Federal employees enjoy some of the most comprehensive benefits packages in the professional world. Still, many fail to maximize these advantages or to build wealth beyond a basic “paycheck and pension” approach. Between FERS, TSP, FEGLI, and a benefits package that rivals the private sector, navigating your options can be overwhelming.
Fortunately, federal employees can create a clearer path forward with wealth building and retirement planning. Whether you’re mid-career, preparing to leave the workforce, or thinking ahead about how to protect your legacy, understanding some key components can help you build a financial strategy that prioritizes putting your hard-earned benefits to work.
Federal Employee Wealth Planning: Exploring Beyond The Benefits Basics
The first step in comprehensive government employee financial planning involves diving deep into your employee benefits by visiting the OPM website or speaking with your agency. It is important that you understand the benefits you have and how much those benefits cost you.
For example, many government workers assume that Federal Employees Group Life Insurance (FEGLI) is their best option. FEGLI may seem like the easiest choice, but it isn’t always the most cost-effective or flexible. If you’re in good health, private term policies may offer more coverage for a significantly lower premium. The key is to insure based on real need, not just default to what’s familiar or “standard.” Shop the open market, especially if you’re in good health, because you may be able to get a term policy for a lot less than group plans. A skilled financial advisor can help you audit that coverage and identify opportunities to reduce costs without sacrificing protection.
FERS Retirement Strategy: Timing is Everything
The Federal Employee Retirement System (FERS) is structured around formulas that adjust based on your years of service and the age at which you retire. A rigid, one-size-fits-all approach can leave money on the table.
Instead, it’s important to understand the specific breakpoints—such as when your pension multiplier increases. Getting this right can significantly impact your retirement income. For instance, reaching age 62 with at least 20 years of service can trigger a higher multiplier, directly increasing your annual pension. Strategic timing around these milestones isn’t just smart—it can potentially translate to tens of thousands in additional income over the course of your retirement, depending on your salary and longevity. Pairing these insights with your unique timeline can help maximize what you’ve earned over decades of service.
If you are married, understanding the full range of survivor benefit options and how they impact your monthly payout is no small decision. These decisions shouldn’t be made in isolation. They need to be part of a larger plan that weighs both income security and long-term legacy.
TSP Wealth Building: Balance, Not Extremes
Federal employee wealth planning often focuses heavily on the Thrift Savings Plan (TSP)—and with good reason. It’s a way to put savings on autopilot and take advantage of generous matching contributions from the government.. However, making the most of it means understanding not just where to invest but how those investments behave. The G, F, C, S, and I funds each serve distinct roles, and their allocations should reflect your risk tolerance, retirement horizon, and income strategy.
Additionally, trying to time the market or chase returns by focusing excessively on recent past performance usually backfires. Maximizing contributions, especially to get the full match, and strategically using Roth and Traditional TSP options to create tax flexibility are some key considerations that you should keep in mind. It’s not an all-or-nothing proposition. A well thought out plan is the key to maximizing the effectiveness of the TSP in your financial plan.
The Bigger Picture: Federal Employee Wealth Planning Beyond TSP
Some people say maximizing the TSP is the most important thing, and there’s an argument to be made for that. What they’re often not saying is the most important thing isn’t how you save—but the amount you’re saving. The total saving matters more than the account structure.
When it comes to the TSP, you absolutely should (with very few exceptions) contribute at least enough to receive the full match—that’s free money. Beyond that point, the decision becomes more complex as you must consider liquidity needs, lifetime tax planning, and tax diversification strategies.
For federal employees who max out TSP contributions with remaining cash flow, non-retirement accounts offer additional opportunities. These accounts often provide greater flexibility, allowing you to build wealth outside the traditional retirement framework while maintaining access to your investments when needed. Another little-used but powerful strategy is the so-called “backdoor Roth IRA. Utilizing this strategy can create a nice pool of tax-free dollars in retirement and is a powerful vehicle that is often overlooked by federal employees.
Real Estate and Alternative Investments: The Pros, Cons, and Caution Signs
Real estate can serve as an effective wealth builder, but federal employees need to understand the whole picture, as they are not risk-free. Property values sometimes decline, and rental properties come with tenant risk, including vacancies, damage, and appliances/systems needing to be replaced. Successful real estate investing requires maintaining adequate liquidity reserves to handle vacancies and significant maintenance expenses.
