FERS Retirement Options: Uncle Sam Already Writes You a Paycheck for Life. An Annuity Is How You Teach the TSP to Do the Same.

Key facts: The regular FERS basic annuity is 1% of your high-3 average salary times years of service, or 1.1% if you retire at 62 or later with at least 20 years (OPM). · TSP will buy a life annuity for you with no commissions and a $3,500 minimum per traditional or Roth balance. Once the money is disbursed, you cannot cancel or change it (TSP). · The FERS annuity supplement stops at the end of the month before you turn 62, even if you wait to claim Social Security (OPM). A life annuity can keep a paycheck coming through that gap and alongside Social Security later.

Let's face it: federal retirement is three benefit programs and a pile of acronyms, stuffed into a trench coat and told to act like a plan. One of those parts is already a paycheck for life. The question is how to get the TSP to show up the same way.

OPM says FERS pays benefits from a Basic Benefit Plan, Social Security and the Thrift Savings Plan. The basic benefit arrives as a monthly annuity for the rest of your life. Social Security can be a lifetime check too, once you claim it. The TSP is the part that does not automatically show up as a paycheck. A life annuity is how you turn that savings into a second check that does not run out, does not need you to pick stocks at 80, and can keep paying a spouse after you are gone. Here is the map of the options, then the places where that annuity actually helps.

The three parts (Yes, this is the stool you have heard about)

You and your agency both pay into the Basic Benefit and Social Security each pay period. The TSP is an account your agency sets up. If you are under FERS, your agency deposits an amount equal to 1% of your basic pay every pay period, even if you put in nothing. Contribute 5% yourself and the agency match on that first 5%, plus the automatic 1%, brings the agency's total to 5%. TSP puts the combined total at 10% of basic pay going in. You can contribute more than 5%. The match still stops at that first 5%.

The basic annuity (The paycheck Uncle Sam already promised)

OPM's computation page is shorter than the rumor mill. For most non-disability retirements, the annual basic annuity is 1% of your high-3 average salary times your years of service. If you retire at 62 or later with at least 20 years, that factor becomes 1.1%. High-3 is your highest average basic pay during any three consecutive years, usually the last three. It includes salary and some pay that had retirement deductions withheld. It does not include overtime or bonuses.

A clearly hypothetical example, using OPM's formula: a high-3 of $90,000 and a retirement at 62 with 30 years is 1.1% × $90,000 × 30, or $29,700 a year ($2,475 a month), before survivor or other reductions. That is the formula, not a promise about your numbers.

Eligibility for an immediate annuity, one that starts within 30 days of when you stop working, is age 62 with 5 years, age 60 with 20 years, your Minimum Retirement Age with 30 years, or your MRA with 10 years. If you were born in 1970 or later, your MRA is 57. Retire at the MRA with at least 10 but fewer than 30 years and the benefit is reduced by 5% a year for each year you are under 62, unless you have 20 years and the benefit starts at 60 or later.

The cost-of-living adjustment is not a full inflation match. OPM says that if the CPI increase is 2% or less, the FERS COLA equals that increase. If it is more than 2% but no more than 3%, the COLA is 2%. If it is more than 3%, the COLA is 1 percentage point less than the CPI increase. For 2027, that means 2.6% for FERS and 3.6% for CSRS. Most FERS retirees do not get a COLA until age 62. Your pension is a lifetime floor. An annuity can help thicken that floor.

The supplement (A bridge that ends at 62, even if you keep walking)

If you retire before 62, FERS may pay a temporary annuity supplement meant to stand in for the Social Security benefit you would have had if you had waited until 62. OPM estimates a full-career Social Security benefit, then prorates it by your years of FERS service over 40. You may be eligible if you retire voluntarily on an immediate annuity that is not reduced for age. Deferred, disability and MRA+10 retirements do not get it. Like Social Security, the supplement has an earnings test: $1 off for every $2 you earn over the SSA exempt amount in the prior year, possibly down to zero. Your basic annuity is not cut for those earnings.

