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In this conversation, Danny Gudorf discusses critical decisions federal employees must consider when preparing for retirement under the FERS system. He highlights four major regrets that retirees often face, including the importance of understanding survivor benefits, accurately calculating retirement costs, choosing the right retirement date, and planning for taxes before reaching RMD age. Danny emphasizes the need for comprehensive financial planning to avoid common pitfalls and ensure a secure retirement.
Before You Sign Your Retirement Paperwork, Make Sure These Four Decisions Aren’t Setting You Up for an Expensive Surprise
Most federal employees spend decades building toward retirement.
Yet some of the most important decisions affecting that retirement are made during the final months before leaving federal service.
And the dangerous part?
They often don’t look like mistakes at the time.
A survivor benefit election can affect whether your spouse keeps access to FEHB after your death. A pension estimate can create a false sense of security if you confuse the gross amount with what actually reaches your bank account.
Retiring a few months too early could mean missing an important FERS pension threshold. And waiting until Required Minimum Distributions (RMDs) begin to think about taxes could leave you with fewer planning opportunities.
These decisions are interconnected. Your pension affects your income. Your retirement date affects your pension. Your TSP affects your future taxes. And your survivor election could affect both your spouse’s income and healthcare options.
Here are four decisions worth slowing down for before you submit your retirement paperwork.
1. Treating the Survivor Benefit Like It’s Only a Pension Decision
When federal employees evaluate the FERS survivor benefit, the immediate cost tends to get most of the attention.
You may look at your pension and think:
“Do I really want to give up part of my monthly pension so my spouse can receive a survivor benefit after I’m gone?”
When both spouses are alive, giving up hundreds of dollars each month can feel expensive.
But that only shows you one side of the decision.
You also need to examine what your household finances could look like after one spouse dies.
Your retirement pension may change. Your household’s Social Security income may change. Your surviving spouse may eventually file taxes as a single taxpayer.
Then there’s another issue that can easily be overlooked:
FEHB coverage.
For a surviving spouse to generally continue Federal Employees Health Benefits coverage after the retired federal employee dies, the spouse needs to meet applicable eligibility requirements, including requirements involving survivor annuity eligibility.
That means waiving a survivor annuity can have implications beyond the pension itself.
Even if your spouse has Medicare and other healthcare coverage available, losing access to FEHB could still materially change their healthcare strategy and costs.
That’s why this shouldn’t be viewed simply as:
“How much pension am I giving up today?”
A more complete question is:
“What will my spouse’s income, taxes, and healthcare look like after I’m gone?”
Before making the election, compare your estimated pension under different survivor benefit options and consider how each choice could affect your spouse’s financial situation.
The answer won’t be identical for every federal employee.
But once you see the entire picture, the cost of the survivor benefit may look very different.
2. Planning Around Your Gross Pension Instead of Your Real Retirement Income
Imagine HR estimates that your FERS pension will be $3,500 per month.
It’s tempting to build your retirement plan around that $3,500.
But that doesn’t necessarily mean $3,500 lands in your checking account every month.
Your pension could still be reduced by expenses such as:
- Survivor benefit elections
- FEHB premiums
- Federal income taxes
- Applicable state income taxes
What matters to your retirement lifestyle isn’t simply your gross pension.
It’s your net retirement income.
And even knowing your net pension isn’t enough.
You also need to understand how much you’ll actually spend after you stop working.
Some expenses may disappear or decline. You’re no longer making TSP contributions from your paycheck. Commuting expenses may fall. Certain payroll-related costs may disappear.
Other expenses could increase.
You may travel more frequently, spend more on healthcare, tackle projects around the house, or provide financial support to children or grandchildren.
That’s why retirement income planning should start with your expected spending.
From there, compare those expenses with reliable sources of retirement income, which may include your net pension, Social Security and, when applicable, the FERS annuity supplement.
The difference between those two numbers is critical.
That is the income gap your TSP, IRA, and other investments may need to cover.
For example, suppose you expect to spend $8,000 per month after retirement and your reliable income sources provide $6,000.
Your portfolio needs to generate the remaining $2,000 per month, or approximately $24,000 annually.
Now you have a number you can actually plan around.
