Retirees who have a life-threatening illness or other critical medical condition can choose to receive an “alternative form of annuity”—more commonly known as the lump sum option.

In the alternative annuity, you receive a reduced monthly benefit, plus a lump-sum payment equal to all your unrefunded contributions to the retirement fund. The reduction in your monthly benefit depends on your age at the time you retire even though by definition anyone eligible for this form of annuity is considered to have a life expectancy of less than two years. This once was a generally available option at retirement but now is restricted to those with certain medical conditions considered immediately life threatening.


Evidence of such a condition must be certified by a physician. If a condition other than the ones listed above is claimed, the Office of Personnel Management will review the certification to determine if the condition is life threatening or critical. Any costs associated with providing the medical documentation are the responsibility of the former employee unless OPM exercises choice of physician.

Your election of an alternative form of annuity does not affect the potential survivor annuity payable to your spouse or children.

Lump Sum not Available with Disability Retirement

You cannot choose the alternative form of annuity if you are retiring for disability or if you have a former spouse who is entitled to court-ordered benefits based on your service. If you are eligible to receive the option when you retire and elect one, any unpaid redeposit and most deposits for service that you owed at that time is deemed to have been paid.

If you receive the lump-sum and do not die within the two years, you are not obligated to repay it.


Election of the lump-sum option also changes the tax status of an annuity. While the lump-sum itself is not taxed on the basis that it is a return of already-taxed money, the annuity payout is fully taxable immediately; standard annuities are mostly taxable, with only the proportion of the individual’s contribution not taxable.