Feds are facing yet another extended furlough in 2025. A furlough is when an employer, in this case the federal government, places employees on an extended unpaid period of leave. A furlough occurs because funding for the work is not available. In this case, Congress has not approved a budget to keep non-essential workers employed.
Historically, when a furlough has occurred to federal employees, the government has provided back pay after the shutdown has ended since the 1980s. Prior to 2019, this operated on good faith rather than law. The Government Employee Fair Treatment Act (GEFTA) of 2019 created a legal mandate for automatic back pay to furloughed and excepted employees for any shutdown after December 22, 2018. The law aimed at ensuring that any federal employee impacted by future shutdowns was clearly guaranteed retroactive pay. The goal here was to help employees feel some stability during uncertain times.
But here we are again in what feels like an endless era of “unprecedented times.” Nothing has been business as usual for a long while.
Today, whether or not federal employees who have been furloughed will receive back compensation is uncertain. A major question floating around is will federal employees get back pay 2025. Among the agencies informing their employees that back pay is not assured due to how OMB guidance is being interpreted is the IRS.
In this article we’re going to walk through what you can do as a federal employee to control the controllables, how to prepare for a furlough, and what this shutdown may mean for your TSP contributions during government shutdown periods.
The #1 Mistake Feds Make During Furloughs
The biggest mistake federal employees make during a furlough is when they stop asking for advice and start making big financial moves without a sounding board.
I recently chatted with a non-essential federal employee who had been furloughed. Like many of the federal employees we work with, he had a military pension and VA Disability income that he received monthly. His employment under FERS was covering the lifestyle that those two payments couldn’t, like his new car. He told me, “You know what, I’m just going to take $80,000 out of my TSP and pay my car off. It’s my one big payment and I’d feel better if that bill was just gone.”
This is a great example of emotional math. It makes sense in the moment but it doesn’t always pencil out the way you think it should.
By making an $80,000 distribution from his TSP, he would be adding $80,000 to his taxable income for the year. He has always worked nine months out of the year and anticipates going back to work in November, assuming a budget passes. Not only would his distribution be 100 percent taxable, it would also unexpectedly push him into a higher tax bracket.
Rather than pull the trigger, he talked through his options. He could reduce expenses in other categories to keep making his car payments, use cash savings, or even call the lender and defer his payments for a month or two. What does a furlough mean for retirement benefits? It means making careful, informed decisions so you don’t create a long-term problem trying to fix a short-term one.
Cash Buys You Time. Time Buys You Options.
We often refer to ourselves as your financial sounding board. It’s your money and your decision, but when you feel like your choices are limited, that’s the time to talk.
One of the first things we do with the feds we work with is to establish what we call a “911 Account.” At your bank, I want you to literally nickname this account “911.” The first goal is to have three to six months of living expenses saved in cash.
When our feds get closer to retirement, we like to see six to twelve months of savings in cash. You might not make much in interest, but you also avoid unnecessary risks. We don’t want to see emergency savings tied up in the market for one solid reason: Murphy’s Law. If something happens, what are the chances the market will be at all-time highs? What are the chances it’ll be at lows? That’s not a gamble we want you to take.
Cash that you need immediate access to simply doesn’t belong in the stock market. TSP contributions during government shutdown periods may be disrupted, and that can add another layer of stress. Having emergency savings gives you flexibility.
We’ve been in business for nearly 50 years, working with salt-of-the-earth people. We’ve seen a lot. We can’t time moments of crisis, but we can prepare for them. If you have health emergency savings, you have time to make good decisions, whether you’re furloughed or working as an essential employee.
Frequently Asked Questions About the 2025 Furlough
Q: How long can a furlough last?
A: Furloughs can last days, weeks, or even months depending on how long Congress takes to pass a budget.
Q: Do federal employees get paid during a shutdown?
A: If you’re furloughed, you do not receive pay during the shutdown. Essential employees must keep working but also do not receive pay until funding resumes.
Q: Will federal employees get back pay 2025?
A: Historically yes, but this year it’s uncertain as the administration questions automatic back pay.
Q: What happens to health insurance during furlough?
A: Your coverage generally continues, but your share of the premium is owed later.
Q: What does a furlough mean for retirement benefits?
A: Retirement contributions may pause, and TSP contributions during government shutdown periods can be delayed.
Q: What to do if you are furloughed?
A: Create or lean on your emergency savings, reduce unnecessary expenses, and get financial advice before making large withdrawals.
Q: What is the difference between essential and non-essential federal employees?
Essential employees keep working without pay during the shutdown. Non-essential employees are furloughed and placed on unpaid leave until funding returns.
Retirement Questions During a Furlough: What Federal Employees Should Know
When the government shuts down, a lot of federal employees wonder if they can still submit their retirement applications. The short answer is yes, but the processing timeline will be delayed. Remember, OPM are government employees too.
- You can still submit your retirement application during a furlough.
Even if your agency is closed or partially closed, employees can typically still submit retirement paperwork. This is often
handled through HR or online. The key is to document the date you submit your application and like all government work you do, document everything!
- Agencies may not process your application right away.
If your agency’s HR or payroll staff is furloughed, your application might not be processed until after the shutdown ends. That means your official retirement effective date could be delayed if paperwork isn’t finalized in time. This is especially important if you planned your retirement to line up with a specific pay period.
- The Office of Personnel Management (OPM) continues some operations but with delays.
OPM generally continues essential functions during a shutdown, which include receiving retirement applications. However, staffing levels are reduced, so processing times can be slower than usual.
- Back pay does not cover delayed annuity payments.
Unlike regular pay, retirement annuities are processed once the application is complete. If your processing is delayed, your first annuity payment may also be delayed. You’ll eventually receive retroactive annuity payments, but it may take time.
- Submitting early is better than waiting.
If you’re planning to retire during a government shutdown or immediately after, submit your paperwork as early as possible. This gives you the best shot at getting into OPM’s queue quickly. We want to make sure that you have a copy of all your Standard Form 50’s and Electronic Personnel File before you apply. Any error in your credible services time is up to you to explain – no one knows your federal service better than you.
- Expect delays with lump-sum annual leave payments.
Shutdowns can also affect lump-sum leave payouts if payroll offices are impacted. If that money is part of your bridge strategy to retirement, it’s good to plan around possible delays.
- Keep copies of everything.
If your agency is furloughed, maintain clear records of your submission date and who you sent your application to. This can be important if anything needs to be escalated after the shutdown ends.
- Can federal employees retire during a furlough?
Yes, but processing can be delayed depending on agency staffing.
- Will my annuity start on time if I retire during a shutdown? Probably not; expect delays in the first payment.
- What happens to my lump-sum leave payout during a furlough? It may be delayed until payroll operations resume.
- Does OPM process retirement applications during a shutdown? Yes, but more slowly. Remember, it isn’t their fault that the furlough is happening. They’re being impacted too.
- How can I prepare for a furlough if I plan to retire soon? Submit paperwork early, keep records, and have cash reserves to bridge delays.
- Should I use my TSP dyring a furlough to cover cash shortfalls? Maybe but you need to discuss your options with someone who specializes in federal employee benefits before doing so. Knee jerk financial decisions can be hazardous to your wealth.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.