Retirement Planning 101

It may be years away, but the sooner you think about and plan for your retirement, the better it will be.


Who in their late 20s to early 50s, preoccupied with the demands of work, family and daily life, has time to plan for a retirement that is many years away? The answer is that we all had better give retirement some advance thought if we wish to be well positioned to enjoy life after the Foreign Service. I know you’re busy, so here is a quick guide for employees who realize that retirement planning is important but have not yet gotten started.

Show Me the Money

Many Foreign Service members have only a vague idea of what makes up their retirement package. That, obviously, makes it impossible to do even basic planning. So here is an overview focused on those of us who joined after 1983 and are thus in the Foreign Service Pension System. Once FSPS participants reach the age and years of service required to qualify for an immediate retirement, here is what we receive:

Pension. Our monthly annuity check is based on our “high three” average salary and years of service. The “high three” salary is calculated by adding our average basic pay for our three highest-paid consecutive years and then dividing by three. Basic pay includes regular pay, domestic locality pay and overseas virtual locality pay, but excludes allowances, differentials and overtime. This “high three” salary is then multiplied by 1.7 percent for each of the first 20 years of service, plus 1 percent for each additional year. For example, an employee retiring with 25 years of service and a “high three” salary of $100,000 would qualify for an annual annuity of $39,000. If the employee elects to provide annuity and health insurance benefits to a surviving spouse after that annuitant’s death, the employee’s annuity is reduced by 10 percent to $35,100.

Social Security. FSPS members pay into Social Security throughout our careers and thus qualify for Social Security benefits, beginning as early as age 62 for those willing to take reduced monthly payments in return for a longer benefit period. Because most Foreign Service members qualify to retire before age 62, federal law affords us an FSPS annuity supplement until age 62. This supplement is an additional payment that is essentially what Social Security would pay if it could pay before age 62. The annuity supplement ends at age 62 when the annuitant is eligible to apply for Social Security. It ends even if the annuitant does not apply for Social Security then.

Thrift Savings Plan. No matter how many years you serve, your FSPS annuity plus Social Security will not come close to replacing your pre-retirement income. Thus, the Thrift Savings Plan must be a key part of your retirement planning. Contribute 5 percent of your salary and Uncle Sam will match it—“free” money that no one should pass up. To position yourself well for retirement, you should contribute as close as possible to the annual maximum ($19,500 in 2020) and take advantage of post-age 50 “make-up” contributions (up to $6,500 in 2020).

Health Insurance. One of our best retirement benefits is the ability to retain Federal Employees Health Benefits coverage as a retiree. And the government continues to pay its majority share of the premium, just as it does while you are employed.

Reality Check

How much money will you need to retire comfortably? Experts say that most people can continue their current lifestyles into retirement on 85 percent of their pre-retirement gross income. One reason for that reduced need is that deductions for Social Security, Medicare, TSP and FSPS contributions can consume at least 15 percent of pre-retirement gross income. Those deductions end at retirement, thereby reducing the drop in “take home” income. Of course, your retirement income needs may be higher or lower, depending on your desired retirement lifestyle and continuing financial commitments, such as children’s college expenses.

You can judge your financial trajectory for retirement by estimating your annuity, Social Security and TSP income as of a target retirement date. State Department employees can estimate their annuity and annuity supplement using the Employee Retirement Portal on Open Net. Anyone can estimate their Social Security payments by registering for a My Social Security account on And the TSP website at has calculators that generate estimates of your TSP account growth and post-retirement withdrawals under different scenarios.

Unfortunately, there are several “known unknowns” that could disrupt our retirement plans. First, in our up-or-out personnel system, retirement can be forced on us before we want it, reducing both our lifetime earnings and our pension. Promotion rates could slow, or your assignment pattern could be viewed by selection boards as being less competitive than your peers. So as you enter the middle years of your career, think carefully about decisions that might affect your career longevity—for example, when to open your six-year promotion window to the senior ranks if you are a Foreign Service officer.

Also out of our control is the stock market. A market plunge a few years before or after retirement subjects us to something called sequencing risk. For example, someone who retired in December 2008 with $500,000 in the C Fund and then withdrew 4 percent a year would have had a balance five years later of approximately $735,000. But if the same person retired in December 2007 and then withdrew 4 percent a year, they would have a balance five years later of just $405,000. The difference is that, in the second scenario, the retiree’s retirement savings were hit by the 2008 stock market crash. So carefully consider your TSP withdrawal strategy, especially during your first years of retirement.

Finally, Congress could cut federal retirement benefits. While it seems unlikely that they would cut the pensions of current retirees or of employees nearing retirement, Congress could reduce the government’s share of health insurance premiums. Or they could increase income tax rates, thereby reducing our net income after pension, Social Security and TSP payments. So, at retirement, please maintain your AFSA membership to support the association’s efforts to protect your hard-earned Foreign Service retirement benefits from potential future cuts.

If reality does interfere with your retirement plans, you may need to adjust. For example, deciding not to retire at your first eligibility will increase your annuity by raising the multiplication factor for years of service and the “high three” average salary. Post-retirement employment is an option exercised by many FS retirees, including as a Re-Employed Annuitant (REA, formally known as WAE). Other options are to invest more of your take-home pay in the stock market, rental property or an Individual Retirement Account.

Feathering Your Nest

As you plan your future finances, there are several things to keep in mind to best position yourself for retirement:

Risk vs. Reward. How you manage your TSP savings will have a major effect on your retirement finances. Because many current employees will need to draw on their TSP savings 30, 40 or even 50 years from now, most experts recommend investing in funds with relatively high average rates of return (the C, S, I and the long-range L funds) to increase the chances that your TSP savings will be around as long as you are. Conversely, keeping all your money in bond funds (the G and F funds) may not generate gains in the coming decades that outpace inflation.

