The federal workforce is shifting, and more Feds are exiting mid-career. Private-sector employers, especially in tech, consulting, and defense, are actively recruiting experienced federal employees with offers of higher pay and remote work. Combine that with burnout, agency changes, and return-to-office mandates, and it’s no surprise that so many are leaving federal service early.
If you’re considering this move, know that walking away from federal service doesn’t mean you’ll lose all the benefits you’ve earned. But planning ahead may help you avoid expensive mistakes.
What Happens to Your Federal Benefits if You Leave Early?
Feds who retire at age 62 or older with at least 20 years of service receive a 1.1x pension multiplier, instead of the standard 1.0x. That extra tenth of a percent adds up over time, but you won’t get it if you’re under the age or service thresholds when you leave.
If you retire before meeting these requirements, if able do not withdraw your FERS contributions. Keeping them in place preserves your prior service credit and keeps the door open to return. If you rejoin federal service later, you pick up where you left off and may still qualify for full retirement benefits.
Thrift Savings Plans (TSP)
If you’ve recently left your job or are retiring, you may be wondering what to do with your old retirement plan. It’s a common question — and one with several valid answers. This outlines the four most common options available to you, with an explanation of each option’s potential benefits and limitations. Choosing the right path depends on your personal financial goals, timeline, and retirement plan.
OPTION 1: Leave the Money in Your Former Employer's Plan, if permitted by the plan
Pros:
- May prefer the investment choices already available
- No tax consequences
- May be no cost to maintain the account
Cons:
- May have fewer investment options than an IRA
- Potentially limited control or flexibility
OPTION 2: Roll Over to a New Employer's Plan, if available and permitted
Pros:
- Consolidates retirement accounts in one place
- Continuing tax-deferred growth
- No tax consequences
Cons:
- Not all plans accept rollovers
- Potentially fewer investment choices than an IRA
OPTION 3: Roll Over to an IRA
Pros:
- Potentially greater investment flexibility and access to a wider range of funds
- Consolidates accounts in one place
- May allow for more personalized management and advice
- No tax consequences if done correctly as a direct rollover
Cons:
- IRAs may involve management or custodial fees
- May lack creditor protection offered by ERISA-qualified employer plans
- Investment selection and guidance depend on the institution or advisor you choose
- Potential termination fees
OPTION 4: Cash Out the Account
Pros:
- Immediate access to funds if needed urgently
Cons:
- Subject to income taxes
- If underage 59½, may also incur a 10% early withdrawal penalty
- Permanently reduces retirement savings and potential long-term growth
This guide is intended to help you understand the most common retirement plan options. However, the right choice depends on your unique financial picture.
Before acting, be sure to consider:
- Fees and expenses
- Investment options
- Tax treatment
- Required minimum distributions
- Legal protections
- Your retirement timeline
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Health Insurance and Survivor Benefits
To keep your Federal Employees Health Benefits (FEHB) at separation, you must:
- Be eligible for full retirement (not deferred) and
- Have been enrolled in FEHB for the five years before you retire (or for your entire federal career, if shorter)
If you leave federal service before meeting these requirements, you’ll lose your FEHB coverage. You may qualify for Temporary Continuation of Coverage (TCC) for up to 18 months, but you’ll pay the full premium plus a 2% fee, so it’s significantly more expensive.
Building a Bridge to the Private Sector
FERS early retirement planning starts with identifying your “gap years” — the time between leaving federal service and when your pension, Social Security, or Medicare begins. To do this:
- Calculate your income needs.
- Build a drawdown strategy using a mix of TSP, Roth IRAs, and brokerage accounts.
- Explore options for health coverage, such as COBRA, ACA plans, or spousal insurance.
Taking these steps early may help you maintain stability and flexibility after separation.
Key Mistakes to Avoid When Exiting Federal Service
As you plan for your early exit, remember these key points:
- Avoid cashing out your TSP
- Don’t assume you automatically qualify for deferred retirement.
- Do not withdraw your FERS contributions if able.
Plan Your Exit with Confidence
FERS early retirement planning is complex, and the private sector won’t mirror your federal benefits. Before you make this move, consult with a professional who can build a custom plan based on your age and years of service. Reach out to the team at Serving Those Who Serve at [email protected] to learn more.
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
