Retirement Changes May Be Coming for Federal Employees

Needless to say, there’s a lot happening in Washington right now. And, if you’re a federal employee, you may have heard some buzz about potential changes to your retirement benefits.

A new budget proposal moving through Congress includes several significant updates that could impact pensions, health benefits and more.

While nothing is set in stone – the bill still has to go through reconciliation – it’s worth keeping an eye on what’s being discussed, especially if you’re planning to retire in the next few years.

Here are some of the biggest proposals and what they could mean for you:

1. Increased contributions to FERS

Right now, how much you pay into your FERS pension depends on when you were hired, anywhere from 0.8% to 4.4%. Under this proposal, all employees would pay 4.4%. That could mean a noticeable bump in paycheck deductions for some, but could also help strengthen your pension over time.

2. Elimination of the FERS Annuity Supplement

If you were counting on the annuity supplement to bridge the gap between retirement and Social Security eligibility (typically between ages 57 and 62), that may disappear entirely.

This is one of the most significant potential changes for those planning to retire in their late 50s or early 60s.

3. FEHB health coverage shake-up

Under the proposed bill, FEHB – the health benefit many retirees rely on – could look very different in the future:

• Instead of the government covering around 72% of premiums, a voucher system may take its place. That fixed contribution might not keep pace with rising healthcare costs.
• Further, FEHB eligibility could end at retirement. That means no more premium deductions from your pension. You’d need to switch to Medicare (if you’re 65+), a Marketplace plan or your spouse’s health insurance if available.

Considering that FEHB premiums rose 13.5% in 2025, 7.7% in 2024, and 8.7% in 2023, this change could have long-term cost implications.

4. End to across-the-board raises

Federal workers currently receive annual pay raises. The proposal would end that system and switch to merit-based raises only.

5. Pension calculation changes

Your FERS pension is based on your highest 3 years of salary. That could change to the highest 5 years. Unfortunately, this could result in a lower pension for many.

6. Trade-off between job security and cost

One surprising idea in the bill? New hires could be asked to choose between two paths:

• Keep civil service protections and pay more into FERS, or
• Work “at-will” with lower FERS contributions – but less job security.

7. Workforce reductions and buyouts

The bill calls for $2 trillion in spending cuts, with $50 billion targeting federal retirement and health benefits. That could mean layoffs, buyouts or incentives for early retirement.

So, what now?

The biggest question we still don’t have an answer to: Who will this impact and when?

Will these changes apply to all current employees? Only new hires? Will there be an age cutoff? Nothing is clear yet.

But that doesn’t mean you shouldn’t take action. It can help to at least talk to someone who understands your situation.

At Advance Capital Management, we’ve helped federal employees and retirees navigate all kinds of changes out of Washington – across different administrations, Congresses, and political climates. So, rest assured, we’ll be keeping a close eye on this and will continue to share updates as things unfold.

If you're feeling uneasy or want to talk through how this could affect your retirement plans, let’s connect.

It’s always better to be prepared than surprised.

Ready to talk? Schedule a call with us and let’s make sure your plan is built to adapt – no matter what happens in Washington.