I Three buckets: keep, convert, forfeit
Every federal benefit falls into one of three categories at separation. Sorting them correctly is most of the work.
| Benefit | What happens | Action needed |
|---|---|---|
| TSP balance | Keep — remains yours | None. Leave it or roll it. |
| FERS annuity | Keep if vested at 5+ years | Do not take a refund. |
| Annual leave | Keep — paid as a lump sum | None. Automatic. |
| Creditable service | Keep if contributions stay in | Decline the refund. |
| FEHB | Convert to TCC or an individual plan | Elect within 60 days. |
| FEGLI | Convert to a private policy | Convert within 31 days. |
| FEDVIP | Convert to an individual plan | Contact BENEFEDS. |
| Sick leave | Forfeit — no cash value | Nothing can be done. |
| FSAFEDS balance | Forfeit after the separation date | Submit claims for pre-separation expenses. |
The benefits you keep require you to do nothing; the benefits you convert require you to act inside a window that will not reopen — which is exactly backwards from how most people allocate attention during a job change.
II The five-year vesting line
Five years of creditable civilian service is the single most consequential threshold at separation.
At five years or more, you are vested. You may leave your contributions in the retirement fund and claim a deferred annuity later, generally at age 62, or earlier under certain age and service combinations. The annuity is computed from your High-3 and your years of service as of separation.
Below five years, you are not vested. There is no annuity to preserve, and a refund of your own contributions is generally the only option.
An employee at four years and eight months who resigns is walking away from a lifetime annuity to save four months. If you are anywhere near the line, the arithmetic is not close — find out your exact creditable service before you set a departure date. Your Service Computation Date is on your SF-50, and HR can confirm the retirement-purposes figure, which is not always the same number.
One important limitation on the deferred annuity: it does not receive cost-of-living adjustments during the years between separation and the date payments begin. An annuity computed on a 2026 High-3 and first paid at 62 has absorbed every intervening year of inflation. It remains worth far more than a refund, but it is not the same as retiring directly. The underlying formula is in Topic 11.
III The refund decision
When you separate, you will be offered the option of taking a refund of your retirement contributions. For a vested employee this is almost always the wrong choice, and it is the most expensive mistake available on your last day.
What a refund returns: your own contributions only. FERS employees contribute 0.8, 3.1, or 4.4 percent of basic pay depending on hire date. Over ten years at a $100,000 salary, an employee at the 0.8 percent rate has contributed roughly $8,000.
What a refund forfeits: a lifetime annuity the government largely funded — worth many multiples of the refund over a normal retirement.
The arithmetic, stated plainly
Ten years of service at a High-3 of $100,000 produces a deferred annuity of roughly $10,000 per year for life at the 1.0 percent multiplier.
An employee hired after 2013 at the 4.4 percent contribution rate would have paid in around $44,000. One hired before 2013 at 0.8 percent would have paid roughly $8,000.
The reversal is expensive. Recovering forfeited credit requires returning to federal service and making a redeposit of the refunded amount plus compounded interest, at 4.25 percent for 2026. Every year that passes raises the cost. The mechanics are in Topic 16.
IV Deferred vs. postponed retirement
These sound like synonyms and are not. The difference determines whether you ever get your insurance back, and it turns on your age on your last day.
| Postponed | Deferred | |
|---|---|---|
| Requires | Separation at MRA with 10+ years | Separation before MRA, vested at 5+ |
| Annuity begins | A date you choose, to reduce the age penalty | Generally 62, or earlier by age and service |
| FEHB | Can be reinstated when the annuity starts | Permanently lost |
| FEGLI | Can be reinstated | Permanently lost |
| FERS supplement | Not payable | Not payable |
Two employees with identical service can land in completely different positions based on their age when they walk out. Reaching MRA with ten years before separating preserves the ability to reinstate FEHB and FEGLI later. Separating one month before MRA does not. If you are near that line, the calendar is worth more than almost anything else you could negotiate on the way out.
MRA is 57 for anyone born in 1970 or later. The full eligibility matrix is in Topic 11.
V Your TSP after separation
The TSP is the simplest item on this list. The balance is yours and nothing is at risk.
- Leave it in the TSP. You keep the expense ratios, which are among the lowest available anywhere, and you retain access to the G Fund, which has no private-market equivalent.
- Roll it to an IRA or a new employer plan. Broader investment choice, generally higher costs.
- Take distributions. Subject to income tax and potentially a ten percent early withdrawal penalty before age 59½, with limited exceptions.
Two details worth knowing. Agency automatic one percent contributions require three years of service to vest, while matching contributions are yours immediately. And you can no longer contribute or take new TSP loans once separated — an outstanding loan must be repaid or it is treated as a taxable distribution.
The default recommendation for most separating employees is to leave the balance in place. Fund selection is covered in Topic 14.
