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When I first joined the federal workforce, I remember thinking my career (and retirement) would run on rails: steady paychecks, predictable raises, benefits so solid you could almost set your watch to them. Right? If only. Fast forward to July 2025 and, let me tell you, that sense of security feels quaint. This past week’s developments have most of us—on both sides of retirement—feeling the floor shift. Between COLA projections that barely outpace your grocery bill and new executive orders redefining what job security means, I’m here to break down what’s fact, what’s fear-mongering, and how we might muddle through anyway. (Plus: a confession about the worst financial mistake I made post-retirement.)
1. The Cost of Living Mirage: Why COLA Won’t Save You This Year
Every year, federal employees and retirees look forward to the Cost of Living Adjustment (COLA) as a lifeline—an annual boost meant to keep our retirement income in step with rising prices. But if you’re hoping the 2026 COLA will shield you from the storm of inflation and health care costs, it’s time for a reality check. The numbers just don’t add up, and I’ve learned this the hard way.
2026 COLA Forecast: Modest Gains, Major Setbacks
Based on the latest Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data, the 2026 COLA is projected to land between 2.3% and 2.7% for Civil Service Retirement System (CSRS) annuitants. The National Association of Letter Carriers and the Senior Citizens League both echo these estimates, pointing to persistent inflation and new tariffs as driving forces. But here’s the catch: for those of us under the Federal Employees Retirement System (FERS), the so-called “diet COLA” formula means we’re looking at a flat 2.0% increase, no matter what inflation actually does.
The FERS ‘Diet COLA’ Dilemma
FERS retirees are especially vulnerable. The FERS COLA cap was designed for a different era, and now it’s leaving us exposed just when inflation is biting hardest. If the CPI-W increase falls between 2% and 3%, FERS retirees get only 2%. If it’s over 3%, we lose a full percentage point. That’s less protection when we need it most, and it’s a formula that’s quickly eroding our purchasing power.
Medicare Part B Premium Increase: The Real Budget Buster
Even more alarming is the projected 11.6% jump in Medicare Part B premiums for 2026. According to the latest Medicare Trustees report, the standard monthly premium is expected to leap from $185 to $206.50—a $21.50 monthly increase, the biggest since 2022. For many federal retirees, this single expense will swallow up most, if not all, of the COLA increase.
“The financial forecast for twenty twenty six presents a challenging picture for the federal community where anticipated benefit adjustments are on a collision course with escalating health care costs.”
My Wake-Up Call: When COLA Isn’t Enough
I’ll never forget my first year in retirement. I was excited to see my first COLA, expecting a little extra breathing room. But when my Medicare bill arrived—with its own hefty increase—it wiped out my COLA almost to the dollar. It was a sobering moment, and it’s a scenario that’s about to become the norm for many of us in 2026.
- 2026 COLA: 2.3%-2.7% (CSRS), 2% (FERS)
- Medicare Part B Premium: $206.50/month (up from $185)
- Premium Jump: $21.50 monthly, the largest since 2022
The bottom line: modest COLA increases are being outpaced by soaring health care costs and relentless inflation, especially for FERS retirees. The Cost of Living Adjustment is starting to look more like a mirage than a solution.
2. The Ground Moves Beneath: Job Security, Layoffs, and the Disappearing ‘Career’
If you’re a federal employee, you’ve probably felt the tremors of change shaking the ground beneath your feet. This past week, the very idea of a stable, lifelong federal career was upended, as a series of legal and executive moves made it easier than ever for agencies to cut jobs—and for political winds to reshape the workforce. Let’s break down what’s happening, and what it means for all of us.
Supreme Court Clears the Way for Federal Employee Layoffs and Reductions
On July 8th, 2025, the Supreme Court delivered a decision that changed everything: it struck down a lower court injunction, giving the executive branch the green light to move forward with mass layoffs, or Reductions in Force (RIFs). Overnight, the long-held belief that federal jobs were secure—protected by layers of civil service rules—was shattered. Agencies that had been waiting on the sidelines wasted no time. The Department of Education, for example, immediately began cutting about 1,300 jobs, roughly one-third of its workforce. The State Department issued more than 1,300 termination notices. And the IRS? They’re targeting a 20-50% reduction, with 6,000 to 7,000 layoffs already underway.
Schedule G and the End of Traditional Civil Service Protections
But the changes didn’t stop there. On July 17th, the administration introduced Schedule G, a new category of federal employment for policy-making and policy-advocating roles. Here’s the kicker: Schedule G jobs are at-will. That means employees can be dismissed at any time, for any reason, without the usual civil service protections. As one legal expert put it:
“This at will employment argument seeks to dismantle decades of precedent and federal law, most notably, the Civil Service Reform Act of nineteen seventy eight, which requires that agencies provide cause, notice, and an opportunity for employees to respond before a termination can take place.”
