A clear understanding of retirement costs helps federal employees make confident decisions about when to retire, how much income they will need, and how to manage rising expenses throughout retirement. Several major cost drivers—health insurance premiums, inflation adjustments, and long-term financial obligations—shape the true price of retirement for FERS and CSRS employees. Recent updates to federal benefit programs highlight why cost analysis is more important than ever.
Key Components of Retirement Costs
Federal employees’ retirement income comes from three primary sources: their FERS or CSRS pension, Social Security (or FERS supplement), and Thrift Savings Plan (TSP) withdrawals. Secondary income sources such as part-time jobs, dividends, interest income, and capital gains can also contribute significantly to your retirement income.
While the primary resources provide a strong foundation, retirees’ expenses often grow faster than expected. Health insurance premiums, in particular, continue to rise. FEHB premiums increased by an average of 12.3% in 2026, 13.5% in 2025, 7.7% in 2024, and 8.7% in 2023! We are all paying, on average, 42% more for our health care coverage than we did in 2022!
Cost-of-living adjustments (COLAs) also help federal annuitants keep pace with price increases, at least partially. However, federal retirees face annual COLA adjustments, rising FEHB/PSHB premiums, and revised earnings limits that change each year—changes that directly affect retirement budgets.
Health Care as a Major Cost Driver
Health care is often the single largest expense in retirement. FEHB remains one of the most valuable benefits for federal retirees, but rising premiums can strain budgets. The dramatic increases we experienced over the past four years illustrate how quickly costs can escalate. For retirees on a fixed pension, even a modest increase can reduce discretionary income or require larger TSP withdrawals.
This is why it is important to evaluate your FEHB plans, especially when you turn 65 and sign up for Medicare. The FEHB plans serve as our secondary providers and cover most of what Medicare doesn’t. FEHB plans waive for those on Medicare any copayments, coinsurance, and deductibles . Consider switching to a lower-premium FEHB plan when you sign up for Medicare.
Long-term care is another consideration. While the Federal Long Term Care Insurance Program (FLTCIP) has experienced volatility in recent years, retirees should still plan for the possibility of extended care needs, whether through insurance, savings, or alternative arrangements.
Pension and Benefit Adjustments
Our federal retirement system is structurally sound, but proposed changes to benefit calculations and COLA computations could affect long-term planning. These changes, if enacted by Congress, may affect how retirees plan for retirement and how their pensions grow. They could also postpone or delay your federal service exit. Staying abreast of these legislative changes will help federal employees evaluate their future income.
Proposals include eliminating the FERS annuity supplement for early retirees and switching from “high-3” to “high-5” salary calculation. Others include increasing employee FERS contributions by 1.3–3.6 percentage points, capping future COLAs, and increasing FEHB dependency verification.
It should be noted that these aren’t new proposals; they come and go each year in different versions as part of the government’s attempt to reduce costs. Most of the time, they are sidelined and pushed off for the next Congress to tackle.
Building a Personal Retirement Cost Plan
A sound retirement cost analysis includes:
- Estimating pension income using high-3 salary, years of service, and applicable multipliers. (Request annuity estimate from HR for target retirement dates)
- Projecting FEHB premiums (Evaluating plan options annually)
- Planning TSP withdrawals (Evaluate income needs with long-term growth)
- Accounting for inflation (Costs increase as inflation typically increases each year)
- Evaluating part-time work (Review your options and think about what you will do when you leave federal service).
Retirement costs aren’t static. Federal employees who regularly review their expenses, stay informed about benefit changes, and adjust their financial strategies are better positioned to maintain stability throughout retirement.
Last 5 posts by Dennis Damp
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Dennis V. Damp is an author, retired federal manager, business owner, career counselor and veteran. Damp is the author of 28 books, a recognized benefits expert, and a retired federal manager with 35 years’ service. Dennis has been a guest on hundreds of radio talk shows, CNN’s YOUR MONEY and the Lou Dobbs Cable TV shows, lectured at universities and colleges, produced Internet web sites and training videos, and has written hundreds of articles for national magazines and newspapers. His books have been featured in the Wall Street Journal, Washington Post, New York Times and U.S. News & World Report.
Dennis joined the Air Force in 1968 and spent over three years on active duty and an additional seven years with the Air National Guard. He was hired by the Department of Defense (DOD) after leaving active duty and transferred to the Federal Aviation Administration (FAA) in 1975. He spent the remainder of his career in various positions with the FAA. His last position was technical operations manager at the Pittsburgh International Airport’s air traffic control tower.