VI Separation Benefits Navigator
Enter your service, age, and enrollment history. The tool identifies what you keep, what needs an election, and which deadlines are running.
What happens to your benefits?
General guidance. Confirm your exact creditable service with your HR benefits officer before setting a date.
Refund vs. Deferred Annuity, by Years of Service
A one-time refund of employee contributions compared with the cumulative value of a deferred annuity over twenty years of retirement, at a $105,000 High-3 and the 0.8 percent contribution rate. The refund is a single payment; the annuity continues for life.
VII FEHB and the five-year rule
Health coverage is where separations do the most damage, because the loss is invisible until decades later.
What happens immediately. FEHB continues for 31 days after separation at no cost to you. After that it ends.
Temporary Continuation of Coverage. TCC extends coverage for up to 18 months, but you pay the full premium — both the employee and the government share — plus a two percent administrative charge. You must elect within 60 days of separation. In practice a family plan under TCC can run several times what you were paying as an employee, because the government share disappears.
Conversion. You may also convert to an individual policy offered by your carrier, without medical underwriting.
Carrying FEHB into retirement requires retiring on an immediate annuity after five continuous years of enrollment immediately preceding retirement. The clock runs against the five years before you retire, not against your career total. A break in service late in a career can therefore cost retiree health coverage to someone with thirty years in — and retiree coverage for life, with the government share intact, has no private-market equivalent at any price.
Plan comparison and enrollment mechanics are in Topic 30.
VIII FEGLI conversion
FEGLI follows the same 31-day pattern and is the item most often missed entirely.
- Coverage continues 31 days after separation at no cost.
- Within that window you may convert to an individual policy with a participating carrier — no medical examination required, which matters enormously if your health has changed.
- After 31 days the option is gone and does not reopen.
The catch is price. Conversion premiums are based on your age at conversion and on individual rather than group rates, so they typically run far above what you paid as an employee. For a healthy person, shopping private term insurance is frequently cheaper than converting. For someone with a condition that would fail underwriting, the no-exam conversion can be the only coverage available at any price.
FEGLI rates and the age-65 premium cliff are covered in Topic 27.
IX Annual leave, sick leave, and the payout
Annual leave is paid out in a lump sum at your hourly rate as of separation, covering your full balance including restored leave. It arrives as a separate payment, typically within a few pay periods, and it is taxable in the year received.
Sick leave is forfeited. It has no cash value. Sick leave converts to creditable service only in a retirement computation, at 2,087 hours per year of service credit. An employee who resigns mid-career loses the entire balance regardless of size.
A 600-hour sick leave balance is worth real money at retirement and nothing on a resignation. That is a genuine argument for understanding the cost of a mid-career departure. It is not an argument for burning sick leave before you go — using sick leave for purposes other than its intended use is a conduct issue, and the amounts involved are not worth that exposure. Annual leave, by contrast, is paid out either way, so there is no reason to burn it down.
One planning note: because the lump sum lands in a single tax year, a large balance paid out alongside a final salary and a new private-sector income can push you into a higher bracket. If you have flexibility on your separation date near a year boundary, it is worth a look.
X If you plan to come back
Many separations are not permanent. Protecting your position for a return costs nothing at the time.
- Leave your contributions in. Prior creditable service is preserved and adds to any later service. No redeposit is needed if you never took a refund.
- Keep every SF-50. Reconstructing service history years later is difficult, and errors in service computation are common.
- Understand FEHB and FEGLI still end. Intent to return does not preserve them, and the five-year FEHB clock restarts against the period immediately before you eventually retire.
- Note your leave ceiling. Annual leave paid out is gone; you begin accruing again on return, and your accrual rate depends on total creditable service, which is preserved.
- Check reinstatement eligibility. Career status affects your ability to return without competing, and it has its own time limits.
XI The separation timeline
| When | What to do |
|---|---|
| Before you set a date | Confirm creditable service and whether you are near five years, MRA, or a service milestone. |
| 30 days out | Request a benefits counseling session. Ask specifically about deferred vs. postponed status. |
| Last day | Confirm your leave balances in writing. FEHB and FEGLI continue 31 more days. |
| Within 31 days | FEGLI conversion window closes. Contact the carrier, not your agency. |
| Within 60 days | TCC election window closes. Retroactive to the end of the 31-day extension. |
| Within a few pay periods | Annual leave lump sum arrives. Verify the hours against your final LES. |
| When the refund offer arrives | If vested, decline it. This is the irreversible one. |
| Anytime after | Apply for the deferred annuity when eligible. OPM does not remind you. |
A deferred annuity does not start automatically. You must apply, typically a few months before you want payments to begin, and OPM has no obligation to track you down decades after you left. Put the date in a calendar you will still have, and keep your separation SF-50 with it.