You can evaluate whether your investments may reasonably support those withdrawals under different market conditions rather than simply assuming your retirement savings will fill whatever gap appears.
You should also consider liquidity.
The goal is to avoid being forced to sell long-term investments during a major market decline simply because you need cash for your next several months of expenses.
There’s another federal-specific issue to consider.
When you first retire, your final annuity may not immediately begin at its full expected amount while OPM processes the retirement claim. Having sufficient liquidity can make that transition easier to manage.
Your pension estimate is important.
But it isn’t your retirement plan.
3. Letting Fear Determine Your Retirement Date
Federal employees regularly hear rumors about potential changes to retirement benefits.
A benefit might disappear.
A calculation might change.
Employee contributions might increase.
Some proposals eventually become law. Others don’t.
Making a permanent retirement decision based primarily on speculation can be costly because there may be thresholds already built into FERS that deserve more attention.
One significant example involves retiring at age 62 with at least 20 years of qualifying service.
Under applicable FERS rules, the pension multiplier can generally increase from 1% to 1.1%.
That difference sounds small.
It may not be.
Consider a hypothetical federal employee with:
- A $100,000 high-three average salary
- 30 years of qualifying service
At a 1% multiplier, the basic calculation produces a $30,000 annual pension.
At 1.1%, it becomes $33,000.
That’s a $3,000 annual difference.
Over 25 years, that represents $75,000 before considering factors such as taxes or applicable cost-of-living adjustments.
Suddenly, retiring a few months before an important threshold deserves closer examination.
But there’s another side to this decision.
Working longer isn’t automatically better either.
It’s easy to keep moving the finish line.
First, you decide to work until one milestone. Then another milestone arrives. Then another year of service looks appealing.
Eventually, you may have a larger pension and portfolio—but fewer years available to enjoy the retirement you spent decades building.
Retirement planning isn’t about maximizing one number.
It’s about determining whether your entire financial plan supports the life you want.
One useful comparison is to model at least two retirement dates:
Your preferred retirement date and the next date that crosses a meaningful FERS threshold.
Calculate your estimated net pension under each scenario. Consider other applicable benefits and income sources. Then calculate how much your investment portfolio would need to provide.
If both scenarios appear sustainable, you’re no longer making the decision based solely on fear.
You’re comparing two financial plans.
4. Waiting Until RMDs Begin to Think About Taxes
This mistake is different from the first three because you may not notice the consequences for years.
Federal employees can spend decades accumulating money inside the traditional TSP.
That can create a substantial retirement asset.
But traditional retirement accounts generally contain money that has not yet been subject to income tax.
Eventually, distributions from tax-deferred retirement accounts can create taxable income, including Required Minimum Distributions when applicable.
Now imagine reaching that stage with several income sources already flowing into the household:
Your FERS pension.
Social Security.
Investment income.
And distributions from tax-deferred retirement accounts.
Those income sources can interact in ways that affect your overall tax picture.
There’s also the surviving-spouse scenario.
After one spouse dies, the household may still have significant retirement income while the survivor eventually faces the tax brackets and standard deduction applicable to a single taxpayer.
This is one reason the years between retirement and RMDs can be so valuable.
For some retirees, those years may provide a window in which taxable income is lower than it will be later.
That can create opportunities to evaluate strategies such as Roth conversions.
But the goal isn’t simply:
“Convert everything to Roth.”
That can create a different problem.
Convert too little, and you may not materially change future tax-deferred balances or RMDs.
Convert too much in a single year, and you could generate an unnecessarily large current tax bill while potentially affecting other areas of your financial plan.
The better question is whether there is a strategic amount to convert based on your individual circumstances.
That analysis may involve your current and projected tax brackets, Medicare premiums, taxation of Social Security benefits, capital gains, future RMDs, and the tax situation of a surviving spouse.
The benefit of a Roth conversion also isn’t necessarily immediate.
Depending on the assumptions used, it may take years before paying additional taxes today produces a potential long-term benefit.
That’s why the decision should be modeled instead of guessed.
The Decisions That Hurt Most Often Look Harmless at First
The biggest retirement mistakes aren’t always dramatic.
Sometimes they’re a checkbox on your retirement paperwork.
A pension estimate you never examine beyond the headline number.
A retirement date moved forward because of a rumor.
