The Best States for Federal Retirees in 2025: Tax-Friendly and TSP-Savvy
SOCIAL SECURITY
Americans have benefited from the Social Security Act, signed into law by then President Franklin D. Roosevelt in 1935, for over 8 decades. The Act came into being as a response to the Great Depression. Originally, the program was designed to benefit older workers.
Today, benefits are paid to people who have retired from the workforce, people with disabilities, and to surviving spouses and children of workers who have died. Currently, Social Security pays benefits to over 63 million Americans (www.ssa.gov). Social Security has been expanded over the years to include the health insurance programs known as Medicare and Medicaid.
For federal employees, there are multiple paths to becoming a social security beneficiary and for some federal employees, there could be no path to receiving benefits. Thus, understanding how and when a federal employee is eligible for benefits is step one. Once eligibility is determined, the next step is deciding on the optimal strategy for when to draw social security. Claiming decisions can have an impact on lifetime benefits depending on an individual’s circumstances.
Social security is funded primarily through payroll taxes. For American workers, 6.2% of wages are contributed each pay period via the FICA (Federal Insurance Contributions Act) tax. Your employer also contributes 6.2% each pay period on your behalf. There is a limit on your contributions annually. For 2026- once a worker reaches $184,500, there will be no additional deductions for the FICA tax. The deductions will resume the following calendar year, usually with a higher maximum wage base.
For federal employees, the path to determining social security eligibility starts with determining which retirement system one is in.
Once eligibility is established, the next question pertains to the best strategy for when to start drawing social security benefits. Generally, the earliest a person can begin drawing retirement benefits on their own record is age 62. Note the importance of the phrase “drawing on their own record.” This is important as there are other ways that one can receive benefits.
Understanding the circumstances which apply to the different benefits and strategies is vital when making decisions about social security. Social Security benefits will be less if you withdraw at 62. For those who wait until their “FRA” (or, Full Retirement Age, which is between ages 66 and 67, depending on the year of birth), you get the “full” amount. There is no reason to wait until after age 70, however.
If you refrain from receiving your social security between the full retirement age and 70, your benefit amount will get a boost the longer you hold off. After 70, though, your benefit will no longer increase so there’s no good reason to resist claiming social security retirement benefits.
And don’t forget that you can receive Cost-of-Living Adjustments, which will also add more to your social security benefit amount each year, depending on how much inflation there was in the previous fiscal year.
For employees under FERS, your retirement plan is designed to be based on three components; part one is the FERS pension, part two is social security, and part three is your TSP.
If you are in the FERS retirement system, you are most likely going to be eligible for social security provided you meet the number of hours worked to breach the thresholds for social security credits.
Most FERS workers can retire as early as 56 or 57 (minimum retirement age). Indeed there are special provisions employees who MUST retire at those ages. For these workers the special retirement supplement will come into play. This is a benefit paid by OPM, not by the Social Security Administration, and was designed to supplement social security between the ages of 55 and 62, for those who meet the requirements and retired early either by choice or mandate. The supplemental income operates with similar rules to social security, like the earnings test, but it is a distinct, separate benefit.
CSRS employees generally do not contribute to Social Security through their CSRS-covered federal employment. However, they may still be eligible for Social Security benefits based on other covered employment and earnings.
A CSRS Offset employee will contribute to social security but also have spent some part of their career in CSRS. The amount of social security an offset employee will receive is based on several factors, and generally is the most complex of the three potential scenarios for a federal employee.
Disclosures
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Be sure to contact a qualified professional regarding your situation before making any investment or withdrawal decision. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
The FedLife Podcast is your in-depth, biweekly deep dive into the world of federal benefits and retirement planning. Hosted by federal benefits expert Ed Zurndorfer and Dan Sipe of Serving Those Who Serve, each 30-minute episode unpacks the complexities of FERS and CSRS retirement, FEHB and Medicare, survivor benefits, tax planning, and more. Designed for federal employees and retirees who want more than just the basics, FedLife goes beyond the headlines to explore the rules, nuances, and strategies that can make a meaningful difference in your retirement. Remember: it’s your Fed life, make it a great one.
The Fed15 Podcast is your weekly 15(ish)-minute briefing on federal benefits and financial planning, built specifically for federal employees and retirees. Hosted by Dan Sipe and Katelyn Murray of Serving Those Who Serve, each episode delivers clear, actionable guidance on topics like FERS and CSRS retirement, TSP strategies, FEHB, survivor benefits, tax planning, and more! Whether you’re five years from retirement or already there, The Fed15 helps you cut through the noise, avoid costly mistakes, and make confident decisions about your federal benefits.
Unlock the power of Social Security with this comprehensive guide for federal employees. We want to help you maximize benefits for yourselves and your loved ones. Sign up to receive our complimentary Social Security Handbook, written exclusively for federal employees.
