We’re all feeling the impact of inflation. Groceries, gas, utilities… everything costs more. Unfortunately, federal retirees may soon feel it even more directly. For many, their FERS pension income will actually go down in 2026.

Let’s break down why that’s happening and what you can do about it.

Rising Health Insurance Costs Hit Hard

One of the greatest federal benefits is your Federal Employees Health Benefits (FEHB) coverage. Compared to most private-sector options, it offers outstanding protection and flexibility throughout your career and into retirement.

However, with that protection comes rising costs. The Office of Personnel Management (OPM) has already announced that average FEHB premiums will increase by more than 13% in 2026. That’s a significant jump for retirees who have their FEHB premiums automatically deducted from their pension.

Let’s use real numbers: Blue Cross Blue Shield’s Self Plus One plan currently costs around $832 per month. A 13% increase pushes that to roughly $940 – a difference of about $108 more per month.

Why That Means a “Pay Cut” in Retirement

Now, here’s where things get tricky. FEHB premiums come directly out of your retirement pension. So if your health insurance costs $100 more each month, but your pension doesn’t increase at the same pace, your take-home pension income actually shrinks.

“But wait,” you might be thinking, “doesn’t the FERS pension get a cost-of-living adjustment (COLA)?”

Yes, but FERS retirees don’t receive the full COLA. The FERS system includes a Diet COLA, meaning you receive the Consumer Price Index (CPI) increase minus one percent. That smaller adjustment simply cannot keep pace with real inflation or premium hikes.

If you’re under age 62, it’s even worse; you don’t get any COLA increase at all.

For example:

• If you receive a $4,000 monthly pension, a 2% COLA adds just $80 per month.
• If your FEHB premium increases by $108, that’s a net decrease of $28 each month.
• Someone receiving a $2,000 pension would only gain $40 from COLA, leaving them $60 behind after the FEHB increase.

In other words, your gross pension goes up slightly, but your spendable income goes down.

Planning Ahead to Beat Inflation

This is why it’s essential to understand what tools you can use to outpace inflation. As generous as FERS and Social Security are, neither is designed to fully protect your purchasing power over time.

Your Thrift Savings Plan (TSP), on the other hand, is a growth-oriented vehicle meant to support your long-term income needs. Managing your TSP with an eye toward growth and inflation protection can help maintain your real spending power over the years, even as premiums and living costs rise.

If you haven’t reviewed your retirement strategy lately, now is a good time to revisit it, especially before higher 2026 expenses take effect.

Your pension shouldn’t go backward just because the cost of benefits is going up. Careful planning can help you make sure it doesn’t.