Her retirement estimate said her FERS pension would be $1,980 a month. What actually lands in her bank account is $476. That’s 24 cents on the dollar.
She’s a real federal retiree. I’ve removed every identifying detail, but the numbers are hers. And this isn’t some extreme outlier. In my work as a financial planner for federal employees, I see some version of this almost every week. People plan their retirement around the gross number on their estimate, and the gross number isn’t what they get to spend.
Where the $1,980 comes from
Her pension math is simple: a $108,000 High-3, times 20 years of service, times 1.1%, divided by 12 months. That’s $1,980 a month. She gets the 1.1% multiplier instead of 1% because she retired at 62 or older with at least 20 years of service.
That $1,980 is the number on her estimate and the number she had in her head. Here’s what happened to it.
The waterfall
- Survivor benefit: −$198. She elected the full survivor annuity, which costs 10% of her pension. That leaves $1,782.
- Health insurance (FEHB): −$890. This is the big one. That leaves $892.
- Dental and vision: −$111. That leaves $781.
- Life insurance (FEGLI): −$38. That leaves $743.
- Federal income tax: −$267. We used a 15% blended rate. That leaves $476.
That’s $1,504 a month in deductions before she spends a dime.
Health insurance is the real story
Her FEHB premium alone is 45% of her gross pension. That’s more than her survivor benefit, dental, vision, life insurance and taxes combined.
People underestimate this because they’re used to seeing their premium on a biweekly paystub. To convert it, multiply your biweekly premium by 26 and divide by 12. A premium of $350 to $400 every two weeks works out to about $760 to $870 a month. In retirement, it comes out of your pension every month.
There’s one more catch. While you’re working, your FEHB premiums are generally taken out before tax. In retirement, annuitants pay them after tax. So the premium no longer lowers your taxable income the way it did on your paycheck.
And it’s going up
OPM has announced that FEHB enrollee premiums will rise 10.9% on average in 2027. If her plan goes up by the average, her premium goes from $890 to about $987 a month. That’s about $97 more. Same pension, same taxes, and her take-home drops to roughly $379.
Her plan’s actual increase may be higher or lower than the average. But it shows how much one line item can move. Open Season runs November 9 through December 14, and for her, the plan she picks is the single biggest lever she has.
None of these are bad choices
I want to be clear about this. The survivor benefit buys her spouse 50% of her gross pension for life, and it lets her spouse keep FEHB coverage after she’s gone. For most married couples, that’s a very good trade. FEHB is one of the best benefits federal employees have.
The problem isn’t the pension or the benefits. The problem is planning around the wrong number. If you’re counting on $2,000 a month to cover your expenses and you actually net $476, you find out about the gap after you’ve already retired. That’s the worst time to find out.
Run your own numbers
The formula is simple: gross pension, minus the survivor election, minus every premium you’ll keep, minus taxes. That’s what you actually get to spend. Before you pick a retirement date, check these five things on your own estimate:
- Is the gross pension right? Check your High-3, your years of service and whether any military buyback is credited.
- Does it reflect the survivor election you actually plan to make?
- Does it include every insurance premium you’ll keep? Health, dental, vision and life.
- Is the tax assumption realistic? We often see it set far too low. Your state matters too, since not every state taxes a federal pension.
- What other income will you have? Social Security, the TSP and any FERS Supplement all change your tax picture.
Final thoughts
Your agency retirement estimate shows you a gross number. Nobody sends you the net number. Take an hour and run it yourself before you choose your date. It’s a lot easier to adjust a plan before you retire than after.
If you’re a federal employee within 5 years of retirement and want a plan built around your FERS benefits, book a free call to see if we’re a fit.
Dallen Haws, CFP®, is the founder of Haws Federal Advisors, which helps federal employees plan their retirement. This case study is based on a real client with identifying details removed and is for illustration only. It is educational only and is not tax, investment or legal advice. HawsFederalAdvisors.com