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Key Takeaways
- Standard pension estimates rely on simplified assumptions and may overlook salary changes, service credit, survivor elections and FERS COLA caps.
- Incomplete projections can lead to undersaving or retiring at the wrong time, especially when Social Security and taxes aren’t planned out.
Many federal employees rely on their official pension estimate when planning for retirement. That can be a wrong move. These projections are built on standardized assumptions, not personalized information, so they can miss changes that affect your benefits.
Below, we take you through what you need to know and how to ensure you’re on the right track.
What Standard Pension Estimates Leave Out
Official pension projections assume steady pay raises and uninterrupted employment—conditions that rarely match how a federal career unfolds. Even small changes in retirement age, salary growth or inflation can create major gaps between projected and actual income.
Common gaps in these estimates include the following:
High-3 Salary Assumptions
The Federal Employees Retirement System (FERS) pension relies heavily on the “high-3” formula, which is the highest average basic pay earned during any three consecutive years of service.
Many projections assume your current salary will continue unchanged, but promotions, locality adjustments or unpaid leave can alter that average.
Service Credit Nuances
Unused sick leave and military service buybacks—two ways to increase retirement benefits—may not automatically be accounted for in pension projections.
Retirement Timing
Projections assume a set retirement age, and deviating from that assumption can significantly change your benefit.
Survivor Benefit Elections
Choosing a survivor benefit reduces your pension while you’re alive in exchange for continued income for a surviving spouse. However, some standard projections display the unreduced amount. If you elect survivor coverage, your actual benefit will be lower than shown.
COLA Limits
Unlike Social Security, FERS cost-of-living adjustments are capped, so when inflation runs high, your raises don’t keep up. Many projections ignore this, overstating what your pension will actually buy over 25 or 30 years. Over a 25- or 30-year retirement, this can leave retirees with less income than expected.
Tip
Other details that can throw off your estimate: temporary income supplements, retirement eligibility rules, health coverage requirements and errors in your service records.
How Miscalculations Affect Long-Term Security
If pension projections are incomplete, they can lead to costly decisions.
Overestimating guaranteed income can prompt under-saving in the Thrift Savings Plan (TSP) or prompt you to retire before you can afford to. Income shortfalls are hard to fix in retirement, especially if the stock markets are in turmoil or health care costs spike.
Social Security complicates the picture further. Most pension estimates don’t factor in when you claim Social Security, but that decision and your retirement date work together to determine your income for life. Claim early and your payments are permanently reduced; delay and they grow.
Taxes and Medicare costs can also be affected by incomplete pension projections. FERS pensions are taxable, and overestimating your pension may lead to higher-than-expected withdrawals from your TSP or mistimed Social Security claims, which can push you into higher tax brackets and trigger Medicare surcharges.
How Federal Employees Can Build More Accurate Projections
Treat pension estimates as a baseline, not a final answer. Here are steps to follow:
1. Model different retirement dates.
Compare outcomes for retiring at various ages. Even working one additional year can increase your high-3 average, boost service credit and reduce early-retirement penalties.
2. Review high-3 salary assumptions.
Confirm that projected salary growth, locality adjustments, planned promotions or potential leave without pay are accurately reflected in your estimate.
3. Verify service credit.
Ensure unused sick leave balances and any completed military service deposits are properly documented and included in projections.
4. Incorporate survivor elections.
Evaluate how full or partial survivor benefits affect monthly income and long-term household security before defaulting to the highest immediate payout.
5. Stress-test inflation and longevity.
Assume a retirement lasting 25 to 30 years and use conservative COLA assumptions that reflect FERS caps. Modeling lower real income growth can reveal whether additional TSP savings are needed.
6. Model after-tax income.
Estimate your federal taxes, TSP withdrawals and potential Medicare income-related premium surcharges to understand net retirement income.
7. Coordinate all income sources.
Plan your FERS pension, Social Security claiming age and TSP withdrawals as a package. Coordinating the three can lower your tax bill and smooth out your income over time.