Or a tax decision postponed because RMDs still feel years away.
By the time you discover the consequences, reversing the decision may be difficult—or impossible.
Before retiring under FERS, make sure you can clearly answer four questions:
- What happens financially to my spouse if I die first?
- What will actually hit my bank account each month after deductions?
- Am I retiring before or after a meaningful FERS milestone?
- What could my tax situation look like when RMDs begin?
Those answers provide a much clearer picture of whether your retirement plan is truly ready.
Build Your Retirement Around Your Numbers
Your FERS pension, TSP balance, Social Security benefits, healthcare coverage, taxes, and retirement date all affect one another.
Looking at each decision in isolation can leave important gaps.
If you want help evaluating how these pieces fit together based on your individual circumstances, schedule a free retirement assessment with Gudorf Financial Group.
A personalized analysis can help you compare retirement dates, estimate your retirement income needs, evaluate your survivor options, and identify potential tax-planning opportunities before important decisions become permanent.
Conclusion
Federal retirement comes with valuable benefits, but those benefits also create decisions that can have consequences lasting decades.
The survivor benefit isn’t simply about giving up part of your pension. Your gross pension isn’t necessarily what you’ll have available to spend. Your retirement date shouldn’t be dictated solely by rumors or fear. And tax planning shouldn’t begin only when RMDs arrive.
The earlier you see how these pieces interact, the more informed your decisions can be.
Before signing your FERS retirement paperwork, slow down and run the numbers.
Because a decision that looks small today could have a much larger impact on your retirement tomorrow.
Transcript: Prefer to Read — Click to Open
Danny (00:00.398)
If you’re a federal employee getting ready to retire on your FERS, there are four different decisions that I would slow down on before you sign your retirement paperwork. One can determine whether your spouse gets to keep their FEHB after you’re gone, one can make the pension you think you’re getting very different from what actually hits your bank account. Another can cause you to retire just a few months before a major pension threshold that’s worth.
thousands of dollars and finally one can create a much bigger tax problem later because you waited too long to plan for your RMDs. Those are four of the biggest regrets I see with federal employees approaching retirement. And here’s what makes them dangerous. Most of them don’t look like mistakes when you’re making them in the moment. Hey there, my name is Danny Gudorf, owner of Gudor Financial Group, a total wealth management firm
That has financial planners, estate planning attorneys, and tax preparers all working together under one roof, serving retirees just like you every day. In this video, I’m gonna walk you through all four and show you where people get these wrong and can get into trouble, and give you a few numbers to look at before you make these most important decisions. Let’s start with the one that can affect your spouse.
For the rest of your life. Regret number one is the survivor benefit. A lot of couples look at the survivor benefit and think about it as a pension decision. Do I really want to give up 10% of my pension so my spouse can keep half of it when I’m gone? And when both of you are alive, that can feel expensive. Maybe giving up $350 or $500 a month feels like buying insurance you don’t need.
But that’s not the way I want you to look at it. I want you to look at it at the year after one of you dies. Your retirement pension ends. If you elected a survivor benefit, your spouse gets only a portion of that pension. At the same time, the two Social Security checks generally become one survivor benefit check. And then there’s FEHB. This is the part a lot.
Danny (02:26.772)
Of retirees miss. For your spouse to continue on your FAHB after your death, they generally need to be covered under your FEHB plan when you die and be eligible to receive a survivor annuity. That survivor annuity can be full or partial. It doesn’t always have to be the full survivor benefit. But if no survivor annuity is payable,
Your spouse generally cannot keep the FEHB permanently as your survivor. Now, if your spouse is already on Medicare, that doesn’t mean they’re suddenly left with no health insurance. They may have a Medicare supplement, Part D, or Medicare Advantage plan, but they still give up access to FEHB, and that’s something I want you to put in real value on before you waive it.
So when I look at the survivor election, I’m not just looking at the pension. I’m looking at two things. How much income does your spouse have after you’re gone? And can they keep their FEHB? Then we have to layer on taxes on top of that, because the surviving spouse is eventually going to file as a single taxpayer. And that’s where the widow’s tax trap starts to show up. Here’s what I would do before making any pension elections.
