Leaving Federal Service Early: What You Give Up and What You Keep

A financial analysis for federal employees weighing a departure before full retirement eligibility. Not financial advice — your specific numbers matter.

In 2026, more federal employees are weighing this decision than at any point in recent memory. DOGE-driven workforce reductions, voluntary separation incentives, and a hot private sector job market have put the question front and center: is it worth leaving?

The honest answer is that most employees dramatically underestimate what they're giving up. Your federal salary is only part of the picture. The pension, FEHB in retirement, TSP agency match, and various continuity rights are collectively worth $500,000 to well over $1 million depending on your grade, years of service, and age. A private-sector offer needs to compensate for all of it — not just the salary gap.

This guide walks through each benefit category, what happens to it when you leave, and a worked example using a mid-career GS-14.

The two categories: what you keep vs. what you lose

Your FERS pension options when you leave

Your pension options depend entirely on how many years of service you have when you leave and how old you are at departure.

Fewer than 5 years of service: no pension

FERS vests at 5 years.¹ If you leave before 5 years, you have two choices:

• Take a refund of your FERS contributions (0.8% to 4.4% of salary depending on when you were hired, plus interest). This closes out your FERS account permanently.
• Leave contributions on deposit — but with fewer than 5 years you cannot collect any annuity at any age, so this only makes sense if you might return to federal service later.

5 to 9 years of service: deferred retirement at 62

You're vested. You have one option: deferred retirement, collecting your annuity starting at age 62.¹

The annuity is calculated on your high-3 salary and years of service at the time you left — it does not grow with inflation while you wait. If you were a GS-12 earning $110,000 high-3 with 8 years of service:

• Deferred annuity at 62: 1.0% × $110,000 × 8 = $8,800/year
• No FERS supplement. No FEHB in retirement.

That annuity is worth collecting — but it's a thin safety net, not a retirement plan.

10 or more years at MRA: the MRA+10 decision

If you leave at or after your Minimum Retirement Age (MRA — between 55 and 57 depending on birth year) with at least 10 years of creditable service, you qualify for MRA+10 retirement under two forms:¹

MRA+10 immediate: Start collecting right away, but with a 5% per year reduction for every year you're under age 62. At MRA 57 with 5 years under 62, that's a 25% permanent reduction. FEHB continues if you've met the 5-year rule. The FERS supplement does not apply.

MRA+10 postponed: Delay your annuity start date to reduce or eliminate the penalty. If you postpone to age 60 (and have 20+ years of service), your annuity starts unreduced. FEHB is suspended during postponement but reinstates when your annuity begins. The 5-year continuous FEHB enrollment rule still applies.

If you leave before your MRA but with 10+ years, you cannot use MRA+10 immediately — you'd take deferred retirement at 62 instead (or wait until you reach MRA).

TSP: what stays and what you lose

What's yours

After 3 years of service, you're fully vested in all TSP contributions — your own, the government's 1% automatic, and the matching contributions. Your TSP balance stays in the TSP indefinitely, or you can roll it to an IRA or new employer plan.⁴

The Rule of 55 trap

This is the most commonly overlooked consequence of leaving before 55.

Under IRS rules, if you separate from federal service in the calendar year you turn 55 (or later), you can take penalty-free withdrawals from your TSP without waiting until 59½. For LEO, firefighters, and ATC, the age is 50.⁴

If you leave before the year you turn 55 — say, at age 48 — and later roll your TSP to an IRA, you permanently give up the Rule of 55. You'll face a 10% early withdrawal penalty on any IRA distributions before 59½ (unless you use substantially equal periodic payments, SEPP).

For someone with $400,000 in TSP at age 48 who plans to need retirement income in their late 50s, this matters significantly. Leaving your TSP in the TSP until after you turn 59½ (rather than rolling to an IRA) preserves more flexibility — but the agency match stops the day you leave.

FEHB: the biggest financial surprise

Most federal employees who leave before retirement eligibility don't fully internalize this: if you take a deferred retirement or leave with fewer than 5 years of service, you permanently lose FEHB coverage in retirement.²

The 5-year continuous FEHB enrollment rule only helps you if you retire (not just separate). Deferred retirees who leave, then collect at 62, do not get FEHB — even if they were enrolled for 20 years before leaving.

What this means in dollars:

• In 2026, the government pays up to $18,490/year for a self+1 FEHB enrollment for federal retirees (OPM maximum subsidy).⁵
• If you live 25 years in retirement, you're giving up a present-value stream of $18,490/year in health insurance subsidy — worth roughly $280,000+ depending on discount rate.
• In the private sector, employer-provided health insurance for retirees is rare. Most people pay full ACA market-rate premiums, which run $1,200–$2,000+/month for a couple in their 60s.

