Open Season for federal employees brings planning for healthcare needs into focus. But what’s getting the attention is the 12.3% average increase in health insurance premiums for 2026. This type of hike can dramatically eat into a fixed pension check, making it critical to understand how to prepare.

If you work for the federal government, you’re aware of predictable elements like a pension (if you’re in the Civil Service Retirement System or Federal Employees Retirement System), Social Security (or the FERS equivalent), and access to the Federal Employees Health Benefits (FEHB) program. What many don’t realize is how quickly healthcare and insurance costs can become the largest single expense concern in retirement. The reason is simple: pensions are predictable, but health costs are not.

Why Health Costs Bite Retirees

Most federal retirement conversations start with the pension and the Thrift Savings Plan (TSP). But healthcare acts differently. Let’s review why this is the case:

Healthcare costs tend to rise faster than wages and pensions. Premiums, deductibles, and prescription costs can increase due to factors outside your control, like plan design, drug costs, population health trends, and carrier pricing decisions.

Medicare coordination and gaps are confusing. Many federal retirees keep FEHB because it coordinates with Medicare differently than private plans, but the interaction and the timing of when you enroll in Medicare parts A, B, and D can create unexpected out-of-pocket costs.

A fixed income + variable health costs = risk. This mismatch is where retirement budgets fail.

Practical Steps to Avoid Surprise

The good news is that this surprise is avoidable with practical planning. Here’s a straightforward checklist to protect your retirement income and gain clarity.

Build a health-care-first retirement budget. Don’t treat health care as an afterthought. Create a retirement budget with health costs as a primary line item. Include premiums, Medicare premiums (Parts B and D), deductibles, dental/vision, and an estimate for long-term care or at-home care. Use conservative numbers (assume premiums rise faster than inflation) so you’re prepared for downside scenarios.

Model multiple scenarios (best, likely, worst). Run three simple projections: conservative, likely, and worst-case. What happens to your monthly cash flow if FEHB enrollee premiums rise 10–15% again? Will only one spouse use services or both? Seeing the numbers forces choices early. With fewer surprises, you’ll have more control.

Learn FEHB and Medicare rules before you retire. Timing matters. Enrolling in Medicare at the right time and understanding how the FEHB plan coordinates with Medicare Parts A, B, and D can reduce duplicate costs. For many, enrolling in Medicare Part B at 65 while keeping FEHB is the right choice. However, rules and penalties exist for late enrollment, and those penalties are permanent. Read the OPM (Office of Personnel Management) guidance and ask a benefits counselor if you’re unsure.

Consider a “health fund.” Set aside a dedicated liquid account for health expenses. A reserve equal to at least 12–24 months of expected out-of-pocket health spending is a good place to start. That buffer smooths sudden premium hikes and gives you time to adjust without selling investments at a bad time.

Revisit your plan. Open season is when you can change FEHB plans. Don’t assume your current plan will stay the best fit. A plan with slightly higher premiums but a lower out-of-pocket max could save you money if you end up with major medical bills.

Tax planning for withdrawals and annuities. Understand how your pension and TSP withdrawals will be taxed. Sometimes shifting the timing of withdrawals or converting a portion of TSP to an annuity (or using partial annuitization) can stabilize income and cover health costs.

Protect against long-term care shocks. Long-term care is the largest uninsured risk in retirement for many couples. Consider long-term care insurance (if affordable and you’re insurable), hybrid life policies with LTC riders, or simply assigning investments as a long-term care fund.

Consider professional guidance. If you need help navigating FEHB, FERS/CSRS, and TSP rules, consider consulting a certified financial planner who specializes in federal benefits.

You earned a predictable pension, so don’t let unpredictable health costs steal your retirement plan. If you treat health care as the primary financial risk, you can replace surprise with preparedness. Successful retirement means having not only sufficient funds but also the assurance to spend them according to your plans.

Austin Costello is a financial advisor who helps educate federal employees on what it takes to achieve retirement and reduce financial stress. He and his firm, Capital Financial Planners, host educational webinars at various government agencies and work with hundreds of individual clients.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policyholder should review their contract carefully before purchasing. Guarantees are based on the claims-paying ability of the issuing insurance company.

© 2026 Austin Costello. All rights reserved. This article
may not be reproduced without express written consent from Austin Costello.