4 Considerations for Federal Employees
In an effort to reduce the size of the federal workforce, President Trump recently announced a buyout offer available to two million federal civilian employees that includes up to eight months of salary and benefits if they agree to resign by February 6, 2025.
If you are one of the employees impacted and have decided to accept the buyout offer, you may be wondering how this decision will impact your long-term financial security. Following are some important considerations to keep in mind as you move forward.
#1 – Salary
Under the terms of the buyout, employees who resign can remain on the federal payroll through September 30, 2025, without having to work. If you accepted the buyout, it’s important to consider how a potential salary end date may impact your financial situation.
If you find a new job before the end of September, you’ll have the benefit of two incomes. However, if it takes longer than expected to find a new job, or if you decide to retire completely, it’s important to make a budget and plan for how to replace your lost income.
As you plan, be sure to maintain enough in emergency savings to cover at least three to six months of living expenses.
#2 – Retirement savings
Employees who accept the buyout are eligible to continue accruing Federal Employee Retirement System (FERS), Civil Service Retirement System (CSRS) or Thrift Savings Plan (TSP) retirement benefits (based on existing eligibility) during the eight-month extended salary period. That’s good news if you’re trying to save as much as possible for retirement.
If you find a job within the eight-month period, you may have an additional opportunity to contribute to your new employer’s plan, within IRS contribution limits. If it takes you longer than eight months to find a job, it may make sense to contribute to an IRA or increase the amount your spouse contributes to his or her employer-sponsored plan. This can assist in your efforts to save for retirement.
If you’re nearing the end of your career and decide to accept early retirement, it’s important to consider how leaving the workforce may impact your long-term retirement savings. Consider the following:
- How will retiring earlier than anticipated impact the timing of your Social Security benefits? Will you need to start taking benefits early? If so, how will that impact your monthly benefit amount? Is this adequate income to meet your needs?
- How will your early retirement impact your monthly retirement income? Do you have enough retirement savings to fund your desired lifestyle in retirement?
#3 – Investment portfolio
It’s important to reassess your investment portfolio whenever you experience a major life change, and accepting the federal buyout offer certainly qualifies. Work with your wealth manager to determine how your new financial situation may impact your investment objectives, risk tolerance, time horizon, etc. With these new objectives in mind, conduct a thorough audit of your portfolio holdings to identify any weaknesses — then make any necessary adjustments to meet your evolving needs.
#4 – Healthcare expenses
Employees who accept the buyout offer are eligible for benefits through September 30, 2025. After that date, you’ll be on your own to pay for health insurance. You may be eligible for the following health insurance options after ending your employment:
- Temporary Continuation of Coverage (TCC) – Under the Federal Employees Health Benefits (FEHB) program, you may be eligible for TCC after you separate from federal service. TCC allows former federal employees to extend FEHB coverage for up to 18 months. Children and former spouses may be eligible to extend coverage for up to 36 months.
- Medicare – If you’re older than 65, you may be eligible for Medicare. Once you retire and are no longer eligible for employer-sponsored health insurance, you have eight months to enroll in Medicare without a penalty.
- Healthcare.gov – If you haven’t yet reached age 65, it may make sense to purchase a policy on the health insurance marketplace. Plans at healthcare.gov must meet the requirements of the Affordable Care Act, including providing coverage for 10 essential benefit categories. The maximum amount any individual will pay for coverage is 8.5% of income, and you may qualify for subsidies.
- Spousal benefits – If your spouse is employed, you may be able to add yourself to his or her health insurance plan. Loss of employment is typically considered a qualifying event, which can allow you to enroll prior to the annual benefit election period.