Pull your pension estimate and write down three numbers: your pension with no survivor benefit, your pension with full survivor benefit, and what your spouse’s health insurance situation would look like if no FEHB were no longer available. Don’t just run the numbers for the years when both of you are alive. Run them for the year when only one of you is still here. That 10% can look very different from
When you see the whole planning picture. Now, even if you get that decision right, there’s another mistake I see all the time. People know their pension estimate, they don’t know their retirement number. Regret number two is not knowing what actual retirement will cost you each and every month. Last year, a lot of federal employees had major decisions put in front of them very quickly. Deferred resignation programs.
Danny (04:54.176)
Early outs, reorganizations, reduction in forces, those options weren’t the same for everyone. But one problem came up over and over again. People had a gross pension estimate from HR, and that was about it. Let’s say that the estimate was $3,500 a month. That doesn’t mean $3,500 lands in your checking account. You may still have a survivor benefit reduction.
FEHB premiums, federal taxes, and depending on where you live, state taxes. So I don’t want you planning retirement around that top line number at the top of your pension estimate. I want you planning around what actually lands in your bank account. And even that isn’t enough. You also need to know what you actually are spending when you’re heading into retirement.
When we build a retirement income plan, we start with that spending number. Some things usually go away, and some things needed to be added back in. TSP contributions, payroll taxes, the commute, and other things may go up. Travel, healthcare, projects around the house, helping children or grandchildren. Once we know the actual spending number,
Then we subtract the income that you can count on your net pension, Social Security, and if you’re eligible for the first annuity supplement before Social Security kicks in. Then we look at what’s left and we call that the gap. That’s the amount that your TSP or IRA and the rest of your portfolio need to produce an income. Then we test whether the portfolio can actually support it.
One way we do that is with our retirement income guardrails. We have an upper limit on the guardrail and a lower limit around the bottom guardrail, around your total portfolio balance. Stay between that upper and lower guardrail, and spending stays where it’s at. Break the lower guardrail for more than 90 days, and we need to adjust your spending by 10% starting next year. Grow past the upper guardrail, and we can increase your spending.
Danny (07:17.826)
By 10% and give yourself a raise. We also keep what I call a war chest. The goal is simple. I don’t want you to be a forced seller on your long-term stock investments during a bad market return. Just because you need money for the next few months. For many of my clients, that means roughly keeping 12 months of spending needs in cash.
And four additional years of spending needs and safe secure bonds. That can also help while OPM is finalizing your final annuity payment. The process can take anywhere from two to eight months, and the interim payment may be lower than the final pension check. Here’s the quick version: take your gross pension estimate, subtract the survivor reduction, subtract FEHB.
Subtract federal withholding, subtract state withholding, if it applies, and that’s your net pension number. Put your monthly spending next to it. The difference is your gap. Now you know what you’re actually asking your portfolios to do in retirement. If you want help building this around your own unique numbers, the free retirement assessment is linked in the description and the pinned comment.
Once you know your number, the next decision gets even easier. Because now you can decide when to retire based upon the math and not fear. Regret number three is letting fear choose your retirement date. In 2025, OPM received more than 28,000 retirement claims during a period of huge uncertainty for federal employees. People were hearing things like the first supplement might disappear.
That high three might become high five, that employees might have to contribute more towards their FERS supplement and pension. Those major changes did not become long. High three remained, the first supplement remained, and the broad contribution changes did not happen. But some people still changed their retirement date because they were afraid something was about to disappear. And long before that threshold,
Danny (09:40.322)
That actually mattered. One of the biggest examples is age 62. If you’re at least 62 when you retire and you have 20 or more years of first service, your pension multiplier generally goes from 1% to 1.1%. Here’s what that means. Let’s say your high three was $100,000 and you have 30 years of service. At 1%,
That’s a $30,000 pension. At 1.1%, it’s $33,000. That’s $3,000 more every year. Over 25 years ignoring taxes and colas, that’s an extra $75,000. So if retiring a few months earlier causes you to miss age 62 when you already have 20 years, those
Can be a very expensive months. But I also want to make the opposite point true. Fear runs both ways. There’s a version of this where you keep working and working because you’re afraid to leave the job. You might wait until 62 and then maybe 65, and then maybe one more year after that. And eventually you have a bigger number, but fewer, healthier years.
