Is Phased Retirement Right For You?

For the past year there’s been a lot of information put out about phased retirement. The big question is, is phased retirement right for you? The answer may come down to which retirement system are you in. If you are in the Civil Service Retirement System (CSRS), maybe. If you are in the Federal Employees’ Retirement System (FERS), maybe not.

Phased retirement was first envisioned by OPM back when the majority of federal government employees were still under CSRS. Per employee, CSRS costs the federal government almost twice as much as a FERS employee. Phased retirement was designed to reduce the number of CSRS employees, thus reducing the cost to the Federal government. For a variety of reasons, the legislation took a very long time to pass. By the time the regulations were issued, the federal government had already transitioned to the majority of employees being covered by the FERS.

Since phased retirement was originally designed to move CSRS employees to retirement, the benefits for those employees are far greater than for employees covered by FERS. Even so, money is only one component of the complicated decision to retire. A few things to consider:

• Eligibility. There is no early out component to phased retirement. You have to be eligible for full retirement.
• Phased Retirement Annual Income. Although the law is more generous, federal regulations limit your salary to 50% of what you currently earn. There is no flexibility. Since you’re annuity is always lower than your salary, your phased retirement annual income will always be less than your current income.
• Annuity Portion of Your Income. This is where the big difference between the two systems occurs. For both systems, you will receive 50% of your annuity. As a CSRS employee, you will receive 50% of your full annuity. FERS retirement has three parts. Under phased retirement, as a FERS employee, you will receive 50% of the defined benefit only. You are not be eligible for your social security supplement.
• Thrift Savings Plan. Since you are still an employee of the federal government, you may not withdraw your TSP regardless of which system you are in. This has a significant impact on FERS employees since TSP is a major component of FERS retirement.
• Health and Life Insurance Benefits. For insurance purposes, you will be considered full-time. Therefore, your deductions will remain the same. This is good news since part time employees generally pay a higher premium. Since you are still an employee, the full amount will be deducted from your salary and not from your annuity. Many employees do not continue to pay life insurance after retirement. Be sure to figure that into your calculations
• Annual and Sick Leave. For leave purposes, you will be considered part time. Not so good news. Since you will be working half time, you will be earning half the leave you currently earn. Remember, sick leave balances are added into your full retirement annuity, so be sure to figure in how this may impact your final annuity.

Finally, phased retirement is not an entitlement. The opportunity to retire is entirely up to your agency. Remember, not all federal employees are eligible for phased retirement. If you are a law enforcement officer retiring under a law enforcement retirement system, you are not eligible. There are restrictions on other types of employees as well.

The decision to retire is quite literally life-changing. Income is only one component of that decision. My best advice? Keep an open mind and seek retirement counseling. Consider all of your options. It may be that the soft landing of part-time employment prior to retirement is what you need to make that big adjustment.

OPM: Know what your retirement counselor knows.

Jeri Buchholz is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.