This move isn’t random. It’s a coordinated effort to give the executive branch more control over the federal workforce, making it easier to replace career professionals with political appointees.
Federal Workforce Changes: RIFs, Buyouts, and the Human Toll
With legal barriers gone, agencies are accelerating workforce reductions. The IRS is not just laying off thousands—they’re also offering Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payments (VSIP) to encourage employees to leave. Some agencies, like the Social Security Administration and Department of the Interior, are offering up to $25,000 as a buyout. But as I learned coaching my neighbor through a VERA/VSIP buyout, the reality can be sobering. We joked about finally starting that food truck together—until her severance barely covered a year’s worth of health insurance.
- Department of Education: Cutting 1,300 jobs (~33% of staff)
- State Department: Over 1,300 termination notices issued
- IRS: 6,000-7,000 layoffs, aiming for 20-50% headcount reduction
- VERA/VSIP: Buyouts up to $25,000 offered in some agencies
The bottom line? Federal employee layoffs and reductions are no longer just a budget rumor—they’re a new reality. The old promise of a secure, apolitical federal career is disappearing, replaced by uncertainty and tough choices.
3. The False Comforts of a ‘Big Beautiful Bill’: Tax Credits and What They Really Mean for Retirees
When the One Big Beautiful Bill Act (OBBBA) was signed into law, headlines everywhere touted its generous new tax credits for seniors—up to $6,000 for single filers and $12,000 for couples under certain income thresholds. On paper, this sounded like a game-changer for financial planning for federal retirees. But as I learned firsthand, the reality is far more complicated—and, for many, less comforting than advertised.
Who Actually Benefits from the OBBBA Tax Credit?
The OBBBA tax credit is designed to help middle-income seniors: $6,000 for single filers with incomes under $75,000, and $12,000 for married couples under $150,000. But there’s a crucial catch—you only benefit if you actually owe federal tax on your Social Security benefits or other retirement income.
Here’s the kicker: about 50% of seniors don’t owe any federal tax on their Social Security benefits. This means that many of the lowest income annuitants—those who arguably need relief the most—are excluded from the credit entirely. As one analyst put it:
“While this could provide a meaningful offset for many middle income retirees, it is important to note that an estimated half of all seniors do not have a federal tax liability on their Social Security benefits, meaning many of the lowest income annuitants will not benefit from this provision.”
Tax Credits vs. Rising Costs: The Real Math
For those who do qualify, the One Big Beautiful Bill Act Tax Credit can certainly soften the blow of rising expenses. But it’s not a cure-all. With Medicare Part B premiums projected to jump 11.6% in 2026 and FEHB premiums likely to rise again, even a $6,000 or $12,000 credit may not keep you ahead. For example, my own first year of retirement brought a rude awakening: I fired up my tax software, excited to see the “windfall” from the new credit—only to realize my FEHB premium had quietly jumped by hundreds of dollars. The net gain? Far less than I’d hoped.
- Single filers under $75,000: $6,000 credit—if you owe tax
- Married couples under $150,000: $12,000 credit—if you owe tax
- Estimated 50% of seniors: No benefit due to zero tax owed
Don’t Count Your Bill Before It’s Cashed
The One Big Beautiful Bill Act passed without cutting federal employee retirement benefits, but it also skipped a 2026 pay raise—raising the odds of a pay freeze for current workers. For retirees, the “big beautiful” tax credit is only as good as your tax liability. Many of my friends—especially those living on modest annuities—won’t see a dime. The shiny headline numbers can obscure the reality: tax credits for retirees sound great, but they miss half the intended population.
If you’re unsure about your eligibility, I strongly recommend consulting a tax professional. In this new era of Social Security benefits increase headlines and rising costs, it pays to know exactly where you stand.
4. Health Benefits in Flux: FEHB and the Yearly Premium Dance
If you’re like me, the annual ritual of reviewing your Federal Employees Health Benefits Program (FEHB) options is starting to feel less like a dance and more like a high-stakes game of musical chairs. The FEHB program is at a crossroads, and 2026 looks to be another year of both opportunity and anxiety for federal employees and retirees. Let’s break down what’s changing, what’s at risk, and how you can keep your finances—and your health—on steady ground.
FEHB Program Premium Increases: The New Normal?
