Many federal employees prefer not to retire as soon as they are eligible, and unless they are in one of the few occupations with mandatory retirement, they can stay on the job.

In some cases the motivation is to build up savings and also their later retirement benefits, in other cases it’s because of a desire to coordinate retirement with that of a spouse not yet eligible to retire, and in others it’s because they find their work fulfilling and want to continue making a contribution.

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Even among those, however, many would like to cut back, giving themselves more free time and lessening the everyday hassles of working full time.

Phased retirement was proposed as a win-win for both employees and individuals, by allowing retirement-eligible employees to cut back to working half-time while collecting half of the annuity they had earned, with the full annuity paid (including an increase reflecting the part-time work) once they retire fully.

Chart: FEDweek Phased Retirement Comparison Chart

How Phased Retirement Works


Participation in phased retirement is voluntary on both sides. Persons eligible to retire voluntarily under certain age and years of service combinations—but not under other types of retirement or even under certain voluntary retirement combinations, as described below—may apply and if the employing agency approves, they work part-time and receive proportionate parts of both their annuity and the salary of the position, without an offset.

Agencies are responsible for setting their own policies and handling requests, addressing issues such as whether certain positions or geographic locations are to be ineligible, the standards for deciding an employee’s request, which officials are responsible for making the determination, and how the agency will handle situations where it receives more requests than it can accommodate. These policies must be in writing and in some cases may be subject to collective bargaining requirements.

As a practical matter, in its early stages phased retirement has been made available during a window, commonly several months, in which employees may express interest in the arrangement. During that time, the agencies have conducted briefings and put out other information to state the exact terms, and have consulted with employee organizations.

Qualifying employees may submit applications during that window and management then considers whether to approve them—and, if approved, when the period would start. As part of the application process, an agency may in essence require employees to make the case for why they would be a good candidate, for example providing ideas for how they would mentor their replacements.

While OPM set no rules regarding the positions for which phased retirement is allowable—that is up to an agency’s discretion—in general the best prospects are positions where the agency especially needs to maintain continuity and develop replacement employees. This could be because certain employees have highly specialized expertise for which their replacements would have a long and steep learning curve—potentially leaving the agency vulnerable to costly or even dangerous mistakes.

Or, the expertise of the employees may not be especially specific but the agency simply has no one qualified to step in. Possibly the function has been short-handed due to budgetary restrictions or to difficulty in hiring persons to fill vacancies at the salary rate and other terms the agency is able to offer. Or possibly the agency simply has come to rely on a certain employee or employees and has not prepared anyone else.

In any case, employees have no right to phased retirement. An agency’s denial of an employee’s application for phased retirement cannot be appealed to the Merit Systems Protection Board as an “adverse action,” although a challenge might be allowed through a grievance process.

Agencies also have discretion to set time limits on any phased retirement applications they do approve. Again, OPM set no standards, apart from requiring that any such limits be set in advance and in writing.

In practice, phased retirement periods commonly have been limited to no more than one year, on the theory that that should be enough time to pass along knowledge—not all knowledge built up over a career, of course, but enough of it so that the employees taking over will be well prepared.

A time limit can be extended if both the agency and employee agree, although so far agencies have shown little inclination to offer extensions.

FERS Retirement Planning Guide 2020

Eligibility for Phased Retirement


Phased retirement is available only to those who have met certain age and years of service combinations for retirement. Further, they must have worked full time for the preceding three years, a requirement that does not apply in other types of retirement.

Under the Civil Service Retirement System and CSRS Offset, the individual 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. Under the Federal Employees Retirement System, the individual must be eligible for immediate retirement with at least 30 years of service at the minimum retirement age (55-57 depending upon year of birth; currently 56), or with 20 years of service at age 60.

This excludes certain age and service combinations available through standard voluntary retirement (the most commonly used of which is age 62 with five years). In addition, there are forms of retirement in which phased retirement is not allowed.

These are:

• Early retirement, mainly offered during downsizing, in which employees may retire at any age with 25 years of service or at age 50 with 20 years of service.