XII The playbook
| Situation | What to do |
|---|---|
| Under 5 years of service | You are not vested. Know exactly what you forfeit before finalizing a date. |
| Close to 5 years | Verify your creditable service. Months can be worth a lifetime annuity. |
| Vested and offered a refund | Decline. It is the most expensive decision available at separation. |
| Near MRA with 10+ years | Postponed retirement preserves FEHB and FEGLI. Deferred does not. |
| You need health coverage | TCC within 60 days, or a marketplace plan. Compare both — TCC is full cost plus 2%. |
| You have a health condition | FEGLI conversion is no-exam and closes at 31 days. Do it first. |
| Large annual leave balance | Paid out automatically. Consider the tax year it lands in. |
| Might return to federal service | Leave contributions in. Keep every SF-50. |
Before your last day
- Confirm your exact creditable service for retirement purposes — not just your SCD — with your HR benefits officer.
- If you are within a year of five years, MRA, or a service milestone, run the numbers before choosing a date.
- Determine whether you would be in deferred or postponed status. It decides whether FEHB and FEGLI can ever come back.
- Decline the refund of retirement contributions if you are vested. This is the irreversible one.
- Calendar the FEGLI conversion deadline at 31 days and contact the carrier directly.
- Calendar the TCC election deadline at 60 days, and price TCC against a marketplace plan before electing.
- Submit any outstanding FSAFEDS claims for expenses incurred before your separation date.
- Verify your annual leave balance in writing before your last day, and check the lump sum against it.
- Understand that your sick leave balance is forfeited — and do not respond by misusing it.
- Keep every SF-50, and calendar the date you become eligible to apply for a deferred annuity.
Frequently asked questions
Not if you are vested. With at least five years of creditable civilian service you may leave your contributions in the retirement fund and claim a deferred annuity later, generally at age 62, or earlier under certain age and service combinations. The annuity is computed from your High-3 and years of service at separation, and it is not adjusted for inflation during the years you wait. With fewer than five years you are not vested and a refund of your own contributions is generally the only option available.
Almost never, if you are vested. A refund returns only your own contributions, which for most FERS employees is 0.8, 3.1, or 4.4 percent of pay depending on hire date. What it forfeits is a lifetime annuity that the government largely funded. Recovering that credit later requires returning to federal service and making a redeposit with compounded interest. The refund looks like found money at a moment when you are thinking about a move, and it is generally the most expensive dollar-for-dollar decision available at separation.
It ends. Coverage generally continues for 31 days after separation at no cost, and Temporary Continuation of Coverage is available for up to 18 months at the full premium plus a two percent administrative charge — meaning you pay both the employee and the government share. You must elect TCC within 60 days. Carrying FEHB into retirement is a separate matter entirely and requires retiring on an immediate annuity after five continuous years of enrollment. Simply separating does not preserve that right.
The distinction turns on your age at separation and it determines whether you keep insurance. A postponed retirement is available if you separate at your Minimum Retirement Age with at least ten years of service and delay the annuity to reduce or avoid the age penalty — FEHB and FEGLI can be reinstated when the annuity begins. A deferred retirement applies when you separate before MRA; the annuity begins later, but FEHB and FEGLI are permanently lost. Two employees with identical service can end up in completely different positions based on their age on their last day.
The balance remains yours. You may leave it in the TSP, roll it into an IRA or a new employer plan, or take distributions subject to income tax and potentially a ten percent early withdrawal penalty. Agency automatic and matching contributions are yours once you are vested, which for the one percent automatic contribution generally requires three years of service. TSP expense ratios are among the lowest available anywhere, which is a strong argument for leaving the balance in place rather than rolling it out reflexively.
Annual leave is paid out in a lump sum at your hourly rate at separation, including any restored leave. Sick leave is not paid out at all and has no cash value. Sick leave converts to creditable service only in a retirement computation, so an employee who resigns mid-career forfeits it entirely regardless of the balance. That asymmetry is worth understanding before a departure, though it argues for accurate use rather than for burning through a balance.
Not as FEGLI. Coverage generally continues for 31 days after separation at no cost, and during that window you may convert to an individual policy with a private carrier without a medical examination. The conversion premium is based on your age at conversion and is typically far higher than the group rate you paid as an employee. The election window is short and it does not reopen, so this is one of the items most commonly missed by departing employees who are focused on the new job.
Leave your contributions in the retirement fund. Prior creditable service is preserved and is added to any later service, and no redeposit is needed if you never took a refund. Understand that FEHB and FEGLI still end at separation regardless of your intentions, and the five-year FEHB clock for carrying coverage into retirement runs against the period immediately before you retire — not against your total career. A break in service in your final five years can therefore cost retiree health coverage even for someone with decades of federal service.