Federal Government Workers Buyout: Should You Accept?

The Trump administration is offering over two million federal government workers an early buyout if they choose to resign. While this announcement has caused fear and uncertainty, for those close to retirement, it presents both an opportunity and a challenge.

On one hand, it could mean an early start to retirement, but on the other, some may not yet be financially or mentally prepared to leave the workforce. If you stay, do you risk future layoffs?

Deciding whether to accept an early buyout involves assessing several factors, from your financial security to the potential impact on your benefits and future job prospects.

Who Is Impacted by These Federal Buyouts?

As part of the Trump administration’s efforts to reduce government spending, the U.S. Office of Personnel Management has offered buyouts under a “deferred resignation program.” This applies to most federal employees, excluding postal workers, military personnel and other essential workers.

Initially, workers had until February 6 to voluntarily resign, receiving full pay and benefits until September 30, 2025. 

However, a federal judge issued an injunction pausing the effort, as there’s set to be a hearing to assess the legality of the offer. More than 60,000 people, or about 3% of the federal workforce, have already taken the offer.

Those who accept will also continue to accrue pension benefits since they are technically still employed, but this may change if the federal government decides to put employees who accept the offer on administrative leave as opposed to telework status.

For people who were going to retire this year anyway and who have met their age and service requirements, this could be a nice early transition to retirement. 

Employees who remain must return to full-time, in-office work, adhere to stricter performance standards, and accept the possibility of furloughs and at-will employment status.

Here are a couple of common questions impacted federal employees are asking Advance Capital:

1. Can I take this "Fork in the Road" offer and then file for unemployment benefits after I lose my job at the end of September 2025?
   Unemployment benefits rules vary state by state, but generally, you are not entitled to unemployment benefits if you resign from your job.
   
   
2. Can I take this "Fork in the Road" offer and later file a lawsuit claiming I was constructively discharged?
   Likely, not. Resignations and retirements are presumed voluntary by the courts, and therefore, a constructive discharge or involuntary retirement claim is likely to be unsuccessful.

Federal worker consultation: If you have any questions or would like some guidance on what this means for you, please click this link to schedule a free FERS/TSP consultation – we would love to help you make the right decision.

Otherwise, here are steps to take to decide:

Review Your Financial Situation First

Before making a decision, take a hard look at your finances. If you accept the buyout, how long can you sustain yourself without a paycheck? Do you have enough savings to cover essential expenses? If not, can you adjust your spending?

Leaving the workforce earlier than planned isn’t ideal, but you may be in a position to retire comfortably with only a few adjustments.

The best way to determine this is by conducting a full financial review. This involves assessing all your assets – including those of your spouse – and potential income sources, such as your FERS pension, Thrift Savings Plan (TSP) and Social Security.

If this provides the means to live the retirement you want, there may be little reason to wait. If not, adjustments may be needed. Could you modify your retirement lifestyle? Lower expenses? Downsize your home? Should you claim Social Security early? Do you need or want to continue working?

There are a lot of moving parts, which is why you may want to work with a financial adviser to assess your retirement picture.

Should You Accept a Buyout If Retirement Is Near?

For some workers, accepting a buyout is an easy decision – particularly if they were already planning to retire or are concerned about future layoffs. However, these offers often come with different payout options that carry tax and cash flow implications.

Are medical benefits provided? Are you barred from seeking employment in the same field with a competitor? How does your pension change if you accept the package?

Before deciding, it’s important to fully understand these conditions and their long-term impact.

If you plan to retire, keep in mind retirement can last more than 20 years, so ensuring you have enough savings is essential. If you have built a substantial retirement fund and can comfortably stop working, taking the buyout might be a logical choice.

On the other hand, if you haven’t saved enough, an early exit could significantly impact your financial stability. Accepting the buyout means losing the ability to make additional retirement contributions, such as catch-up contributions to your TSP. Additionally, claiming Social Security before your full retirement age (FRA) will permanently reduce your monthly benefit.

If you’re considering accepting the buyout and then reentering the workforce, proceed with caution. Finding a comparable job could be challenging, particularly if mass layoffs increase competition for positions. The ability to secure another job should be factored into your decision before you commit to leaving your current role.

FERS Pension and Social Security Considerations

Your FERS pension is a key factor in your decision. Are you eligible? If so, how much can you expect? The monthly annuity is based on years of service, salary and age at retirement. Eligibility for full pension benefits includes:

• Minimum Retirement Age (MRA) (55-57, depending on birth year) with 30 years of service.
• Age 62 with at least five years of service.
• Age 60 with at least 20 years of service.

Employees who retire early with 10 years of service at their MRA will see a 5% reduction in benefits for each year under age 62.

Social Security is another consideration. Claiming benefits before Full Retirement Age (FRA) results in a permanent reduction in monthly payments. Delaying benefits until age 70 can maximize your Social Security income, but if you stop working early, you may not have sufficient income to delay claiming.

When it comes to your FERS and Social Security benefits, a financial adviser can help you determine the best strategy based on your situation.

Managing Your TSP and Other Retirement Accounts

Beyond your cash flow, consider what a hit to your retirement portfolio will mean to your quality of life when you are no longer receiving a paycheck. Ideally, you will want to leave your TSP and other retirement accounts untouched – if you can.

If you withdraw from your TSP before age 59½ (or 55 under certain conditions), you may face early withdrawal penalties and taxes.

If you take the buyout but plan to continue working, leaving your TSP untouched may make sense, allowing it to continue growing. Another option if you switch jobs or retire is rolling your TSP into an IRA, which may provide some additional flexibility while maintaining tax advantages.

Healthcare Considerations

Healthcare is one of the biggest financial concerns for early retirees. If you retire before age 65, you need a plan to bridge the gap until Medicare kicks in. Fortunately, retirees who have been enrolled in the Federal Employee Health Benefits (FEHB) program for at least five years can continue coverage, with premiums deducted from their pension.

If you don’t qualify for FEHB, other options include COBRA (which extends employer-sponsored coverage for up to 18 months at full cost), a spouse’s employer plan, or purchasing insurance through the Affordable Care Act (ACA) marketplace. Weighing these options carefully is crucial to maintaining coverage without excessive costs.

Job Prospects and Quality of Life

If you take the buyout with plans to return to work, consider the job market. Competition for positions may be intense, and finding a comparable role could be difficult. Assess whether you have the skills and network to secure employment quickly if needed.

Beyond finances, think about your lifestyle. Many people enjoy the freedom of retirement, but others struggle with the lack of structure and purpose. If you’re not ready to stop working, consider options such as part-time work, consulting or volunteering.

Having a plan for your time in retirement can significantly impact your well-being and overall happiness.

Making the Right Decision

A federal buyout can be a golden opportunity or a risky move, depending on your financial situation and future goals. Before making a decision:

• Assess your financial security, including savings, pension and investments.
• Consider how the buyout will affect Social Security and whether delaying benefits is an option.
• Ensure you have a plan for healthcare coverage until Medicare eligibility.
• Evaluate job prospects if you intend to return to work.
• Think about your quality of life and what retirement will look like for you.

If you’re uncertain, consulting a financial adviser who specializes in federal employee benefits can help you make the best choice.

Advance Capital Management has helped many federal employees make informed retirement decisions, from selecting TSP investments to filling out beneficiary information. So, we know navigating the FERS retirement process can be complex and time-consuming.

Also, you can learn more about federal retirement benefits by downloading our free, easy-to-understand guidebook, FERS Made Simple: Understanding and Maximizing Your Benefit.