Additionally, tax implications should be carefully considered when selling rental properties. Depreciation recapture combined with capital gains taxes means your after-tax returns may not match what appears on paper.
Alternative investments have gained popularity, but understanding what you actually own and how it functions remains critical. As a general rule, If an investment opportunity sounds too good to be true — it is.
Cost analysis becomes essential with alternative investments, as expense ratios often exceed 2%, creating a significant headwind for returns. More importantly, you should always demand clear explanations of the actual investment strategy. Vague descriptions that simply label something as “alternative” without explaining the underlying approach should raise immediate concerns.
The bottom line: Alternative investments can fill specific portfolio roles, but they’re inherently complicated and difficult to understand. They may fit certain situations if you fully comprehend the strategy and associated risks. However, many products marketed as alternatives provide little actual diversification benefit while charging premium fees. Sometimes alternatives are so even qualified financial advisors are at a loss when it comes to explaining how they work.
Risk Management: Get the Right Coverage, Not Just the Default
Many government workers are surprised to learn how much protection is already built into their benefits—but they’re just as surprised by what’s missing. Long-term disability is typically covered, which is a valuable (and often underappreciated) feature.
Still, as already noted, when it comes to life insurance, FEGLI may not always be the most competitive option, especially as you age. Beyond potentially lower costs in the open market, private term life insurance policies also offer additional advantages such as full ownership of the policy (meaning it stays with you even if you leave federal service) and the ability to add customized riders. These features can provide greater flexibility and personalization compared to the one-size-fits-all structure of FEGLI.
When assessing life insurance programs, the goal is to secure adequate coverage without over-insuring. While federal employees do receive accidental death and dismemberment (AD&D) coverage while actively employed, that benefit typically ends in retirement. As you explore private options, it’s important to approach supplemental policies, like standalone AD&D or disease-specific plans such as cancer insurance, with caution.
Ultimately, these policies may not solve the core financial need: replacing income for your family, regardless of how you pass away. Comprehensive life insurance that covers death from any cause typically provides far more reliable protection and peace of mind. When evaluating your options, make sure the coverage aligns with your broader financial plan.
Protection Gaps You Might Be Overlooking
These coverage limitations highlight a broader issue: government benefits, while comprehensive, don’t address every financial risk employees face. Take auto insurance: in Virginia. The state minimums are startlingly low—$50,000/$100,000/$25,000—which could leave you exposed in the event of a serious accident. Reviewing your declarations pages annually and considering umbrella policies for added liability protection could prove a smart move.
Long-term care represents another area where many federal employees are left unprepared. With the government LTC program currently suspended for new applicants, those seeking coverage must shop the private market. A well-designed federal retirement planning strategy includes proactive conversations about these “what ifs”—because the time to address them is before they happen.
Diversification: Looks Can Be Deceiving
Owning several mutual funds doesn’t mean you’re diversified. Many investors hold three or four different funds—all tracking the same segment of the market. True diversification means thinking differently: mixing asset classes, tax treatments, and geographies. A pre-2022 strategy may not be appropriate in today’s environment. If your portfolio hasn’t been updated in a while, it may be time for a review. The goal isn’t to chase performance but to build resilience.
Legacy Planning: Don’t Stop at the Paperwork
Legacy planning isn’t just about having a will. It’s about protecting your family and ensuring your wishes are carried out efficiently. Working with estate attorneys not just to draft documents but to implement them is key.
Remember, a trust that isn’t funded is just an expensive stack of paper. If you have minor children, planning isn’t just about assets—it’s about guardianship and long-term stewardship. Also, if you own property in multiple states, trusts can simplify what might otherwise be a painful probate process. Legacy planning isn’t a one-and-done event. It’s an ongoing process that should evolve in tandem with your life.
Final Thought: Your Benefits Are Powerful. Your Retirement Plan Should Be Too
Federal employees have access to one of the strongest benefits packages in the workforce—but those benefits don’t optimize themselves, and as good as they are, they don’t cover all the areas of your life you should be thinking about. The difference between feeling uncertain and feeling confident often comes down to planning and working with a financial advice team you trust to help you. At Good Life Financial Advisors of NOVA, your trusted Virginia federal employee advisor, we help government employees make the most of what they’ve earned, structure what they’ve saved, and prepare for what comes next. If you’re ready for a plan that goes beyond checklists and speaks to your real life, we’re here to help.
Ready to take the next step? Schedule a complimentary consultation today.
We’ll have a short conversation to see if we’re a good fit for each other.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