• Disability retirement, paid to those who are qualify as unable because of disease or injury to render “useful and efficient service” in the current position, or in certain others.

• Discontinued service retirement because of an involuntary separation, such as might occur in a reduction in force.

• Deferred retirement, in which employees who leave service before meeting standard age and service requirements for an immediate retirement benefit may receive an annuity later under certain conditions.

Further, employees subject to mandatory retirement (law enforcement officers, firefighters, nuclear materials couriers, air traffic controllers, customs and border protection officers, or members of the Capitol Police or Supreme Court Police) are excluded from phased retirement. (Note: “Grandfathered” Customs and Border Protection officers who are not subject to mandatory retirement are eligible, however.

These are persons who were employed in such positions before July 6, 2008 and chose to remain under the standard retirement rules for federal employees when eligibility for special law enforcement officer retirement provisions, including mandatory retirement, began for those positions.)

Phased retirement also cannot be granted to employees whose positions do not allow for a regularly recurring part-time schedule. This primarily affects certain nursing positions (as well as many firefighters, who typically would be excluded due to mandatory retirement in any case).

In addition, those taking voluntary separation incentive payments, commonly called buyouts, also are ineligible for phased retirement. The reason is that a phased retiree does not separate from federal service, the intent of such payments, but rather changes status to part-time work. Someone in phased retirement could take such an incentive to go into full retirement, but it would be up to the agency to decide whether to make such an offer. That probably would be unlikely in most cases, since the goal of the incentives is to reduce the full-time workforce.

Application—To apply to enter phased retirement status, an eligible employee must: submit to an authorized agency official a written and signed request on form SF-3116 (that form, along with instructional forms and the standard retirement forms that must be submitted at the same time, are at www.opm.gov/forms); obtain the signed written approval of an authorized agency official; and file an application for phased retirement.

An applicant may withdraw his or her application any time before the election becomes effective, but not afterward.

Your Workday While Participating in Phased Retirement


In phased retirement, the employee typically remains in the same job but simply changes the work schedule, or tour of duty, although in limited situations he or she may change jobs or even agencies.

The underlying law allows the working time portion to range from 20 to 80 percent, on average from one to four days per week; the percentage could not change during the phased retirement period, even if the individual switched to another job. However, the Office of Personnel Management has determined as a matter of policy that at least for an initial period—how long is undefined—the only allowable split will be half-time work.

That means the employee will receive half of the full-time rate of the position (and half of the annuity earned up to the start of phased retirement, as described below). The salary increases with any applicable pay raises.

With only very limited exceptions, phased retirees must spend at least a fifth of their working time mentoring co-workers. It is up to the employing agency to determine what types of mentoring activities satisfy this requirement and how to ensure it is being fulfilled. The phased retiree may mentor one or more employees and need not mentor the same employees throughout the period of phased retirement. Directly mentoring someone who is in line to take over the full duties when the phased retiree fully retires is encouraged but not required.

Phased retirees may work more than half-time only under limited circumstances such as emergencies where no other qualified employees are available to do the work.

A phased retiree may vary the number of hours he or she works per week within a pay period, but must have a half-time (40-hour) schedule per biweekly 80-hour pay period. They may participate in alternative work schedules and can earn credit hours under compressed work schedules. The work schedule may be subject to collective bargaining requirements in unionized workplaces. However, intermittent schedules are not allowed.

Days worked as a phased retiree count toward within-grade increases on the same basis as full-time employment.

Phased retirees are treated as part-time employees for purposes of reductions in force and furloughs (note: if separated by a RIF they would not be eligible for severance pay since that is not paid to those immediately eligible to retire under those circumstances). They also remain subject to discipline on performance or conduct grounds, and retain the same rights to appeal those actions through the applicable channels such as grievance procedures or the Merit Systems Protection Board.

Phased retirees also remain covered by government ethics rules, including restrictions on outside employment, as well as other general personnel policies. Their bargaining unit coverage status may change on switching to part-time work; that would depend on the terms of the applicable labor agreement.

In addition, phased retirees are subject to civil service retirement deductions, Social Security payroll taxes and Medicare payroll taxes under the standard policies applying under their retirement system and based on the pay they actually are receiving.

