Thinking of Taking a Phased Retirement?

phased retirement

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 their 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.


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