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Phased Retirement in the Federal Government

Key Points:

  • What is phased retirement?

  • Eligibility and exclusions

  • Impact on benefits

In 2014, the Office of Personnel Management (OPM) published final regulations to implement phased retirement. While it’s not been adopted on a large scale basis it has picked up momentum in the past few years and the topic generates a lot of questions. So let’s explore the world of phased retirement!


Definition of Phased Retirement

According to OPM, phased retirement is designed to prepare the “next generation of experts” for success by enhancing their mentoring and training from “more experienced” retiring employees. In exchange, those “more experienced” employees can transition into retirement by continuing to work on a part-time basis mentoring other employees, and draw on their annuity for the time they are not working.


Upon entry into phased retirement, OPM computes a “phased retirement annuity” using the three highest consecutive average pay years the employee had accrued up until that point. That annuity amount is paid during phased retirement in addition to half-time pay. And while still working half-time, the salary portion increases with any applicable pay raises. Also important is that the employee continues to receive credit for the part-time work, contributing to his/her lifetime retirement income.


Speaking of retirement, for phased retirees who are FERS participants, the FERS Annuity Supplement is not payable during phased retirement. Also important to know is that your phased retirement estimate will not include converted sick leave since this leave may continue to be used and is earned during phased retirement. The balance will later be converted and added to your total service upon the transition to full retirement.


You can see examples of phased retirement pay for CSRS and FERS participants in the OPM Benefits Administration Letter Number 14 – 108 or by clicking here.


You should know that phased retirement is strictly voluntary for both the employee and the agency, and requires mutual agreement between the employee and his/her agency. It starts with a conversation between the interested employee and the manager.


Eligibility & Exclusions


For starters, an individual must have been employed on a full-time basis for not less than three (3) years at entry into phased retirement. Both CSRS and FERS participants are eligible, each with different criteria.

  • CSRS/CSRS Offset employees must have no less than 30 years of service and be at least 55 years of age OR have at least 20 years of service and be at least age 60.

  • FERS employees also must have at least 30 years of service and have reached their Minimum Retirement Age (MRA), and be between the ages of 55 – 57 OR have at least 20 years of service and reached a minimum age of 60.

  • Employees in either CSRS or FERS who are employed on a part-time basis are not eligible for phased retirement.

  • Employees who have already retired on disability are not eligible for phased retirement. Conversely, an employee in phased retirement is not eligible to file for disability retirement.

  • There are also other categories of federal employees who are ineligible for phased retirement such as those who are subject to mandatory retirement. You can view the list in this Benefits Administration Letter.

Impact on Benefits


Understandably, people wonder what impact phased retirement has on their federal benefits. The first thing to know is that a phased retiree does not separate from federal service and is considered an active employee, not a retiree. This is important for benefits such as the TSP (Thrift Savings Plan).


Retirement deductions for FERS and CSRS, Social Security (as applicable) and Medicare taxes, as well as income tax will continue to be withheld from the pay received from the employing agency during phased retirement (i.e. not the annuity payment). Deductions are based on the pay the employee actually receives, not on the amount that would be received if the employee continued working full time.


Annual and sick leave continue to accrue with the same ceilings but at a half-time rate. You can view leave information from the OPM website here. For purposes of FEHB (Federal Employees Health Benefits) and FEGLI (Federal Employees Group Life Insurance), the employee is considered to still be working full time and applicable deductions are taken from his/her pay, not from the annuity. The FEHB employer contribution will be the same as for full-time employees and the FEGLI benefit coverage amount is based on the full-time salary for the position occupied during the phased retirement period. Also, phased employment service is creditable toward the five (5) years of service needed to continue FEHB coverage as an annuitant.


There is no reduction for survivor benefits from a phased annuity because a death while in phased retirement is treated as a death in service. (Remember, you’re still an active employee) However, employees who owe retirement creditable deposits or redeposits for federal civilian service must make the deposits prior to the finalization of their phased retirement annuity. If these deposits or redeposits are not paid, you will not have an opportunity to pay them upon entering full retirement status.


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Entering phased retirement doesn’t have to be the last stop of your federal career. It is possible to return to regular employment and end phased retirement if you should choose to do so. On the other hand, it is also possible to end phased retirement and enter full retirement status at any time.


In the end, deciding whether phased retirement is right for you, or something you want to consider, is a personal decision. Of course, your agency also has to offer a phased retirement program and not all federal agencies have opted to offer the program to their employees. The goal of this article is to provide you with a broad overview of phased retirement so you can explore further, if you choose.


Action Steps:

  • If you’re interested in phased retirement, you should contact your agency human resources office after speaking with your manager so that you can learn the program’s specifics for your agency.

  • General information is available at the OPM website or by clicking here.

  • There are several webcasts available from OPM regarding phased retirement. When you’re ready, view the employee perspective on phased retirement or all the webcasts.

Publish Date: September 20, 2019 © Tangerine, Inc. All rights reserved. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.


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