Phased retirees may retire fully at any time without needing agency approval.

Effect on Benefits of Phased Retirement


While employed, phased retirees fall under the standard benefits policies applying to active employees, with some special considerations. (Note: Entry into phased retirement is not a “qualifying life event” that conveys eligibility to make certain changes in some insurance benefit.)

Federal Employees Health Benefits Program and Federal Employees’ Group Life Insurance benefits are provided through the employing agency, under the terms of the job, not under terms applying to retirees. FEGLI benefit coverage amounts are based on the full time salary rate for the position even though the employee is working only part time, and the government payment toward FEGLI Basic continues.

The FEHB employer contributions are the same as for full-time employees (other part-time employees receive only a prorated share) and the phased retiree retains the right to pay the enrollee share of premiums with pre-tax money under the “premium conversion” arrangement (which does not apply to other retirees). Employment as a phased retiree counts toward the “five year rule” which requires that to continue FEHB into retirement, a person must have been covered under the program for the five years leading up to retirement (or from the first opportunity to enroll, if later).

Policies under the Federal Dental and Vision Insurance Program, the flexible spending account program and the Federal Long Term Care Insurance Program for active employees continue to apply. The same is true of the Thrift Savings Plan, meaning for example that phased retirees can continue to make investments and take loans as active employees but are not eligible for the withdrawal options that apply to retirees.

Those under the Civil Service Retirement System remain eligible for the voluntary contributions program available under that system that allows for after-tax investments whose earnings grow tax-deferred and which on full retirement can be withdrawn as a lump-sum or used to purchase an additional annuity.

Phased retirees do not receive a lump-sum payment for unused annual leave (as do regular retirees) since they are not separating from service. When they retire fully later, they will receive such a payment for the value of unused annual leave to their credit at that time.

Similarly because they are not separating, phased retirees keep their accumulated sick leave. It therefore is not included in the calculation of their phased retirement annuity. When they retire fully later, they will receive service time credit for their unused sick leave at that time.

Phased retirees continue to earn annual and sick leave, prorated according to their work schedule as with part-time employees in general. Thus, they will earn leave at only half the rate they did as full-time employees. The “use or lose” annual leave ceiling, typically 240 hours maximum to carry from one leave year to the next, is unaffected.

They may use paid leave and are eligible for leave without pay on the same terms as other part-time employees.

Depending on their work schedules, phased retirees may be eligible to receive premium pay (such as for being required to work on a holiday) as well as overtime pay—or compensatory time off in lieu of overtime pay—under standard rules. If they travel on official business, they are paid for hours of travel during regularly scheduled working time under standard policies, and they are eligible for compensatory time off for official travel during hours not regularly scheduled as working time. A phased retiree may earn and use compensatory time off for religious purposes under the normal rules.

A phased retiree cannot collect both a phased retirement annuity and injury compensation benefits, with the exception of “schedule awards” which are specified payments for injuries to certain body parts or loss of certain bodily functions.

Phased retirees are not eligible for standby duty pay, law enforcement availability pay, or administratively uncontrollable overtime pay. They would be eligible for military Reservist differential pay if activated to military duty.

FERS Retirement Planning Guide 2020

Changes in Employment While in Phased Retirement


An employee in phased employment may move to a position in a different agency or accept a detail to another position or agency. If the employee accepts a position in a different agency and wants to continue participation in phased retirement the new agency must approve participation in phased retirement prior to the transfer.

With the employing agency’s consent, a phased retiree may return to full-time employment. In that case, the phased annuity will stop and that individual cannot go back into phased retirement; only one such period is allowed per person lifetime. Upon retirement, the period of phased retirement would be treated as part-time service for annuity computation purposes.

If the employing agency does not agree with a request to return to full-time employment, the phased retiree may continue working under the same schedule or retire fully. The denial cannot be appealed to the Merit Systems Protection Board as an “adverse action,” although it may be grievable.