If you leave mid-career, you'll have TCC (similar to COBRA) for 18 months at 102% of the full premium — then you're on ACA or a spouse's plan until Medicare at 65.

GS-14 worked example: age 48, 15 years of service

Consider a GS-14 in a mid-locality area, high-3 salary $160,000, age 48, 15 years of FERS service (FRAE tier), TSP balance $380,000, FEHB self+1 enrollment since Day 1. A private-sector offer has come in at $210,000 base salary.

Born in 1978 → MRA = 57.

The pension gap between leaving now and staying to 62: $27,040/year — permanent, for life. At a 4% withdrawal rate, that gap represents roughly $676,000 in TSP balance you'd need to accumulate to replace it.

Add the FEHB subsidy loss (~$18,490/year), and the total income-replacement burden on the private sector job grows substantially.

TSP Rule of 55 impact

Leaving at 48 means this employee can't use Rule of 55. If they roll TSP to an IRA, any withdrawal before 59½ faces a 10% penalty. That's 11+ years of lockup on $380,000 in savings. In practice they'd need 7 more years of earnings to bridge any early-retirement gap — limiting the actual flexibility of "leaving federal service for a better-paying job."

What the private sector offer must cover

The $210,000 offer looks like $50,000 more per year. But the real math requires accounting for:

1. Pension deficit: $27,040/year less in guaranteed income at 62 — requires ~$676,000 in additional savings to replace (at 4% SWR).
2. FEHB loss: ~$18,490/year in government health subsidy lost in retirement. Over 25 retirement years, that's $460,000+ in present value.
3. TSP match lost going forward: 5% match on $160,000 = $8,000/year × 14 remaining years to 62 + compound growth ≈ $180,000+ in additional TSP balance.
4. Sick leave forfeiture: Current sick leave balance converts to service credit if you retire — gone if you leave.
5. Healthcare bridge cost (48→65): 17 years of private coverage before Medicare at market rates. For a family, figure $20,000–$30,000/year → hundreds of thousands in out-of-pocket costs the private-sector employer would need to offset via benefits or salary.

In this example, the employee would need the private sector to deliver significantly more than a $50,000 salary bump — when accounting for the full lifetime benefit differential, the real break-even could require $100,000–$150,000 more in total annual compensation, or a comparable lump-sum wealth-building opportunity (equity, 401(k), defined benefit plan) that offsets the FERS and FEHB gaps.

When leaving does make financial sense

Leaving isn't always wrong. Some situations where the math can favor departure:

• Private equity or equity-heavy compensation: A meaningful equity stake (RSUs, options) that vests over 4 years can more than replace the FERS benefit gap, especially for younger employees with fewer years vested.
• Early in career (under 10 years): The FERS pension accrued is small; the private sector upside may genuinely exceed it.
• Involuntary situation: If you're being RIF'd or pushed out anyway, the analysis shifts — the question becomes which separation path (voluntary, VERA, RIF) optimizes your severance and benefit preservation.
• Health and quality of life: No financial analysis captures burnout, career trajectory, or life priorities. The numbers are inputs to a decision, not the decision itself.

Decision framework: questions to answer before you decide

1. How many years of creditable service do I have, and what pension would I lock in?
2. Am I at or near a service milestone — 5 years (vesting), 20 years (age 60 eligibility), or 30 years (MRA eligibility)?
3. Have I met the 5-year FEHB rule? If not, could I stay until I do?
4. What is my TSP balance, and will I need it before 59½? Does leaving before 55 trap me?
5. What does the new employer offer for retirement (401(k) match, pension, equity, healthcare)?
6. Does the private sector offer health benefits for early retirees, or am I bridging on ACA for 10–20 years?
7. If an involuntary separation is coming, am I eligible for VERA or a VSIP — and would those change the calculus?

Sources

1. OPM — FERS Types of Retirement: deferred retirement at 62 (5+ years service), MRA+10 eligibility and 5%/year reduction, FERS supplement not available to MRA+10 immediate or deferred retirees.
2. OPM — FEHB Enrollment in Retirement: 5-year continuous enrollment requirement; deferred retirees permanently lose FEHB coverage; TCC available 18 months post-separation at 102% of premium.
3. OPM — FEGLI Conversion: 31-day window after separation to convert to an individual policy without a medical examination.
4. TSP — Important Tax Information About Thrift Savings Plan Payments: vesting rules, rollover options, Rule of 55 and Rule of 50 for special-category employees.
5. OPM — FEHB Premiums 2026: government contribution rates for self, self+1, and self+family FEHB enrollments.

Pension and benefit figures based on 2026 FERS rules. High-3 salary and annuity calculations in the worked example are illustrative. Actual benefits depend on your specific grade, locality, tier, service history, and OPM determination. Values verified June 2026.