You’d have to $750,000 in a private sector job by retirement to equal a $30K annual FERS pension, and pay a lot more in health insurance. Image: retrorocket/Shutterstock.com
Working for the federal government comes with a lot of perks and benefits.
But what if you could get paid more in the private sector?
At what point does it make sense to jump ship?
Or if you are currently in the private sector, what are federal benefits actually worth?
Let’s dive in.
The Best Benefits
There are 7 main benefits that come with the federal government:
-TSP (Thrift Savings Plan)
-FERS Retirement Pension
-Social Security
-FEHB (Health Insurance)
-FEGLI (Life Insurance)
-FEDVIP (Dental Vision Insurance
-FEDLTC (Long Term Care Insurance)
Note: The federal government has other perks like job security as it is very difficult to get fired as a federal employee however the 7 above are the “official” benefits.
However, of the 7, these following 3 are the hardest to find in the private sector
-FERS Retirement Pension
-FEHB (Health Insurance)
-TSP (Thrift Savings Plan)
Pension
Your FERS pension is a monthly income source that starts at retirement and continues for the rest of your life.
Pensions used to be common but are now going extinct. Companies realized that pensions are very expensive to provide and most companies have gone to only offering a 401k-like plan that puts almost all responsibility on the employee to prepare for retirement.
With the federal government you have the TSP (which is like a 401k) as well as a pension.
That means that if you’ve saved 800k in your TSP by retirement and your private-sector friend also saved 800k for retirement, you are in a much better position because you have a pension on top of that as well.
FEHB (Health Insurance)
Many companies provide health insurance for employees while they are working. However, it is rare for them to continue providing the insurance in retirement at the same cost as the federal government does.
Most people in the private sector simply don’t retire before age 65 because that is when they’d be eligible for Medicare.
Having FEHB allows federal employees to have great coverage while working but also in retirement even if they retire before 65.
TSP
Most companies have some sort of retirement plan like a 401k or 403b. However, not all retirement plans are created equal.
Most plans are complicated and have high fees.
The TSP, however, is as simple as plans can be while also providing high quality investment options with very low fees.
And on top of that the government offers a 5% match.
For all of these reasons, the TSP is a great place to build wealth.
So What is All This Worth?
So we know that you have some good benefits but how much are these benefits actually worth in dollars and cents?
What is your Pension Worth?
For this example, let’s say you would get a 30k/year pension if you worked the rest of your career with the federal government.
How much extra would you have to earn in a private sector job to be able to replicate 30k/year in retirement.
A simple way to figure this out is by using the 4% rule in reverse.
The math looks like this:
$30,000 / 4% = $750,000
So you’d have to make enough in the private sector job to have $750,000 more saved by retirement if you wanted to produce 30k per year for the rest of your life in retirement.
How Much is FEHB Worth?
Being able to retire earlier than your peers (before age 65) is a great benefit but hard to quantify in dollars and cents.
However, what is easier to quantify is the fact that the government funds about 72% of your FEHB premiums while you are working and in retirement.
So if you pay $400/month for your health insurance then they are paying an additional $1,000/month on your behalf.
What is Your TSP Worth?
Because of the high-quality and low-fee funds in the TSP you will end up with more money at retirement compared to your private-sector counterparts who saved the same amount.
On top of that, the 5% matching contributions help a lot as well.
For example, if your salary is 100k/year then as as long as you contribute at least 5k/year into your TSP then your agency will contribute 5k/year into your TSP for your.
These extra thousands of dollars make a massive difference come retirement.
Choose Your Regrets
At the end of the day no one can do it all. We all have to pick and choose what we are going to do and consequently, what we are not going to do.
There is no perfect prescription for a great life. It is up to you to decide what you value and what kind of life you want to live.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTubechannel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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