Many federal employees retire before age 65. When these individuals retired, they most likely felt they were ready both emotionally and financially to retire. However, there are employees who for one reason or another remain in federal service and continue to work past age 65.
These employees are not alone. According to the Bureau of Labor Statistics, the labor force participation rate for the 65- to -74 age cohort is projected to be over 30% by the year 2029. It was 27% in 2016.
There are several reasons why employees who work in private industry continue to work past age 65. One reason is wanting to maintain their employer-subsidized group health insurance. Note that unlike the federal government, most private companies do not offer (and are not required to offer) subsidized group health insurances for their retirees even if they provide subsidized health insurance for their employees.
When considering working in federal service past age 65, federal employees should consider five enhanced retirement-related benefits for their possible post-age 65 federal employment. They are:
(1) Postponing the start of monthly Social Security retirement benefits in order to maximize lifetime benefits.
(2) Their Federal Employee Health Benefits (FEHB) insurance enrollment and postponed Medicare enrollment.
(3) Their eligibility to be enrolled in the health care flexible spending account (HCFSA) or continue to be enrolled and contribute to their Health Savings Account (HSA).
(4) If they continue working in federal service and reach their “required beginning date” and being able to delay required minimum distributions from their traditional TSP and other traditional qualified retirement plans they may own., and
(5) Eligibility to continue contributing to the TSP.
Each of these enhanced retirement-related benefits is now discussed.
Postponing the Start of Social Security Retirement Benefits
Social Security represents an important part of every federal employee’s future retirement income, especially those employees who are covered by the Federal Employees Retirement System (FERS). But even for those employees covered by the Civil Service Retirement System (CSRS) (who do not pay into Social Security while working under CSRS),` Social Security benefits can be an important part of their retirement.
Among the reasons a Social Security retirement check is important for a CSRS annuitant, even a minimum monthly Social Security retirement monthly benefit can be sufficient to pay most, if not all, of a CSRS annuitant’s monthly Medicare Part B premium. This is especially true now with the passage of the Social Security Fairness Act (SSFA) on January 5, 2025. As a result of the SSFA passage, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) have been repealed. The WEP repeal means that a CSRS annuitant can receive his or her full Social Security monthly retirement benefit with no reduction. The GPO repeal means that if a CSRS annuitant is married, formerly married or is a widow/widower, then the CSRS annuitant is eligible to receive half of their spouse’s or ex-spouse’s Social Security monthly benefit, or all of their deceased spouse’s or ex-spouse’s Social Security monthly benefit.
Both CSRS and FERS employees have the advantage of receiving a sizable portion of their retirement income via a defined benefit pension plan in the form of a CSRS annuity or a FERS annuity. A CSRS annuity or a FERS annuity provides a guaranteed monthly income stream, the equivalent of which is most likely not available to employees working in private industry. CSRS and FERS annuities are backed by the US government and are not affected by stock market volatility. There is no risk of outliving one’s CSRS or FERS annuity. This risk – longevity risk- is a risk associated with the Thrift Savings Plan (TSP).
Social Security also provides a guaranteed income stream that an individual cannot outlive. Cost-of-living adjustments (COLAs) help CSRS and FERS annuity and Social Security benefits generally keep pace with inflation.
Two important things to note about Social Security retirement benefits:
(1) The longer an individual continues to pay into Social Security via Social Security-covered employment, the larger will be their Social Security monthly income, and
(2) The older they are when they initially claim their Social Security retirement benefit, the larger their monthly retirement benefit. It is therefore important that anyone eligible for Social Security benefits have a prudent claiming strategy.
A prudent Social Security claiming strategy is more challenging if one continues to work past age 65, is married or divorced, or is a widow or widower. A well-designed claiming strategy can add thousands of dollars to an individual’s monthly Social Security retirement benefits. Married employees in particular are advised to pay attention to the timing of each spouse’s claim to benefits and take advantage of spousal benefits as a way to maximize lifetime Social Security benefits.