Save, Save, Save. While saving for retirement is vital, doing so can be difficult depending on your cash flow situation. Most experts endorse the tactic of “pay yourself first”: sign up for a large TSP payroll deduction so those funds never enter your take-home pay for discretionary spending. If you receive a hardship differential or an inheritance, consider investing a chunk of it in retirement savings.

Location, Location, Location. Where you retire can affect your net income. The Internal Revenue Service taxes annuity payments, TSP withdrawals and Social Security, but some states do not. Thus, retiring to certain states can raise your after-tax income. For a state-by-state analysis, see the AFSA Tax Guide published each year in the January/February edition of The Foreign Service Journal and posted at

Take Charge of your Retirement

With luck, you will spend longer in retirement than you spent in your working career. To prepare for that crucial transition, do your homework by reviewing online guidance, such as the Office of Retirement’s website at Pay special attention to steps to take between one and five years before retirement to make your final retirement processing go smoothly. These include “buying back” any prior federal civilian or military service to increase your FSPS pension, and sending the Office of Retirement your divorce documentation (if applicable) to determine how it affects the division of your pension.

During your career, find time to take the Foreign Service Institute’s excellent retirement planning courses: the two-day Early/Mid-Career Retirement Planning Seminar (RV105) when you are more than 10 years from retirement eligibility, and the four-day Retirement Planning Seminar (RV101) within 10 years of retirement. At retirement, take the two-month Job Search/Transition Program (RV102).

By your mid-50s, seriously evaluate whether to apply for long-term care insurance. Entering your 60s, think about when you want to apply for Social Security benefits, and learn about the pros and cons of signing up for Medicare Part B at age 65.

Throughout your working and retired years keep your beneficiary designations updated for life insurance, TSP and pension. Obtain estate planning documents such as a will, trust, power of attorney and/or medical directive, and consider getting them updated if you move to a different state. From time to time, review the risk-versus-reward balance in your TSP fund allocations to make sure that it is still appropriate to your specific situation.

At retirement, maintain your AFSA membership by submitting an SF-1187a to AFSA. Even if you have been a member for decades while on active duty, you must sign up again as an annuitant to continue to support AFSA as it champions the career Foreign Service, advocates for funding for diplomacy and development, and lobbies to maintain your earned retirement benefits.

Live Long and Prosper

This article has focused on the financial aspects of retirement because that is what most pre-retirees consider to be the key to a happy retirement. Interestingly, surveys of current retirees show that they consider health to be the most important factor. After all, having lots of money can only do so much for someone who is in chronically poor health. Therefore, a vital component of retirement preparations should be to take care of your health. Obviously, little can be done about genetics or bad luck with accidents and diseases, but steps such as maintaining a healthy weight, eating well, keeping fit and not smoking are certainly beneficial.

Here’s wishing you a happy retirement.

John K. Naland served in the Foreign Service for 29 years, including as director of the Office of Retirement. He twice served as AFSA president. He is currently AFSA Retiree Vice President and president of the Foreign Service Youth Foundation (covering both ends of the age spectrum).


Foreign Service Pre-Retirement Checklist

  • Beneficiary designations: Ensure they are up-to-date: DS-5002 (FS retirement benefit), SF-1152 (unpaid compensation), SF-2823 (FEGLI), and TSP-3 (TSP). Reference: ALDAC 19 State 35376 of April 9, 2019 “Retirement Planning One Year Out”
  • Retirement planning seminars: Take RV105 (2-day, mid-career), RV101 (4-day, late career), RV103 (1-day, finances/estates), RV104 (1-day, annuity/TSP/Social Security/Medicare). Reference: FSI intranet
  • Understand your benefits: Pension, annuity supplement, Social Security, TSP, FEHB. References: ALDAC 19 State 35376 of April 9, 2019 “Retirement Planning One Year Out”; FSI seminars, Employee Retirement Portal online seminars (State), HR/RET counselor
  • FEHB health and FEGLI life insurance: Maintain coverage during last five years of service. Reference: ALDAC 15 State 35130 of April 1, 2015 “Retirement Planning Five Years Out”
  • Retirement eligibility: Confirm your retirement Service Computation Date. Reference: ALDAC 17 State 100146 of Sept 30, 2017 “Retirement Planning and EBIS”
  • Prior service (if applicable): Buy back military/other service; deposits/redeposits. Reference: ALDAC 15 State 44466 of April 20, 2015 “Retirement Credit for Prior Service”
  • Divorce decree (if applicable): Have divorce documentation reviewed. References: ALDAC 14 State 126786 of Oct 28, 2014 “Divorce and FS Retirement Benefits”; ALDAC 19 State 35376 of April 9, 2019 “Retirement Planning One Year Out”
  • TSP: Ensure your portfolio meets your long-term needs and risk tolerance. References: under “Planning & Tools”, ERP online seminars (State)
  • Long-term care insurance: Consider getting it. References:, FSI retirement planning seminars
  • Social Security: Understand pros and cons of various starting ages between 62 and 70. References:, FSI retirement planning seminars, ERP online seminars (State)
  • Medicare Part B: Understand pros and cons of getting it at age 65. Reference: “AFSA Presents: The Coordination of FEHB and Medicare 2018” on YouTube
  • Survivor benefits: Understand options and deadlines. Reference: FSI retirement planning seminars
  • FEGLI: Understand post-retirement options and costs. Reference: FSI retirement planning seminars, ERP online seminars (State)
  • AFSA: Review retiree resources on AFSA website; sign up for AFSA retiree membership. References: and

—John K. Naland