To use. Most retirees spend more in the early years of retirement than they do later on in retirement. And for most people, their 60s are some of the healthiest and best years of their retirement. So if waiting gives you a bigger pension, that’s good. But if you’re giving up years that you would already actually enjoy just to make an already solid retirement plan look slightly better,
That’s an entirely different conversation that we want to have. We want to make sure that we’re planning on current law, not rumors, not proposals, and not what somebody heard in the break room. Run two retirement dates your target date and the date that gets you past the next meaningful threshold. Maybe that’s age 62 with 20 years, maybe it’s your MRA with 30 years, and maybe it’s age 60 with.
Danny (12:05.826)
With 20 years. Each one needs to be built around your specific planning options. For both dates, calculate the net pension and add in the first supplement if it applies to you. Then look at your gap that your portfolio has to cover. If both dates work, now you’re choosing between two good options instead of guessing. And that brings us to the last regret the one.
That usually doesn’t hurt right away, but it shows up years later in retirement. Regret number four is waiting until RMD age to start thinking about taxes. I can’t tell you how many times we run into this. A client comes in our office, they’re 70 or 73, and they’re now worried about RMDs and taxes. Most federal employees I meet with spend a large part of their careers.
Putting money into their TSP accounts. So they retire with a pension, Social Security, and maybe anywhere between $700 and $2 million or more in their retirement accounts. That money hasn’t been taxed yet. Then RMDs begin. Depending on your birth year, that’s generally around age 73 or 75 under the current law. Now you have required.
Taxable income coming out of the accounts on top of your pension and social security. And that’s often where I see the biggest tax problem from federal employees that we meet with. That additional income can push part of your income from the 12% tax bracket into the 22% or even the 24% tax bracket. And that
Can make a huge difference in your taxes in retirement. Then we have to think about what if one spouse dies and we still have a survivor pension, the highest social security benefit, and all of the RMDs coming out. You may still have much of the same income. That’s why the years between when you retire and RMD age matter so much. I call those your gap years. And for a lot of retirees,
Danny (14:26.392)
Those are some of the lowest tax rates that you’ll ever experience or have. So it’s so important that we get this right in this tax planning window that we have. That’s when we may have an opportunity to move money from your traditional accounts into Roth IRAs intentionally. Starting in 2026, TSP participants also have access to in-plan Roth conversions.
After separation, you may also have access to a rollover and other Roth IRA options. But here’s the part that I want to be clear about. The goal is not to convert everything. There’s usually a sweet spot. Convert too little and you may not meaningfully reduce the future RMD problem. But convert too much and you may create a tax bill that is much larger than you necessarily would have.
So we look at where are your tax brackets now? And we think where will it be later on in retirement? We compare the two and try to develop the most tax efficient Roth conversion strategy that fits your unique situation. We look at whether the conversion affects your Medicare premiums, how Social Security is being taxed, and what happens with capital gains taxes on your other assets.
And what about the surviving spouse’s tax situation? Could that look much different if we did planning? Yes. Then we decide how much of a conversion actually makes sense in your specific situation. And a lot of the plans we model, the break even isn’t immediate. Sometimes we don’t see that until someone is in their 70s or even in their 80s later on in retirement.
A lot of the benefit shows up later, smaller RMBs, potential lower taxes on your distributions, and avoiding some of those IRMA surcharges or penalties later on in retirement. Then we also have to think about how that affects our children? Because they’re ultimately going to be the ones that are inheriting these accounts. Here’s a simple way to start looking at this for yourself. Write down three numbers.
Danny (16:52.162)
Your traditional TSP balance today, the top of your current tax bracket, and how much room you have left inside of it. And a rough estimate of what you believe your future RMD to be with some growth on your TSP account. If that future RMD plus your pension and Social Security puts you in a higher tax bracket than what you’re in during today or during those gap years, then a Roth conversion.
Makes sense for you based upon your own planning opportunities. And that’s really the biggest lesson here. A lot of the biggest retirement planning mistakes don’t look like mistakes when we’re making them. They show up later on in retirement after the decision has already been made. After reviewing more than 300 retirement plans, I’ve seen the same five mistakes show up again and again.
In this next video right here, I walk you through the top five mistakes I see every day and show you exactly how to avoid them.
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