Retiring With a Federal Annuity While Still Working (Part-time)

Phased retirement is a new human resources program now being unveiled as the federal government tries to capture corporate knowledge of employees retiring to pass along to those coming in to replacement them. Here is a quick summary of the new program.

The “retirement tsunami” that was predicted a few years ago never really materialized as predicted. No doubt, a sagging economy played a big role in individual decisions along with facing the reality of a reduced income after retirement for many people. But, as many of the baby boomers are not actually retiring, and much of their experience is about to walk out the door along with copious amounts of corporate knowledge that will be unknown to new people entering the workforce, the government is getting around to taking some action that may make the transition easier for agencies.

“Phased retirement” may become a new buzzword in the federal employee vocabulary as the Office of Personnel Management (OPM) is unveiling its proposal to implement the concept.

One might think that a modification such as this would be straightforward. Those who may be inclined to take advantage of the new system probably know better as they are already ready to retire so they have probably accumulated a number of years of working for Uncle Sam.

The new proposal is explained in a 121 page document to be published in the Federal Register. As you can imagine, a proposal explained in 121 pages is not straightforward or simple and has numerous variations. We have linked to the document so that those who find the proposal intriguing, and there will undoubtedly be many who will want to try out the concept, can do a word search and hopefully find the quirks that that may be important to an individual.

What is Phased Retirement?

Phased retirement means a person works part-time for a salary and federal benefits but also collects a federal pension. The salary is reduced to reflect the part-time work and the annuity is reduced to reflect the part-time retirement. While the law allowing for implementation of the program has been out for about a year, the proposal from OPM is just that: a proposal. There is a 60-day comment period after which the agency will evaluate comments and eventually implement the program in some form. Here is a quick summary of how it will work.

Phased retirement is described by OPM as “a new human resources tool that allows full-time employees to work a part-time schedule while beginning to draw retirement benefits.” The purpose of the plan is to allow the Federal Government to benefit from the services of experienced employees who might otherwise choose to retire.

An eligible employee who enters this program, which requires the approval of an authorized agency official, will work half-time and will receive one half of what his or her annuity would have been had the individual retired completely from Federal service. Those working under this program will be considered to be a part-time employee, not a reemployed annuitant.

For those who used this program, once they fully retire they will receive a larger annuity than if they had fully retired at an earlier date. However, their annuity will usually be be less than if they had continued working on a full-time basis.

Are You Eligible for Phased Retirement?

As noted above, this plan is not simple or straightforward. The complexity starts with determining your eligibility.

A federal employee who wishes to use this plan may not be eligible and will not be automatically approved to enter the program. You will have to apply for it and be accepted.

 You must be eligible for immediate retirement with at least 30 years of service at age 55, or with 20 years of service at age 60. If you are under the Federal Employees’ Retirement System (FERS), you must be eligible for immediate retirement with at least 30 years of service at MRA (minimum retirement age, which ranges between age 55 and 57 depending upon year of birth), or with 20 years of service at age 60.

Also, if you are subject to mandatory retirement because of the nature of your position, such as law enforcement, air traffic controller, etc., you will not be eligible to enter this program.

Can You Change Your Mind?

Yes, you can change your mind and it may work out for you.

You can apply for regular retirement if you are in the new program just as any other federal employee can apply for retirement.

Also, after entering phased retirement, you can end your phased retirement and return to full-time employee status, if the employing agency agrees to the change. Your participation in the phased retirement annuity will then end if you go back to work full-time.

Your Benefits and Pay in the Phased Retirement Program

During phased retirement, Federal Employee Health Benefits (FEHB) and Federal Employees’ Group Life Insurance (FEGLI) enrollment will remain with your employing agency. FEGLI benefit coverage amounts will be based upon the full-time salary for the position. The FEHB employer contribution will be the same as for full-time employees.

The amount of your annuity will be based on what you would have received as a fully retired employee and you will receive additional credit toward your full retirement package. The amount of your salary will be based on the amount you would have received as a full-time federal employee. In other words, you will receive half of your salary and half of your retirement annuity.

Is Phased Retirement A Good Deal for You?

For some people, this program will be a good opportunity. If you have been working full-time for decades, the thought of leaving the office and becoming a full-time retiree is daunting—and it should be. Will you be satisfied in retirement? Will you have too much time and too little to do after you retire? Will your income enable to live as you think you want to live after your retire? (See, for example, Confessions of a Federal Retiree)

Having an extra twenty hours per week will give many a chance to experience how they will react to being fully retired. Some will decide to move quickly into full retirement after trying it for awhile. No doubt, others will decide retirement is not such a good idea after getting bored with the extra time now available to them (or deciding the reduced income will be a problem).

For those with an urge to comment on the proposal, here is how to do so.

You may submit comments, identified by docket number and/or RIN number 3206- AM71 by any of the following methods:

  • Federal eRulemaking Portal: Follow the instructions for submitting comments.
  • E-mail: Include RIN number 3206–AM71 in the subject line of the message.
  • Mail: Kristine Prentice, Retirement Policy, Retirement Services, Office of Personnel Management, 1900 E. Street, NW, Washington, DC 20415–3200.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47