free if rules are met*.
Does Virginia tax Social Security?
No. Virginia does not tax Social Security benefits.
When do RMDs begin?
RMDs currently begin at age 73 for most retirees, affecting Traditional TSP balances. It’s important to note that the RMD age will increase to 75 on January 1, 2033.
The Three Pillars of Federal Retirement Income
A strong FERS retirement planning framework rests on three pillars:
- Predictable income from FERS and Social Security
- Flexible assets through TSP withdrawals
- Tax-aware coordination across all income sources
In Alexandria and Arlington, many federal retirees underestimate how Virginia’s tax rules affect their combined retirement income. That local nuance matters, especially when pension income replaces a paycheck and tax brackets shift.
How Good Life Financial Advisors of NOVA Helps Federal Employees Build a Retirement Plan
Federal retirement benefits are generous, but they don’t organize themselves. Even a well-built checklist only works when the numbers behind it are accurate, coordinated, and reviewed in the context of your full financial picture. That’s where many federal employees get stuck — not because they’ve done anything wrong, but because the system is complex and the stakes are high.
Good Life Financial Advisors of NOVA works with Alexandria-area federal employees with the goal of turning disconnected benefits into a coordinated retirement income strategy. That means looking at FERS, TSP, and Social Security together, stress-testing decisions before they’re locked in, and accounting for Virginia tax rules, Medicare timing, and long-term cash-flow needs along the way.
If you’re approaching retirement, or simply want a second set of eyes on the decisions you’re already making, a structured review can help confirm what’s working and identify gaps before they become costly. Retirement planning doesn’t need guesswork. It needs coordination.
If you’d like help applying this checklist to your own situation, a conversation with Good Life Financial Advisors of NOVA is a smart place to start. Schedule an appointment today!
*A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
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.