Entering into Phased Retirement


At entry into phased retirement, the employee’s annuity is computed as if fully retired. The standard calculation is used—reflecting the “high-3” salary rate and creditable service up to that point—except that unused sick leave is not credited in the calculation because it remains available to the phased retiree (sick leave fully credited when an add-on is calculated upon full retirement). Generally, any required payments to capture credit for service must be made at the point of entry into phased retirement. There are several other special rules as described below.

Half of what is called the “phased retirement annuity” will be payable during phased retirement.

There is no reduction for survivor benefits from the phased retirement annuity, since a death while in phased retirement will be treated as a death in service.

The annuity is increased by the inflation adjustments paid to federal retirees under the rules of the person’s retirement system.

Phased retirees cannot elect the “alternative form of annuity” (commonly called the lump-sum option) for persons retiring with health conditions determined to be life-threatening.

Full Retirement—A phased retiree may retire completely at any time without agency permission. At that time, the full annuity will be paid, including an increase reflecting the time worked as a phased retiree and applicable credit for unused sick leave. That benefit will be inflation-protected and survivor annuity benefits can be elected on it under standard policies. See below.

The Phased Retirement Annuity


An understanding of basic federal retirement policies is needed in order to assess the special provisions of phased retirement

Basic Retirement Policies

Standard Rules for Computing Annuities—The basic benefit calculations are based on an employee’s years of creditable service (full months beyond a full year are credited proportionately; days beyond a full month are dropped) and the highest-paid three years (actually 36 consecutive months) of service, called the “high-3.”

• CSRS Benefits—The CSRS benefit is determined by a formula that yields a benefit of 16.25 percent for the first 10 years of creditable service, plus 2 percent per year afterward—for example 36.25 percent at 20 years of service, 46.25 percent at 25 years, 56.25 percent at 30 years, 66.25 percent at 35 years and 76.25 percent at 40 years.

• CSRS Offset Benefits—The CSRS Offset benefit is calculated in the same way as that for a regular CSRS employee. However, CSRS Offset retirees who are eligible, as almost all are, for a Social Security benefit at age 62 (or later if they retire after age 62) have their CSRS annuities reduced by the amount of the Social Security benefit that is attributable to their Offset service. If they are not eligible for Social Security benefits, there will be no reduction.

• FERS Benefits—The civil service benefit is 1 percent of high-3 times years of creditable service except that a factor of 1.1 percent is used for those retiring at age 62 or later with at least 20 years of service. FERS employees who accumulated five or more years of service under CSRS before transferring to FERS have that component of their annuity calculated using the CSRS formula. FERS employees who retire before age 62 receive a Special Retirement Supplement until that age which approximates the Social Security benefit earned while employed by the federal government.
Other Considerations—Following are the most common special considerations applying in basic federal retirement calculations.

• Part-Time Service—Under CSRS/CSRS Offset and FERS, retirement benefits for part-time service are prorated. The high-3 average salary used is the salary that would have been paid if the employee had worked full time, and the basic benefit calculation is the same. However, the service time credited for part-time work is calculated according to the time actually worked.

• Unused Sick Leave—Unused sick leave cannot be credited as time served for retirement eligibility purposes. However, it is creditable in the calculation of the benefit; for technical reasons, the conversion formula gives a day’s credit for about six hours of unused sick leave, rather than eight. That translates into a month of credit for every 174 hours of sick leave.

• Owed Deposits and Redeposits—Employees may pay a deposit to capture service credit for time worked for which no retirement contributions were withheld, or for which contributions were withdrawn at a break in service and not previously repaid.

• Military Service—Employees similarly may pay a deposit to capture service credit for military service time within certain restrictions.

fedweek.com | federal employee retirement benefits cuts on the table

Special Rules for Phased Retirement


The computation of a phased retirement annuity comes with these special considerations:

• Service Requirement—In order to participate in phased retirement, an individual must have been employed on a full-time basis for the preceding three years.

• Sick Leave—No unused sick leave can be used in the computation of the phased retirement annuity. It is included in the add-on annuity computed at full retirement in the same way as for a person retiring from a full-time position.

