Retirement is supposed to be the payoff for decades of saving, planning and serving the federal government. But for some federal employees, the first year of retirement can bring surprises they never saw coming, whether that be a delayed pension, a tax bill that looks very different from what they expected, anxiety about spending the money they’ve saved for decades, and decisions that can affect a spouse’s benefits for years to come.

On this episode of Fed Thread, we called back our three financial professionals—James Campbell of Federal Employees Benefit Association, Katelyn Murray of RJFS and Serving Those Who Serve, and Chris Campbell of CJC Wealth Management and the DC Society for Financial Awareness—to talk through the financial and psychological traps feds may encounter before or after their last day. Because retirement isn’t just the day your paycheck stops. It’s the beginning of a completely different financial system.

Your pension may not show up right away

One of the biggest surprises for new retirees can be the wait for their first pension payment.

Campbell points out that some federal retirees are experiencing delays of several months, forcing them to tap into their TSP to cover living expenses while they wait. It brings to light an important distinction feds should note: Having enough money for retirement isn’t necessarily the same thing as having enough accessible cash to get through the transition.

There can be other timing issues, too. Annual leave is paid out, while unused sick leave factors into the pension calculation. And that annual leave payout can potentially create a bigger tax bill in the year you retire.

Your taxes don’t retire when you do

Retirement also changes the tax equation. Pension income, TSP withdrawals, Social Security, Roth conversions and Required Minimum Distributions (RMDs) can all interact in ways that weren’t relevant while you were working.

And then there’s Medicare. Higher-income retirees may face IRMAA, the income-related adjustment to Medicare premiums. But a significant drop in income after retirement may create an opportunity to ask Medicare to reconsider an income-based surcharge.

The point isn’t that every retiree needs the same strategy. It’s that the tax plan that worked while you were earning a paycheck may not work once the paycheck disappears.

Old saving habits die hard

Panelists agreed that many federal employees are extremely good at saving—sometimes to a fault. After decades of watching their TSP balance grow, withdrawing from it can feel like doing something wrong, which creates a situation few retirees realize is even a problem: underspending.

Murray, who specializes in financial psychology and behavioral finance, pointed out that the early years of retirement are also likely the years when you’re best positioned to travel, to spend time with family and to enjoy the things you worked to afford. As she puts it, those years are the youngest you’ll ever be again.

Of course, that doesn’t mean spending without a plan but rather figuring out what you want the money to be for.

Decisions with consequences beyond your bank account

Panelists also explored what happens when retirees return to work, move their investments into the G Fund, face long-term-care costs or start thinking about RMDs. And one decision deserves particular attention from married federal employees: the survivor benefit election.

As Murray explains, the choice can affect whether a surviving spouse remains eligible for the deceased’s federal health benefit. That’s the kind of retirement decision you don’t want to discover the consequences of after you’ve already made it. (Or after you’re already dead.)

Underpinning the discussion was a deceptively simple question: What do you want your money to do?

Because a successful retirement isn’t necessarily about accumulating the biggest possible balance. It’s about coordinating your pension, TSP, Social Security, taxes, health care and investments in a way that supports the life you want to live, which could diverge drastically from another retired federal employee.

That’s where retirement planning gets interesting. The farewell party may mark the end of your federal career, but it doesn’t mark the end of the financial decisions. It just changes them.

If you’re a new federal retiree or will be soon, you’ll want to hear the full conversation for more potential retirement traps, opportunities and the details to navigate them.

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