Claimants may be eligible to begin taking their Social Security retirement benefits at the age of 62. But should they? As shown in Table 1, there is a big difference between the benefits paid to someone who claims their monthly benefit starting at age 62 and benefits paid to someone who waits until full retirement age (FRA) to claim their monthly benefit, and an even greater difference if that same person waits until age 70 to start collecting their monthly benefit.
Impact of Delaying Social Security
As shown in Table 1, there is a significant difference between the benefits paid to someone who takes Social Security early (age 62) and benefits paid to those who wait until FRA or until age 70. In this example, an individual who starts receiving Social Security benefits at age 62 would forfeit $626 per month compared with the benefits he or she would have received had he or she started at the FRA of 67 years. Had he or she started receiving benefits at the age of 70, receive an additional $1,068 per month. For each year an individual waits past his or her FRA until age 70 to start receiving his or her Social Security retirement benefit, the individual receives a guaranteed 8 percent more year in benefits (“delayed retirement credits”).
In general, the longer an individual works in Social Security-covered employment, the more he or she earns while paying into Social Security, and the older the individual claims his or her Social Security benefits (assuming the individual lives to at least full life expectancy), the more he or she will ultimately receive in Social Security retirement benefits. As will be explained and illustrated below, it therefore makes sense for many individuals to wait until at least their full retirement age (FRA) before starting to receive their Social Security retirement benefits. An individual’s FRA depends on the person’s birth year, as summarized in Table 2.
Table 2. Full retirement age (FRA) according to year of birth.
There is another important Social Security t consideration, namely the “earnings” test, for those individuals at least age 62 but younger than their FRA in 2025 (those individuals born between February 2,1959 and December 31,1963), receiving Social Security benefits and who continue to work. The Social Security Administration (SSA) has an earnings limit for individuals younger than their FRA, receiving their Social Security benefits, and working as to how much they can earn without losing any of their Social Security monthly retirement benefit.
During 2025, someone between age 62 and 66 years and 10 months, receiving Social Security retirement benefits and working (receiving earned income) can earn a maximum $23,400 without losing any of his or her Social Security retirement benefits. For every $2 the individual earns above $23,240, the SSA will reduce the individual’s Social Security monthly benefits by $1. That would mean if the individual earned more than $69,720 during 2025, the individual would lose all benefits for 2025.
There is a separate “earnings” test for individual in the year they become FRA. During 2025, those individuals born between March 1,1958 and February 1,1959 reach age 66 years and 10 months which is their FRA. These individuals have an “earnings” test as follows: Until the month the individual reaches his or her FRA, the individual can earn no more than $62,160. For every $3 the individual earns above $62,160, the SSA will withhold $1 in benefits.
Once an individual reaches the month of his or her FRA, the “earnings” test ceases. That means an individual can receive Social Security benefits, work and earn as much as he or she wants without losing any of his or her Social Security benefits.
The following are two suggestions for federal employees who are aged 65 and older during 2025 and who continue to work in federal service with respect to their Social Security benefits:
(1) Those employees born between March 1,1958 and February 1,1959 and who continue to work in federal service should not elect to receive Social Security benefits during 2025 because of the “earnings” test.
(2) For those employees who are 67 or older during 2025 (born before January 2,1959 and therefore have reached their FRA) are encouraged to receive their Social Security benefits only if they need the additional income. Otherwise, they are encouraged to delay their Social Security benefits until age 70 in order to receive “delayed retirement credits” of 8 percent per year until age 70, thereby potentially maximizing their lifetime Social Security benefits.
FEHB Program Health Insurance and Medicare Enrollment
When a federal employee reaches his or her 65th birthday, the employee becomes eligible to enroll in Medicare. There are four parts to Medicare – Medicare Part A (hospital insurance); Medicare Part B (medical insurance); Medicare Part C (Medicare advantage plans); and Medicare Part D (prescription drug coverage).
