Most federal employees don’t retire with one paycheck. They retire with three: the FERS pension, Social Security and the TSP. Each one does a different job, and the real planning happens in how you fit them together.
Here’s how each paycheck works, how they’re taxed, and how to make the money last.
Paycheck 1: the FERS pension
Your pension is the foundation. It’s guaranteed income for life, and the formula is simple:
1% × your High-3 × your years of service
If you retire at 62 or older with at least 20 years of service, the multiplier goes up to 1.1%. That’s a 10% bigger pension for the rest of your life, just for timing your date.
One thing to know: FERS retirees generally don’t get cost-of-living adjustments (COLAs) on the pension until age 62.
The bridge: the FERS Supplement
If you retire before 62, you may get the FERS Supplement, a payment meant to stand in for the Social Security you earned while working for the government. Not everyone gets it. You qualify only if you retire on an immediate, unreduced annuity before 62:
- MRA + 30 years of service
- Age 60 + 20 years
- A discontinued service retirement or VERA, once you reach your MRA
The supplement ends at 62, no matter what. It’s also subject to an earnings test: if you go back to work and earn more than the limit ($25,560 for 2027), it gets reduced.
Paycheck 2: Social Security
You can start Social Security anywhere from 62 to 70, and the age you pick changes the check for life:
| Claiming age | Share of your full benefit |
|---|---|
| 62 | About 70% |
| 67 (full retirement age if born 1960 or later) | 100% |
| 70 | About 124% |
That’s a big swing. Waiting from 62 to 70 can mean a check that’s well over 70% larger, and it’s adjusted for inflation every year.
Paycheck 3: the TSP
The pension and Social Security are fixed. The TSP is the flexible layer: you decide when and how much to take out. That makes it the tool you use to:
- Fill gaps between your guaranteed income and what you actually spend
- Bridge to a bigger Social Security check by living on TSP withdrawals while you delay
- Cover big costs like a new car, a roof or helping your kids
Putting it together: an example
Here’s a simple illustration (not a real client):
- FERS pension: $30,000 a year
- Social Security: $28,000 a year
- Guaranteed income: $58,000
- TSP withdrawals at 4% of a $500,000 balance: $20,000
- Total: $78,000 a year, with 74% of it guaranteed
That’s a strong position. Most of the income doesn’t depend on the market at all. One caution: the 4% rule is a rule of thumb, not a guarantee. How much you can safely take from the TSP depends on how you’re invested, how long you live and what the market does in your first years of retirement.
Don’t forget taxes
Each paycheck is taxed differently, and that’s where a lot of planning opportunities hide:
- Pension and traditional TSP withdrawals: taxable as ordinary income
- Social Security: up to 85% can be taxable, depending on your other income
- Roth TSP: qualified withdrawals are tax-free
Because your TSP withdrawals help decide how much of your Social Security gets taxed, and even what you pay for Medicare, the order and timing of your withdrawals matter as much as the amount.
The bottom line
Your pension, Social Security and TSP aren’t three separate decisions. They’re one plan. When you choose your retirement date, your Social Security age and your TSP withdrawal strategy together, you can get more income, pay less tax and feel a lot more confident the money will last.
Want help building your own three-paycheck plan? If you’re a federal employee within 12 months of retirement, or already retired, with $1 million or more invested, book a free 15-minute Fit Call.
Educational only, not tax, investment or legal advice. Haws Federal Advisors | HawsFederalAdvisors.com