If there is one retirement option that (very few) federal employees can participate in, it’s a “phased retirement.”
The federal government realized that many of their senior federal employees, especially those in specialized and/or leadership roles, were sometimes leaving their jobs to a successor who was not as experienced or had the knowledge base to effectively handle that duty position in a seamless transition.
What is a phased retirement and is it right for you?
To ease the “passing the baton” from a retiring federal employee to their replacement, the Office of Personnel Management (OPM) created the “phased retirement” option. A phased retirement allows an active federal employee to “retire” from part of their job responsibilities while continuing on a part-time basis. This usually takes the form of mentoring and knowledge-transfer to employees who are moving into senior positions. Most of the time, those who become a phased retiree are training their successor for a specialized or leadership position.
Let’s get one thing out of the way up front. A phased retirement is voluntary. You do not have to participate in this program if you do not wish to. A phased retirement also MUST be offered by your agency. You cannot just sign up for a phased retirement on your own; it is a mutual agreement between the employee and his/her agency. In addition, a phased retirement typically only lasts a few months depending on how long it takes to effectively train/mentor your replacement. Therefore, a phased retirement isn’t something that most employees can take advantage of – and even if they are offered this option, it usually doesn’t last all that long.
You accept a phased retirement. What happens then?
As a phased retiree, you will receive half of your earned pension and your part-time salary during this “phased” period. It is important to point out that if you are working as a phased retiree, you are not eligible to receive any Special Retirement Supplement (SRS) payments during this period if you would have been entitled to them. However, you will start to receive your SRS after you leave this phased period and completely retire from your federal job (again, if you are eligible for the SRS).
What about your other benefits?
Most of your benefits remain the same, as if you are an active employee (not as a retiree). Your Federal Employees Health Benefits Program (FEHB) and Federal Employees Group Life Insurance (FEGLI) continue on as usual. Plus, the premiums are still paid with pre-tax dollars (right out of your paycheck). You would still be able to contribute into the Thrift Savings Plan (TSP) and receive matching contributions, as long as your agency permits it. Flexible Spending Accounts (FSA), FEDVIP, and the Federal Long Term Care Insurance Program are unaffected by phased retirement status.
What’s in it for you?
When the time comes for you to leave phased status and fully retire, OPM will re-calculate your pension payments. OPM will include the time you were working as a phased retiree into your pension calculation and consider all that “phased time” as “full time.” This will very likely increase your High-3 calculation and enable you to have a higher pension check than you would otherwise have had if you didn’t work as a phased retiree.
Is a phased retirement worth it?
Although you will be able to work reduced hours and earn a part-time salary (along with half of your payable pension check), it may not be financially advantageous to go out on a phased retirement. You have to consider the (possible) loss of your SRS during this period and the reduced household income you will likely have during this time as a phased retiree. That said, it may be an option as it will reduce your work hours and enable you to increase your service years and High-3 calculation and thereby, increase your eventual pension payments. Like most decisions, it is very much a balancing act.
If this option makes sense for your situation, be sure to talk to your agency about the specifics. They will be able to tell you what opportunities are available and what the specific terms would be. If all the details check out, phased retirement could be a great way to ease your way into retirement.
Whatever you decide, make sure that you have all the facts and how they will affect your retirement. I highly encourage you to attend one of our retirement workshops where we cover all of the federal benefits topics and the decisions that need to be made right there in the training session. You’ll leave with clear action items for each section. Plus, you’ll have an opportunity to meet one-on-one to do a deeper dive into your situation.
TRAINING AVAILABLE FOR FEDERAL EMPLOYEES:
Check out the workshop schedule to attend a FedImpact workshop in your area! Use the SF-182 to request paid time off to attend the training. Don’t see a workshop in your city/state? Add your name to the list to be notified when new locations and dates are announced!
ABOUT THE AUTHOR:
Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed Federal Retirement Impact Workshops, she and her team empowers employees to make confident decisions as they plan for the days when they no longer have to work.
As the developer of dozens of highly-regarded retirement planning materials for federal employees and the creator of the FedImpact Webinar and the FedImpact Podcast, Chris has also analyzed the challenging retirement scenarios for thousands of federal employees – helping them to avoid costly mistakes, and highlighting opportunities for them to gain greater financial security in their retirement years.
Chris’ candid and straightforward nature allows employees to get the answers they need, and to understand the impact these decisions have on their retirement. After all, if what you thought was true wasn’t, when would you like to know?