Here is the hole a lot of people miss. OPM says the supplement stops at the end of the month before you turn 62, even if you wait to claim Social Security for a larger benefit. The bridge ends on schedule. A life annuity bought with part of your TSP can keep a paycheck coming through that gap, and then sit alongside Social Security once you do claim it.

Survivor elections (The 10% question you answer once)

If you are married when your annuity begins, OPM will compute it with a reduction to provide a maximum survivor annuity, 50% of your unreduced benefit, unless your spouse consents to less. OPM says a 50% survivor benefit reduces your annuity by 10%. A 25% benefit reduces it by 5%. A partial or no survivor annuity needs your spouse's notarized consent. That is a permanent haircut on your check in exchange for a lifetime check for your spouse if you die first. Treat it like the decision it is, not like a box to tick on the way out the door.

A TSP joint life annuity can add a second survivor paycheck on top of that FERS election. More on that in a moment.

What you can do with the TSP (Four exits, and one of them is a paycheck)

After you separate, TSP lets you leave the money where it is if your vested balance is at least $200. You can also take a partial distribution of at least $1,000, a total distribution, installments, a life annuity, or a combination. Withdrawals cannot be reversed once they are processed. Installments can be a fixed dollar amount of at least $25, or an amount based on IRS life-expectancy tables, paid monthly, quarterly or annually. You keep control of the account and can change course. They also continue only as long as you have a balance. That is the polite way of saying a withdrawal plan can run out.

A life annuity is how you get a monthly check that is not tied to the remaining balance. You use all or part of your TSP to buy one through TSP's outside vendor. You give up that money and control of it in exchange for guaranteed lifetime monthly payments. Once purchased, it is not part of your TSP account, and you cannot change or cancel it. The minimum is $3,500, applied separately to your traditional and Roth balances. You pay no commissions. The payment depends on how much you put in, your age (and a joint annuitant's age), the option you pick and the interest rate index at purchase.

TSP's annuity fact sheet lays out the menu: single-life or joint-life, with level payments or payments that increase 2% each year. Increasing payments start smaller, then step up, which helps if you are worried about inflation eating a level check. Joint life can be 100% or 50% to the survivor. Optional cash-refund and 10-year-certain features can leave something for a beneficiary if you die early, and they also lower the monthly check. Married FERS participants generally need a spouse's waiver to pick something other than a joint life annuity with the spouse, level payments and a 50% survivor benefit. Annuity payments are not subject to the IRS early-withdrawal penalty, regardless of your age. Traditional amounts are taxed as ordinary income when paid.

Why that second paycheck can be a smart move (Longevity, the Social Security gap, a spouse, and a market drop)

Investor.gov, the SEC's investor site, calls the first problem longevity risk: the risk of outliving your assets. A pension that pays a lifetime annuity protects you against that. FINRA puts it more plainly: with an annuity, you will not worry about outliving your pension payments, and budgeting gets easier because the same amount comes in on a regular basis. Federal retirees already have that protection on the FERS basic annuity, and on Social Security once they claim it. Using a slice of the TSP to buy a life annuity extends the same "cannot outlive it" protection to money that would otherwise last only as long as the balance does.

It is also a clean way to fill a timing gap. The FERS supplement is meant to stand in for Social Security until 62, and then it stops, even if you delay your Social Security claim. A TSP life annuity can start when you retire and keep paying through that hole, then sit alongside Social Security later. You do not have to claim Social Security earlier than you wanted just to replace the supplement.

For a spouse, you can stack protections. The FERS survivor election can leave your husband or wife 50% or 25% of your unreduced basic annuity. A TSP joint life annuity, with a 100% or 50% survivor option, can add another lifetime check after you die. Cash-refund and 10-year-certain features are there if you want a beneficiary to receive something if both of you die earlier than the contract expected. FINRA notes that a joint-and-survivor payout means a smaller check while you are both alive, in exchange for a lifetime payment to the survivor. That is the trade. For many couples, it is the right one.