• Deposits-Any deposits and redeposits required to capture credit for service time, including for military service, generally must be made prior to entry into phased retirement status. The exception is if a phased retiree switches to full-time federal employment; in that case, needed payments must only be made before full retirement in order to capture that time.

• Survivor Benefits—A survivor benefit election cannot be made on a phased retirement annuity. Rather, the individual is treated as an employee for death benefits purposes. After full retirement at the end of phased retirement, a survivor annuity election can be made under the same rules that apply to standard retirement.

• Death in Service—Upon a death of an individual in phased retirement status, the period of phased retirement will be treated as a period of part-time service in the computation of the survivor annuity. The survivor can make any needed deposits or redeposits to capture credit for the employee’s service time on the same basis as if the decedent had not been a phased retiree. A FERS employee basic death benefit will be based on the full-time salary rate of the position.

• Court Orders—Phased retirement annuities are subject to court orders providing for division, allotment, assignment, execution, levy, attachment, garnishment, or other legal process on the same basis as other annuities. Phased retirees’ pay from their employment is subject to garnishment and other legal process on the same basis as other federal employee pay.

• Special Retirement Supplement—Those taking phased retirement under FERS are not eligible for the Special Retirement Supplement, which is a monthly payment ordinarily available to those who retire before age 62 that duplicates the value of a Social Security benefit earned while a federal employee and is paid up to age 62 when normal eligibility to draw benefits from that program begins.

At entry into phased retirement, the employee’s earned annuity will be computed and then divided by two. The half annuity will be paid while the individual works a half time schedule receiving half pay of the position.

When the phased retiree fully retires, there will be a computation of a supplement called the “fully retired phased component.” This will be calculated based on the high-3 salary at the time (with the full-time rate of the position used) and the amount of time actually worked while in phased retirement plus the standard value of unused sick leave.

This amount will be added to the full amount of the originally calculated annuity. The total will then be used as the basis for any survivor annuity election and will be increased by applicable inflation adjustments in future years. Benefits will be carried into retirement under standard policies.

Social Security

FERS employees are entitled to a Social Security benefit under the same policies that apply to other workers under that program. CSRS Offset employees also earn a Social Security benefit, which when they become eligible for Social Security triggers an offsetting reduction in the civil service component, as described above. Standard CSRS employees do not earn a Social Security benefit through their federal employment; they may earn one through other employment although commonly it would be subject to a reduction.

A Social Security benefit is based on a complex formula involving past covered earnings and an adjustment to account for wage growth, and weighting benefits toward lower-paid workers. In addition, benefit levels vary according to the age at which the individual chooses to draw benefits. “Full” or “normal” retirement age currently is 66; benefits are reduced for drawing them between age 62 and 66, and there is an increase for waiting past age 66, up to age 70.

Potential reductions that vary according to personal circumstances:

• Standard CSRS retirees who are eligible for a Social Security benefit (through other employment) typically have that benefit reduced by up to around $400 a month by the Windfall Elimination Provision.

• Similarly, standard CSRS retirees who are eligible for a spousal or survivor Social Security benefit through a spouse’s Social Security-covered employment typically have that benefit reduced or even eliminated by the Government Pension Offset.

• The Social Security Earnings Test is a reduction in an individual’s Social Security payments made when he or she continues to work after benefits begin and earns over an allowable amount ($15,720 in 2015). Between age 62 and full retirement age, the individual will give up $1 in benefits for every $2 earned over this amount.

In the year you reach your full retirement age, you can earn up to a separate limit ($41,880 in 2015) in the months before you reach your full retirement age with no reduction in benefits; for every $3 you earn over that limit in that period, $1 is withheld from benefits. There is no earnings test after full retirement age.

FERS Retirement Planning Guide 2020

Alternatives to Phased Retirement


The addition of phased retirement brings an opportunity for a new career option. However, making an informed decision requires an understanding of all options.

In some cases, these involve working outside the government after retirement, either full time or part time. In others, these involve returning to the government as a re-employed annuitant. It is important to note that phased retirement and re-employment as an annuitant are two separate things, each with specific rules.