Federal retirees who are eligible and keep their Federal Employees Health Benefits (FEHB) program group health insurance for retirement are highly encouraged to enroll in Medicare Parts A and B (the Original Medicare) in order that they will minimize, more likely eliminate, any out-of-pocket doctor, hospital, laboratory and medical equipment bills. Once enrolled in Medicare Parts A and B, a federal retiree’s primary medical coverage will be Medicare, and their secondary coverage (Medicare supplement) will be their FEHB program health insurance.
Medicare Part A helps cover the insured’s inpatient care in hospitals and rehabilitation facilities. It also helps cover hospice services and home health care services. Federal employees do not have to pay a monthly premium for Part A once they enroll at age 65 because they prepaid the premiums through the Medicare hospital insurance payroll tax during their working years.
Medicare Part B helps cover medically necessary doctors’ services, outpatient care, home health services, durable medical equipment, mental health services, and other medical services that Part A does not cover. But unlike Part A, there is a monthly cost for Part B. That cost depends on the insured’s modified adjusted gross income (MAGI) and varies by year.
Medicare Enrollment Rules
There are rules regarding when to enroll in Medicare Parts A and B. An individual can enroll during the following periods:
• Three months before the month of, the month of, and three months after the month of the individual’s 65th birthday (called the initial enrollment period or IEP).
• Between January 1st and March 31st of each year (called the general enrollment period or GEP).
• Within eight months of retiring from an employer offering group health insurance like the federal government- sponsored FEHB program (called the special enrollment period or SEP)
Federal employees who are enrolled in the FEHB program and who continue to work in federal service past age 65 are advised to do the following with respect to Medicare enrollment:
• Because there is no premium cost associated with Medicare Part A, there is no reason for a federal employee working past age 65 to not enroll in Medicare A at age 65. Once enrolled, their FEHB program health insurance plan will be considered primary insurance in the event the employee goes to the hospital, while Medicare Part A will be considered secondary insurance. If an employee is married and their spouse is aged 65 or older and included on their FEHB program health insurance plan, then the spouse is also encouraged to enroll in Medicare Part A.
• With respect to enrolling in Medicare Part B, the situation is different when the federal employee continues to work in federal service. The employee is not required to enroll in Part B while they continue in federal service. In so doing, they avoid paying the monthly Part B premium. To minimize any out-of-pocket medical expenses (deductibles, co-insurance, co-payments or medical expenses not covered by their FEHB insurance), they are eligible to continue enrollment in their health care flexible spending account (HCFSA) that allows the employee to pay these expenses on a before-tax basis. If their spouse is over age 65 and enrolled in the employee’s FEHB program health insurance plan, then the spouse need not enroll in Part B.
• Once a federal employee working past age 65 in federal service retires, the retired employee – now a federal retiree – should enroll in Medicare B within 8 months of the employee’s retirement date (called Special Enrollment Period or SEP). In so doing, the retired employee (and spouse) will avoid the normal late enrollment penalty for not enrolling in Medicare Part B during their IEP.
Continuing Contributions to a Health Care Flexible Spending Account (FSA) and Health Savings Account (HSA)
Federal employees are eligible to enroll in a health care flexible spending account (HCFSA). If an employee enrolls in an HCFSA, then the employee sets aside a portion of their gross salary (before all taxes are deducted, including federal and state income taxes, Social Security FICA tax and Medicare Part A Hospital Insurance payroll taxes) to pay out-of-pocket medical, dental and vision expenses. These out-of-pocket medical expenses include deductibles, co-insurance, co-payments and expenses incurred that are not covered by medical insurance. Using the HCFSA results in an employee utilizing before-taxed dollars rather than after-taxed dollars to pay medical expenses. The results are tax savings for the employee and a more efficient way to pay out-of-pocket medical, dental and vision expenses.
Upon retiring from federal service, an employee loses access to his or her HCFSA. Those federal employees who are close to age 65 and enrolled in an HCFSA may want to consider not retiring in order to continue utilizing their HCFSA.