First, let’s talk numbers. In 2025, the average FEHB premium increase for non-postal enrollees was a whopping 13.5%. If you thought that was a fluke, think again. The Affordable Care Act (ACA) Marketplace is seeing a median requested premium increase of 15% for 2026—the steepest since 2018. While FEHB isn’t the ACA, these trends are connected. As one OPM official put it:
“At the same time, the financial underpinnings of the program are facing significant pressure from market driven premium inflation. This is exacerbated by an undercurrent of political discussion around proposals to fundamentally alter FEHB...”
The government currently covers 72-75% of FEHB premiums, but rising costs could put even that support under review. For retirees, this means financial planning for federal retirees must account for higher out-of-pocket costs, especially if Medicare Part B premium increases are also on the horizon.
Benefit Enhancements: More Coverage, More Complexity
It’s not all bad news. The Office of Personnel Management (OPM) is pushing for real improvements. Their 2026 “call letter” to insurance carriers demands:
- Online claims submission portals by the end of 2026
- Better, more accurate online provider directories
- Mandatory coverage for fertility preservation (for those at risk of iatrogenic infertility, like from chemotherapy)
- Expanded mental health provider networks to cut wait times and improve access
These enhancements are overdue and welcome, but they come with a cost. As premiums rise, many retirees may be forced into narrower networks or higher-deductible plans just to keep coverage affordable.
Open Season: Your Annual Lifeline
Here’s my personal tip: review your open season options obsessively. Last year, I switched plans and saved almost two months’ worth of grocery bills. With the FEHB program in flux, this yearly review is your best defense against runaway costs. Don’t just look at premiums—dig into deductibles, provider networks, and new benefits. And remember the five-year FEHB rule: you must be enrolled for five years before retirement to keep your coverage as an annuitant.
OPM’s efforts to modernize the FEHB program are colliding with ballooning costs, echoing what we’re seeing across the entire health insurance market. The yearly premium dance is getting faster and more complicated, and individual vigilance is more important than ever.
5. Retirement Savings Shake-Up: Thrift Plan Tweaks, Hardship Withdrawals, and a Culture of Caution
If you’re like me, you probably check your Thrift Savings Plan (TSP) balance a little more often these days. With all the talk of Thrift Savings Plan Changes and Federal Employees Retirement System Updates coming in 2025, it’s hard not to feel a bit uneasy. The numbers tell a story that’s hard to ignore: financial stress among federal employees is rising, and it’s showing up in our retirement accounts.
The Federal Retirement Thrift Investment Board’s 2024 annual report laid it out clearly: “Loan usage rose to eight point six percent of participants, while hardship withdrawals reached a five year high of three point nine percent. This trend was particularly acute among mid career and lower paid workers...” In fact, among those in the second-lowest salary quintile, hardship withdrawals hit a staggering 8.47%. These aren’t just statistics—they’re a signal that many of us are feeling the squeeze, especially as Federal Employee Compensation Reform discussions highlight a nearly 25% pay lag compared to the private sector.
It’s not just about the numbers, though. The TSP itself is evolving. On June 30, 2025, the L 2025 fund will be merged into the L Income fund, and a new L 2075 fund is being introduced for those with longer investment horizons. These Thrift Savings Plan Changes are meant to modernize and simplify our choices, but they also mean we need to stay alert. I learned this the hard way: I once delayed updating my TSP contact info online and nearly missed a major fund transition announcement. With annual statements now delivered digitally by default if you have an email on file, online diligence isn’t optional anymore—it’s essential.
The uptick in TSP loans and hardship withdrawals paints a sobering picture. More of us are tapping into our retirement savings just to make ends meet. It’s a cautionary tale, especially for mid-career and lower-paid federal employees who are most at risk of falling behind. The combination of aggressive workforce reductions, attacks on pay and protections, and a hostile work environment is creating the perfect storm for a brain drain—and a loss of hard-earned institutional knowledge.
As we brace for more Federal Employees Retirement System Updates and possible reforms to civil service protections in 2025, it’s clear that a culture of caution is taking hold. We can’t afford to be passive about our financial future. Whether it’s keeping up with TSP fund changes, monitoring digital communications, or thinking twice before taking a loan or hardship withdrawal, vigilance is our best defense.
In these turbulent times, weathering the storm means more than just surviving day to day. It means staying informed, being proactive, and protecting the nest egg you’ve worked so hard to build. The road ahead may be uncertain, but with a little caution—and a lot of attention to detail—we can navigate the changes together.
TL;DR: 2026’s shaping up to challenge every assumption you’ve had about federal employment and retirement. COLA’s getting squeezed by premiums, job protections are under fire, and smart planning—not blind optimism—is your best ally. Time to get real about the risks and the lifelines still available.