In most cases of annuitants being rehired by the government, the annuity will continue but there will be an offsetting reduction in the salary. However, there are exceptions to that offset requirement, and there also are situations in which the annuity will stop rather than continue.

As you think through these considerations, remember that if you are receiving a Social Security benefit and return to work, that amount may be reduced or even eliminated by the Earnings Test as described above.

Finally, the most obvious alternative should not be overlooked: remaining in your current job and putting off either full or phased retirement until another day.

Re-employment with the Federal Government


Federal retirees are free to return to federal employment as re-employed annuitants except for those limited positions involving mandatory retirement as described above. Hiring of retirees is done through standard federal hiring procedures. There is no formal advantage to having prior federal service, although there would be a practical advantage through knowledge of how the government operates and by having specialized expertise.

In most cases, a re-employed annuitant will continue to receive the annuity while working—but the salary is reduced by the amount of annuity paid for the period worked. The pay reduction is adjusted accordingly for part-time work. (Note: A federal annuity will stop upon rehiring into the government in certain circumstances including: those who took a disability retirement and are now deemed to have been recovered or restored to earning capacity through the reemployment; and those who were put on discontinued service retirement after being involuntarily separated, and who are hired into a permanent position.)

Exceptions to Offset—If your annuity continues, you may be able to receive both your full annuity and your full salary under certain circumstances:

• Limited time appointments—Agencies may rehire annuitants without an offset for up to 520 hours in the first six months after retirement, up to 1,040 hours during any 12-month period and up to 3,120 hours total. Allowable purposes include meeting mission needs, training or mentoring employees, responding to emergencies, and assisting in special needs including procurement actions and duties of the agency’s inspector general.

• Special needs appointments—The Office of Personnel Management may determine, on an agency request, that there is exceptional difficulty in recruiting or retaining a qualified employee; there is a direct threat to life or property; or there are other unusual circumstances such as the need to meet a new or expanded mission requirement by a certain date or the need to appoint an individual with necessary clearances to perform critical work when no other employee could obtain that clearance within a reasonable time.

• Other authorities—Other authorities apply to certain positions in the Defense Department, the foreign service, the FBI and the intelligence community, as well as in certain job categories.
Check with the employing office to determine if exceptions apply and if so, the terms of benefits. Although reemployed annuitants under these exceptions are paid as civil servants and accumulate leave under standard rules, the time typically does not increase their annuities, nor can they make new investments in the Thrift Savings Plan. Rehired annuitants further do not have the job protections of most employees.

Effect on Federal Annuity—If you are being considered to be rehired as an annuitant, ask whether the time spent in the position will qualify you for either a supplemental or redetermined annuity. In many cases, especially if you are hired under one of the exceptions to the offset, it won’t. If it does, be sure to know the difference between the two. A supplemental annuity is added on to your present annuity; a redetermined annuity is a recomputed annuity that replaces your current annuity.

In order to earn a supplemental annuity, you must work on a full-time continuous basis for at least one year or the equivalent as a part-timer. If you work for at least five years (or the part-time equivalent), you will be eligible for a redetermined annuity.

In order to be eligible for either a supplemental or redetermined annuity, you either will have to have retirement deductions withheld from your annuity or else pay a deposit for that period of service after separation. The amount due is a percentage of your basic pay before it is reduced for your annuity.

Effect on Benefits—If your annuity continues after you are reemployed, your Federal Employees Health Benefits program coverage as an annuitant continues and withholding of premiums continues to be made from your annuity payment. If your annuity stops upon reemployment, your FEHB coverage as an annuitant stops but typically you can enroll in FEHB as an employee and pay premiums with pre-tax money.

If your annuity continues after you are reemployed, you will have Federal Employees Group Life insurance basic life, standard optional, and family optional as an employee (including accidental death and dismemberment coverage, where applicable) and withholding of premiums will be made from your pay. If your annuity stops upon reemployment, your insurance as an annuitant stops without a right to convert to an individual policy. You acquire life insurance coverage as an employee under the same conditions as any other employee who is rehired in the federal service.

