Blog / Retirement Planning
Which Federal Pay Stub Deductions Stop When You Retire? The FERS Paycheck Test
The question we hear most from federal employees within a year of retiring is simple: how much will I lose when my paycheck stops? The gap is usually smaller than people fear, because several of the largest deductions on your Leave and Earnings Statement (LES) end the day you retire.
The deductions that stop when you retire
| On your LES | What it is | In retirement |
|---|---|---|
| OASDI | Social Security tax, 6.2% of wages | Stops |
| Medicare | Medicare payroll tax, 1.45% of wages | Stops (a Part B premium starts if you enroll, usually at 65) |
| FERS / Retirement | Your pension contribution: 0.8%, 3.1% or 4.4% depending on hire date | Stops |
| TSP and Roth TSP | Your retirement savings contributions | Stops |
| Allotments | Savings, union dues or other allotments | Usually stop |
| Federal and state income tax | Withholding on your pay | Continues, usually lower |
| FEHB | Health insurance | Continues (no longer pre-tax) |
| FEDVIP | Dental and vision | Continues |
| FEGLI | Life insurance | Continues at a cost until 65 (or retirement, if later), unless you reduce or cancel it |
The one that surprises people most is OASDI. It is one of the biggest lines on the stub, and many people don't know what it is. It is Social Security tax, and your FERS pension doesn't pay it.
A real pay stub, before and after
On a real stub we reviewed (name changed), the employee grossed about $4,231 every two weeks and took home about $2,500. Between Social Security tax, Medicare tax, the FERS contribution, a $423 TSP contribution each pay period, and FEGLI, more than a third of the gross went to deductions that end or shrink in retirement. Some employees carry FEGLI Option B at five times salary and pay $300 a pay period for it, which a retirement plan often replaces or reduces.
“Once we take out Social Security, Medicare, the FERS contribution and the TSP contribution, people see it's not that big of a difference.” — William Smith Jr.
Estimate your FERS pension in two minutes
- Take your high-3: the average of your highest three consecutive years of base pay. If you don't know it, use your current salary, or your salary minus about $10,000 to stay conservative.
- Multiply by your years of service at retirement.
- Multiply by 1%, or by 1.1% if you retire at 62 or older with at least 20 years. That is a 10% larger pension.
- Divide by 12 for your monthly gross pension.
Example: $100,000 high-3 × 30 years × 1% = $30,000 a year, or $2,500 a month before tax and FEHB. At 62 with 20+ years, the same numbers give $2,750 a month.
If you retire before 62 at your minimum retirement age with 30 years, or at 60 with 20 years, you also receive the FERS supplement until 62. Get your Social Security estimate from ssa.gov.
Compare net to net
Gross pay is for the IRS. For planning, compare what lands in your account:
- Today: your net pay per month.
- Retirement: pension after tax and FEHB, plus Social Security (or the supplement) after tax.
For long-career employees the difference is often a few hundred dollars a month, and sometimes close to zero. Shorter careers leave a bigger gap, and the TSP is designed to fill it.
Then plan what you'll actually spend
Knowing what hits your account is half the job. The other half is knowing what stays there. Commuting, parking, dry cleaning and work lunches go away. Travel, dining out and time with family usually go up, and they should.
In one client's case, monthly spending was about $5,500. Her pension paid about $1,647 after tax and Social Security about $1,900, leaving a gap of roughly $1,950 a month for the TSP to cover. That gap is not a crisis. It is a withdrawal plan.
How the gap shrinks over time
Cost-of-living adjustments. FERS pensions receive annual COLAs based on inflation, announced each October. Two details matter: regular FERS retirees generally start receiving COLAs at 62, and when inflation runs above 2% the FERS COLA is smaller than inflation.
Paying off debt. A paid-off car or credit card permanently lowers what you must withdraw:
- Car note. William's rule of thumb: with more than $400,000 in the TSP, consider paying off the car, then buying the next one with cash. You stop paying interest, and planned TSP withdrawals before RMDs can lower future required distributions.
- Credit cards and student loans, including Parent PLUS loans taken for children, which we now see often among new retirees.
- Mortgage. You don't need to pay it off at once. Extra payments that shorten the term reduce the gap for the rest of retirement.
As an illustration only: a $700,000 TSP that earns 7% in a year grows by about $49,000. Returns vary, and some years are negative, so run any large withdrawal against your plan first. Our guide to debt and cash flow before you retire walks through a full example.
Don't be afraid to use your TSP
After 30 years of saving and not touching the TSP, many retirees freeze. The money has two jobs: to support the life you planned, and to grow for whoever comes next. Spending some of it on the trips, the debt payoff or the purpose you worked toward is what it was for. See also: your last 90 days as a federal employee.
Questions from the live audience
What is OASDI on my federal pay stub?
OASDI stands for Old-Age, Survivors and Disability Insurance, which is the Social Security tax. It is 6.2% of wages. It is not taken out of your FERS pension, so it disappears from your income when you retire.
Does the Medicare tax stop when I retire from federal service?
Yes. The 1.45% Medicare tax is a payroll tax on wages and is not withheld from your FERS annuity. Separately, once you enroll in Medicare Part B, usually at 65, you pay a monthly Part B premium.
Do I need Medicare Part B if I keep FEHB?
It is a personal decision. Some retirees keep a strong FEHB plan and skip Part B; others carry both for broader coverage. Compare your plan's Medicare coordination, premiums and your health needs before deciding.
Is FEGLI free after I retire?
Not right away. If you keep FEGLI Basic with the 75% reduction, you keep paying premiums until age 65 or retirement, whichever is later; then premiums stop and coverage reduces 2% a month to 25% of its value. Optional coverage such as Option B keeps costing money until it reduces or you cancel it.
What order should I take income from the TSP, Social Security and pension?
There is no single right order. It depends on your tax bracket, marital status, TSP balance, age and income needs. One common approach is to draw from the traditional TSP while delaying Social Security, which can lower lifetime taxes. Run your own numbers before deciding.
How do we plan if my spouse is not a federal employee?
Plan for both of you from your federal benefits. Non-federal spouses often have no pension and a smaller 401(k), so the FERS pension, survivor benefit and TSP usually carry the household. Keep enough in the TSP to cover a long-term care event for either of you.
Your numbers, not an example
See what this looks like for your TSP and pension.
The first call is free. We gather your service date, salary, TSP balance and goals, then show you where the gaps are.
Schedule A MeetingFed Legacy is an independent financial services firm helping federal employees create retirement strategies using a variety of insurance products. Any reference to protection benefits, safety, security, steady and reliable income, or lifetime income streams refers only to fixed insurance products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities may be subject to fees, surrender charges and holding periods, and are not FDIC insured. This content is educational and is not tax or legal advice. Fed Legacy is not affiliated with OPM, the FRTIB or any federal agency.