Those federal employees who are enrolled in a FEHB program high-deductible health plan (HDHP) associated with a health savings account (HSA) may continue to contribute to their HSA provided they continue to be enrolled in an HDHP. The HSA offers a “trifecta” tax benefit in the following way:
(1) HSA contributions are tax deductible (an adjustment to one’s gross income) (they reduce the HSA owner’s AGI resulting in current year tax savings).
(2) HSA earnings (interest and dividends) grow at least deferred and most likely tax-free) and
(3) All withdrawals (including HSA contributions and accrued earnings) made to pay out-of-pocket qualified medical, dental and vision expenses are tax-free. In addition, there is no limit for carrying over unused HSA funds from one year to the next; qualified HSA withdrawals (tax-free) can be made during an individual’s retirement. Note that this is unlike an HCFSA, in which an individual can only have and use while an employee and any unused HCFSA funds cannot be carried over and used in retirement.
Postponing the Start of Required Minimum Distributions (RMDs)
Federal employees who own traditional IRAs (including SEP IRAs and SIMPLE IRAs), who have previously participated in qualified retirement plans such as 401(k), 403(b) and profit-sharing plans and who are TSP participants are required to take required minimum distributions (RMDs) when they reach their “required beginning date” (RBD).
The RBD depends on when an individual was born. If the individual was born before July 1, 1949, the RBD is April 1 following the year the individual became 70.5. If the individual was born between July 1,1949 and December 31,1950, then the RBD is April 1 following the year the individual becomes age 72. If the individual was born between January 1,1951 and December 31,1959, the RBD is April 1 following the year the individual becomes age 73. If the individual was born after December 31,1959, the RBD is April 1 following the year the individual becomes age 75.
Note the following with respect to RMDs:
(1) There is a separate RMD for each of the retirement accounts mentioned; that is, one RMD for the traditional IRA; one RMD for any type of qualified retirement plan; and one RMD for the TSP.
(2) Starting with the RBD, RMDs must be taken every year for the remainder of IRA owner, qualified retirement plan participant, and TSP participant’s life.
(3) There is a 25 percent IRS “excess accumulation” penalty imposed on an individual who was required to take his or her RMD from any account during a particular year but did not.
(4) There is one exception to the RMD rules that apply to TSP participants. If a TSP participant continues to work in federal service past the participant’s RBD, then no TSP RMD is required until the employee retires from federal service. In that case, the first TSP RMD would be required by April 1 following the year the employee retires from federal service.
(5) As noted, federal employees who continue to work in federal service beyond age 65 and past their RBD will not be subject to the TSP RMD until April 1 following the year they retire from federal service. In addition, if the employee owns traditional IRAs and/or a qualified retirement plan, then the employee can request a direct rollover of these retirements into their traditional TSP account. If they are able to complete the direct rollover of these accounts by December 31 of the year they become age 73 (or age 75 if born after December 31,1959), then no RMDs will need to be performed on those accounts until the employee retires from federal service.
An employee may request a direct rollover of a traditional IRA and qualified retirement account to the employee’s traditional TSP account by going online and filling out Form TSP-60 (Request for A Transfer Into the TSP). There are no dollar limits for direct rollovers to the TSP and no tax consequences using direct rollovers. Direct rollovers also do not affect the amount an employee can contribute each year to the TSP via payroll deduction.
Eligibility to Continue Contributing to the TSP
Provided a federal employee continues in federal service, the employee can continue to contribute to the TSP. Once an employee retires, no more direct contributions to the TSP. Working for three to five years beyond age 65 can result in an employee contributing as much as an additional $100,000 – $125,000 to the TSP. This additional $100,000 – $125,000 contributions can be particularly valuable if the contributions are made to the Roth TSP for two reasons: (1) The Roth TSP is not subject to RMD; and (2) When the Roth TSP participant dies, then the designated Roth TSP beneficiary will be able to withdraw their inherited TSP account tax-free. In that sense, an inherited Roth TSP account can be thought of as a life insurance policy in which the life insurance beneficiary receives the life insurance face amount tax-free.