Then there is a market drop early in retirement. FINRA says that once you retire, you may no longer have time to recover from downturns, and that even a well-diversified portfolio can fluctuate significantly from year to year. If you are taking withdrawals, a nosedive can shrink the pot you need to bounce back. FINRA's advice on that point is to start withdrawals conservatively and be ready to cut back if the portfolio takes losses. A life annuity solves a different piece of the same problem: the bills you cannot skip get paid by a guaranteed check, so you are not forced to sell TSP shares in a down market just to cover rent or groceries. The rest of the account can stay invested and have a chance to recover.

You do not have to annuitize the whole nest egg. TSP lets you use part of the account for a life annuity and leave the rest in the plan, in installments, or both. The smart version, for most people, is to cover the gap between your essential bills and the FERS plus Social Security checks you can already count on, then leave the leftover flexible.

A commercial annuity can do a similar job with money outside the TSP, or if you want a contract feature the TSP menu does not offer. FINRA describes it as a contract with an insurance company that can start paying immediately or later. Immediate annuities, often bought with a lump sum, start a paycheck right away. We do not recommend any insurer or product. If you shop outside the TSP, read our surrender-charge explainer and use the Fine Print below before you sign.

The Fine Print: A TSP life annuity has no commissions, but once the money is disbursed you cannot cancel or change it. A commercial annuity can add fees, a surrender period that makes the money hard to reach, and a smaller check if you need cash early. FINRA says variable contracts can have surrender periods of eight years or more, and Investor.gov says a surrender charge reduces the value of your investment. Before you sign a commercial contract, check the person selling it on FINRA BrokerCheck and look up your state insurance department in the NAIC directory. Investor.gov also says states usually give you a 10- to 30-day free-look period to cancel a new contract.

The Bottom Line (Build a floor, then let the leftover stay flexible)

Add up the checks that cannot run out: your estimated FERS basic annuity, Social Security, and a life annuity on the slice of TSP that covers whatever is still missing. If that floor pays the bills you cannot skip, the rest of the account can stay invested or in installments. That is one of the more honest jobs an annuity can do: turn savings into a paycheck that shows up whether you live a long time, whether the FERS supplement has ended, and whether the market is having a year.

Your one move: before you request a TSP annuity or sign a commercial contract, add up your estimated FERS annuity and Social Security, then model a life annuity and installments on the same TSP balance in My Account or with the TSP annuity calculator. If you want a second pair of eyes on the comparison, send us your questions.

This is general education with a side of snark, not personal financial, insurance, tax or legal advice, and we don't recommend any insurer, product, or withdrawal choice. Your OPM estimate, TSP account, Social Security record and a qualified professional outrank this article. No Treasury check-signing machines were harmed, though several acronyms were made to sit still.

Sources:

• OPM: FERS Information
• OPM: FERS Eligibility
• OPM: FERS Computation
• OPM: Types of Retirement (including the FERS annuity supplement)
• OPM: How is the Cost-of-Living Adjustment (COLA) determined?
• OPM: Cost-of-living adjustments (2027 CSRS 3.6% / FERS 2.6%)
• OPM: Will the FERS Annuity Supplement continue after age 62 if I delay Social Security?
• TSP: What is a contribution? (automatic 1% and matching)
• TSP: Withdrawals in retirement
• TSP: Annuities fact sheet, TSPFS24 (PDF, October 2024)
• Investor.gov (SEC): Managing Lifetime Income
• Investor.gov (SEC): Annuities
• FINRA: Managing Your Retirement Portfolio
• FINRA: Selecting Retirement Payout Methods
• FINRA: Annuities
• FINRA BrokerCheck
• NAIC: State insurance departments
• IRS Topic No. 410: Pensions and annuities