Editor’s note: Ilene Slatko is a longtime columnist with Rethinking65. Read more of her articles here.
Ilene Slatko
It’s now been almost six months since the Trump administration began its efforts to drastically reduce the federal workforce. For those advisors who may not work closely with federal employees or live in geographic regions that have been immediately impacted, it could be easy to overlook the scope of the changes. From the conversations I’ve had, federal employees in many agencies are reeling, losing morale, and fear hard-earned benefits will potentially slip away. This impacts you and your business, as well.
Federal employees keep our government functioning by providing benefits to retirees and veterans, protecting U.S. citizens, and keeping our National Parks clean and safe. As of mid-July, approximately 51,000 federal employees have been fired, with thousands more planning to leave or separate by the end of this year. Rough estimates are that the federal workforce has now been reduced by approximately 13%.
Initially, the administration targeted a full 20% reduction. It’s unclear if it will continue to reach that goal — and what additional pain and confusion it might bring. The U.S. Supreme Court recently confirmed President Trump’s ability to proceed with mass layoffs by lifting previous injunctions against federal firings.
Human resources experts note that simply slashing headcount is no match for a well-reasoned plan to reduce the workforce, and thereby, reduce costs. And recently released employees at more than one federal agency are being asked to return to work. Asked to return to the very same government that unceremoniously ushered them out the door.
Federal employees I’ve spoken with have little recrimination against their agencies, because of DOGE’s generally sweeping mandate to cut staff. But the changing landscape — in which recent cuts have been agency-directed — has frayed their trust and tolerance. One employee I know has been asked to leave, return, leave again, and is now being asked to return once more. Who among us would willingly consent to have their lives and their families’ lives toyed with like that?
The resulting inability to chart their financial future is frustrating for mid- and late-career employees (more than 15 years of experience) — especially those who’ve previously planned each step of the federal retirement path.
The FERS (Federal Employee Retirement System, the default system since the late 1980s) and its predecessor, CSRS (Civil Service Retirement System), contain moving pieces that employees must carefully consider to build a sustainable retirement. The “early-out” offers and forced layoffs have impacted these pieces. While the final “One Big Beautiful Bill Act” (OBBBA) deleted proposed changes to various aspects of FERS, many still feel uneasy about their future and retirement planning. The House version of the bill was very restrictive; the Senate version, less so.
Supplemental-Benefit Conundrum
One issue financial advisors with federal employees will need to address is the proposed change to the supplemental annuity, which helps cover the gap between when federal employees become eligible to retire and when they can start receiving Social Security benefits at age 62.
Currently, the supplemental annuity provides monthly payments from a retiree’s minimum retirement age (MRA) — which ranges from 55 to 57 depending on their year of birth — until they reach age 62 and qualify for Social Security. The MRA, like Social Security’s full retirement age (FRA), is determined by birth year.
To someone unfamiliar with the federal workforce, the supplement benefit — which is paid out of funds from the U.S. Office of Personnel Management (OPM) and which Congress has previously tried to eliminate — might seem unnecessary. However, nearly half of all workers covered under FERS are eligible for this benefit and it’s important for advisors working with these employees to understand how it works.
Puzzle Pieces of FERS Retirement
FERS has three elements: 1) Social Security, 2) the FERS basic annuity (including the FERS annuity supplement), and 3) the Thrift Savings Plan (TSP).
The FERS annuity computation is based on an employee’s number of years of service and high-3 salary (their highest average basic pay during any three consecutive years of service). This is similar to the Social Security Administration calculating benefits based on our 35 highest earning years.
The One Big Beautiful Bill had proposed switching from a high-3 to high-5 salary calculation, which would have reduced retirement benefits for current workers. Congress has attempted to codify this change more than once since 2010. While I am not hearing of a renewed attempt to change this calculation, the damage of fear and mistrust of the federal government has already been accomplished.
Federal agencies are required to offer retirement training. These programs familiarize federal employees with defined-benefit plan computations, retirement age and service requirements, and all other income and benefits that are part of FERS. This education enables federal employees to plan for retirement. But employees can still become confused and demoralized when the rug is pulled out, or even just threatened to be pulled out, from under them.
What’s Also Spooking Federal Employees
The Senate version of the One Big Beautiful Bill originally proposed that new hires would have to contribute 10% or 15% of their salary to their FERS defined-benefit plan, depending on whether the employee elected an “at-will” employment or choose a more secure work arrangement, such as a contract, in order to maintain legal protections. This compares with a current contribution rate of 4.4% for employees hired since 2016 — and 0.7% for one employee I spoke with who began working for the federal government in 1982 and is nearing retirement.
Like the supplemental annuity, the employee-contribution proposal did not survive the final version of the bill. However, many federal employees, unsure of what the future holds, are responding with indifference to their jobs and now believe that serving the federal government is no longer a worthy career goal.
Confusion and Low Morale Across the Board
From the U.S. Department of Energy to the Securities and Exchange Commission, employees report they are walking in quicksand. They’re unsure where to go or how to get out of a situation that can feel overwhelming.
The Veterans Administration is suffering from extraordinary cuts and deep morale loss. How do we all learn to temper our expectations when 70,000 of the agency’s employees have been cut? Is this helping the government? What about the people the VA and the other agencies serve?
Months ago, even DOGE had a difficult time showing receipts on the purported waste, fraud and abuse it was tasked with finding. As it turns out, much of the government is working. Maybe not as efficiently as we might hope. The question is, at what point does ruining lives and communities become worthwhile?
Let’s dig deeper into the geographic impacts of this reduction in the federal workforce.
A Surprising Statistic and Greater Fallout
The Office of Personnel Management estimates the federal government employs 2.4 million civilians. That excludes the U.S. Postal Service, which accounts for another 600,000. Still uncounted are federal contractors and the military.
Using that broader definition of who should be counted as a federal employee, very few areas in the country will remain unscathed. More than 80% of the federal workforce lives outside the greater Washington DC area. Nor is the impact of the job cuts and agency eliminations limited to employees and their families: Businesses that serve impacted communities will also feel the cuts, with smaller communities more likely to feel the pain.
How We Can Help
One of our roles as advisors is to continue to understand the choices federal employees should make before retirement or a reduction in force. These choices aren’t limited to specific FERS choices; it’s also about helping these clients quickly figure out or rethink when to claim Social Security benefits, integrate Medicare benefits, and process the tax implications. Assisting federal employees is important for them, for us and for our communities.
llene Slatko, CEO and founder of DSS Consulting, spent over 25 years as a financial advisor and built her business through her seminar series, “Women and Their Money.” For the last 10 years, Ilene has focused exclusively on financial education and helping clients build strong financial decision-making skills. She is a subject-matter expert on the Federal Employees Retirement System (FERS) and recently spoke with close to 800 advisors regarding FERs choices. Ilene invites you to contact her if you are interested in learning about her FERs programs. Many federal employees use her e-learning site, Metamorphosis, to refresh their understanding of the myriad of non-investment-related choices they need to make.