If you had Federal Dental and Vision Insurance Program coverage before becoming reemployed you may keep the coverage uninterrupted by continuing to pay the premiums. Contact your payroll office about arranging to have premiums deducted from your salary, which is done on a pre-tax basis, rather than from your annuity, from which pre-tax deductions are not allowed.

If you carried Federal Long Term Care Insurance Program coverage into retirement it will continue upon your rehiring; you may have to arrange to have the premiums taken from your salary as an employee rather than from your annuity, assuming your annuity stops upon your rehiring. If you were not enrolled, you will be given a 60-day opportunity to enroll as a new hiree subject only to abbreviated underwriting.

If your break in service is less than 31 days, you are not allowed to withdraw your Thrift Savings Plan account. If you are rehired into FERS, the agency will make an automatic 1 percent of salary contribution and matching contributions. Regardless of your retirement coverage, your own investments should continue automatically upon your rehire. If your break in service is more than 30 days, you may withdraw the amount of your account attributable to your prior employment. However, you are not required to do so.

Personal Services Contracts—Some retirees are rehired under a personal services contract. The terms of such arrangements vary widely; typically the rehired person is not considered to be a federal employee, but the provisions may allow for coverage under certain benefit programs, such as health insurance.

Employment Outside the Federal Government

Many federal retirees take other employment after retirement; some work part time, others full-time, some open their own business or convert a hobby or interest into self-employment income.
In these situations, there is no offset against the federal annuity. However, the Social Security Earnings Test may apply to those drawing benefits from that system, reducing and potentially eliminating that benefit depending on the size of the benefit and the income earned. Note that self-employment income counts for purposes of that offset.

A job with a new employer will come with its own pay level and benefits that may compare well or poorly—in terms of insurance, a pension, a savings program, leave and more—with what you’ve been getting with the federal government.

Or, the terms of a job might be so different that it’s difficult to compare them directly with what the government provides. For example, rather than straight salary, a company might pay at least some of its compensation as profit-sharing, stock options, sales incentives, commissions and other forms of compensation not found in the government. That will simply be a matter of what the employer makes available. Note that unlike in the federal government, benefit terms in the private sector sometimes are negotiable, at least partially.

Ethics restrictions also may apply to future employment related to official duties while a federal employee. Government-wide policy is on the Office of Government Ethics site at www.oge.gov; in addition, check with your own agency regarding any agency-specific policies.

FERS Retirement Planning Guide 2020

The Phased Retirement Decision


Chart: FEDweek Phased Retirement Comparison Chart

Phased retirement is a potentially attractive option but at bottom it is simply that, an option. When considering whether to apply for it, bear in mind these key points.

First, the eligibility rules are somewhat restrictive. You must be eligible for regular voluntary retirement, and even there only some of the standard age and service combinations; what’s more, you cannot be accepted for phased retirement if you are subject to mandatory retirement, or eligible only for early, disability, deferred, or discontinued service retirement.

Also, only a split of half-time work and a half annuity payment currently is allowed; the share of working time could change in the future but for the present that is take it or leave it.

Second, it is up to agency management whether to approve it; employees don’t have a right to phased retirement, nor does management have an obligation to approve it for any particular number of employees, in any particular occupational fields or geographic location, or by any other way of categorizing a workforce.

That said, the option was created on the presumption that agencies would use it because they would find it useful in accomplishing their missions, and OPM is encouraging agencies to use it. So are civil service experts elsewhere, including members of Congress who oversee federal employment issues. While an employee can’t demand phased retirement, it certainly wouldn’t hurt to make a case for it being a win-win situation. The first step is to talk it over with your supervisor.

Third, if you do enter a phased retirement arrangement and it’s not working well, there are several routes out. You could simply retire from the government fully (with no agency approval needed), and either take other employment or not, depending on your preference. Or, with the agency’s consent, you could stay on phased retirement but switch to a different job in your agency or another; possibly a change of scenery and job responsibilities is what you need. Or, you could return to full-time work in the agency—but again only with the agency’s consent, and you would become ineligible for phased retirement in the future.

Finally, remember that a retirement decision is not simply a matter of numbers. It is a decision that must be made in concert with your family members and in the context of a broad range of life plans.

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