Retirement Considerations for Government Contractors

Government contractors face additional retirement challenges when compared to their Federal Employee counterparts. Contractors have no pension, have to plan for health insurance in retirement, can’t necessarily control their own retirement date, and  may have access to more complex savings vehicles. This can make planning for your retirement more challenging.


The most obvious difference to most is the lack of a pension. Federal government employees have attractive pensions when compared to the average American. Sure, the one being offered today is no where near as good as the old Civil Service Retirement, but it beats not having a pension. The burden is on government contractors to plan for their own retirement.


As a contractor, you must plan for your own healthcare in retirement. Make no mistake about it, this is a big deal. It may be that planning for a gap between an early retirement age of 60 and the time when Medicare kicks in at 65 is the issue, or the general ongoing cost difference. Just this week, I had a client who was quoted $1,600 per month for an individual policy FOR HIMSELF – NOT INCLUDING HIS WIFE. My average government retiree client is paying around $275 per person per month for health insurance. These numbers add up and increase the difficulty in planning for contractors.

Retirement Date

When you are a government employee, you have parameters set around your retirement date. Some have a mandatory retirement age while others need to work till a minimum date. Sometimes it is easier to plan when these decisions have already been made for you. For contractors, these parameters are not necessarily in place for you. You may also face an increased risk of being downsized. This could happen due to many factors including the loss of a contract that was awarded by the government to your company. With decreased job security comes an increased need to plan for uncertainty.

Investment Vehicles

Finally, government contractors may have more complex retirement vehicles to use for their planning. The Thrift Savings Plan offers five primary funds – C, S, I, G and F. It also offers Lifecycle funds with a target retirement date that is a combination of the five primary funds. That’s it. A 401k can have far more investment options. In addition to the 401k, you may be offered a Deferred Compensation Plan (commonly called Deferred Comp). You may also have multiple plans from multiple employers from your past. While these aren’t a bad thing to have, they do make planning more challenging.

Retirement planning can be more complex for contractors due to the lack of a pension, health care in retirement, lack of set retirement dates and more complex investment vehicles, but this doesn’t mean a contractor can’t plan for a fabulous retirement. It does mean that you will have to plan and intentionally make sure that you are taking care of yourself in the future.

Cecilia Brown is a Registered Representative offering securities and advisory services through Lincoln Financial Securities Corporation, Member SIPC.  Branch Office:  Clock Tower Place, 1410 Forest Drive, Suite 28, Annapolis, MD 21403.  Lincoln Financial Securities and its representatives do not offer tax or legal advice.  Individuals should consult their tax or legal professionals regarding their specific circumstances.  LFS-1962483-120417