Prepare for a Government Shutdown: What Feds Need to Know

Government shutdowns are a recurring challenge that federal employees must navigate with caution and preparedness. These shutdowns occur when there is a lapse in government funding, often due to the failure of Congress to enact appropriations bills or a continuing resolution (CR) by the fiscal year (FY) deadline. With talks arising of a possible shutdown this week, although at the time of this writing it is looking less likely, this article will review how feds can prepare for a future federal government shutdown, how their pay and benefits would be impacted, and other important information regarding the current shutdown threat. 

Will Congress Renew Government Budget Before Friday March 14? 

At the time of this writing, the House has passed legislation, continuing funding at current levels until October 1. Without approval from at least 60 lawmakers in the Senate, the current budgetary measure keeping federal agencies running will expire Friday. Currently, it appears 2 Democrats are for the stopgap measure and 1 Republican is against it, meaning six more Democrats and all remaining GOP members of the Senate will need to vote for the continuing resolution (CR) to prevent a shutdown. While some on the left feel the threat of a shutdown is their only leverage in DC, others argue it would cause more feds to voluntarily retire or resign, especially from agencies such as the Environmental Protection Agency, Food and Drug Administration, and the National Institutes of Health. As well, shutting down the federal government would cause further chaos in the nation’s capital, creating unfavorable optics for Democrats in swing states seeking re-election in 2026. 

Are you ready to retire from the government? Register for a free online FERS Workshop!

How Federal Employees Can Prepare for a Governmental Shutdown

Employee Pay Delay: Prepare for Lack of Funding

If federal employees experience a pay delay due to a government stoppage, there are several steps they can take to manage the situation. Communicating with creditors and service providers about the delay can help negotiate temporary payment arrangements. Employees should also explore available resources, such as emergency loans, federal loans, or financial assistance programs and activities, to bridge the gap until back pay is issued. Staying informed about the status of the shutdown and any legislative actions to provide back pay is crucial. By taking proactive measures, employees can mitigate the financial impact of a pay delay during a potential shutdown. 

Create a Budget: Prepare for Stretch without a Paycheck

Revise your financial strategy if needed. Knowing exactly what your monthly fixed, variable, and discretionary expenses are will help reduce stress and allow you to know what areas of your budget can be cut quickly. If a shutdown seems likely, prioritize bills and essential expenses. Make arrangements with creditors or utility providers if necessary.

Build an Emergency Fund

Strive to have eight months’ worth of living expenses saved in an emergency fund. Prioritize needs over wants until you achieve this goal. Reduce discretionary spending and save as much as possible in the months leading up to a possible government shutdown.

Meet with a Fed-Expert Financial Planner

Maximize Credit Options in Preparation of Furlough

Remember, credit should only be a temporary solution for emergencies. If you’re struggling to pay bills, consider the following:

• Reach out to your bank or credit union to discuss any potential financial hardships. Some institutions offer assistance to Federal employees during shutdowns.
• Open a new credit card with a 0% interest rate if you have a good credit score
• Explore a Home Equity Line of Credit (HELOC) or 2nd mortgage but be aware of associated costs and interest rates.

Plans Also Require Feds to Use Retirement Savings Wisely

• Traditional IRAs and SEP IRAs may offer penalty-free hardship withdrawals, however you will have to pay Federal and state taxes.
• A Roth IRA allows you to withdraw original contributions without taxes or penalties. (Review the 5 year rule.)
• Consider a loan from your Thrift Savings Plan (TSP). A loan is not considered a withdrawal so it avoids any penalties and taxes. The loan will have a monthly payment that includes principal and interest over a number of years. The interest paid will go back into your TSP account. A drawback is that the funds taken out as a loan will not be invested in the stock market.

Estimate your retirement income from the TSP with our Thrift Savings Plan Calculator Tool.

Avoid Payday Loans!

Steer clear of payday loans, as they come with high costs and can lead to a cycle of debt. The national average APR for payday loans is nearly 400%, much higher than credit card APRs.  

What Happens to Federal Agencies During a Shutdown?

Agency Contingency Plans in Place

Federal agencies, such the IRS, EPA, or the State Department, implement contingency plans to manage operations during a shutdown. These plans outline which employees are considered “essential” and will continue to work without pay, and which employees will be furloughed. Agencies must also determine which services will continue and which will be suspended without impacting agency operations too drastically. The Office of Management and Budget (OMB) provides guidance to agencies on developing and executing these plans. Effective communication with employees and stakeholders is crucial to ensure a smooth transition and minimize disruptions to essential services.

TSA, Homeland Security Among Agencies to Provide Service Until Government Re-Opens

Despite a government shutdown, certain services continue to operate to protect life and property. Essential services, such as national security, law enforcement, and emergency medical care, remain operational. TSA and ICE provide border protection services although the National Park Service usually has to close some or all of the national parks. Additionally, programs that are funded through mandatory spending, such as Social Security and Medicare, continue to function. However, services that rely on annual appropriations may be suspended, leading to delays in processing applications, inspections, and other non-essential activities. The continuation of services is guided by the agency’s contingency plan and the nature of the funding.

Pay and Benefits for Federal Retirees and Current Employees During Government Shutdown

Benefits from Dept. of Veterans Affairs, CSRS, and FERS

Government shutdowns are disruptive and stressful events for both Federal employees and the American citizens who depend on government services. Fortunately, Social Security, veterans’ benefits, and income from FERS/CSRS, which are lifelines for many individuals and families, are largely insulated from the immediate impacts of government shutdowns due to their classification as mandatory spending. Now, although FERS and CSRS pensions will continue to pay, a shutdown could delay retirement processing at OPM further, leading to a larger backlog of pending retirement applications.

While beneficiaries can generally expect their benefit payments to continue, it is essential to remain aware of potential delays in administrative processes and limited services during these periods. Additionally, the financial strain on Federal workers tasked with administering these programs underscores the need for a stable and predictable budgeting process to prevent the negative consequences of future government shutdowns. In the long term, safeguarding these vital programs and the well-being of those who rely on them should remain a priority for policymakers, regardless of the political climate.

Federal Employee Pay and Benefits Impacted Due to Shutdown

During a government shutdown, federal employees are classified as either furloughed or essential. Furloughed employees are temporarily laid off and do not work or receive pay during the shutdown. In contrast, essential employees are required to continue working, often without pay, as their roles are critical to the protection of life and property. The classification of employees is determined by the agency’s contingency plan and the nature of their duties. Understanding this distinction is important for employees to anticipate their work status and prepare accordingly. Federal employee benefits can be affected during a government shutdown, particularly for furloughed employees. While health insurance coverage typically continues, along with the benefits from the group life insurance program, other benefits, such as retirement contributions and leave accrual, could be suspended. Employees would also experience delays in processing benefit claims and applications.