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What is the difference between regular retirement and Federal Disability Retirement?

Federal Retirement

As a federal employee, understanding your benefits can provide you with many options and help you make the right decisions for your future. One common mistake we consistently see is disabled federal employees “riding it out” until retirement age. This may be the right approach in some situations, but in many cases, the right options might be hidden in a relatively unknown federal employee benefit, Federal Disability Retirement.

This benefit can go by different names such as FERS Disability Retirement, OPM Disability Retirement, Federal Employee Medical Retirement and many more, but they are all referring to the same benefit. Let’s examine regular retirement vs. Federal Disability Retirement benefits and understand how you might be able to utilize your benefits to help you now.

Regular Retirement for Federal Employees

If you are a federal employee, then you have a three-part federal retirement package that includes a Federal Employees Retirement System (FERS) annuity, Thrift Savings Plan (TSP) and Social Security Income.

FERS Pension

When most people think about their retirement, they think about the pension component and their monthly annuity. In order to qualify for the FERS basic annuity, you must meet specific age and service requirements. Keep in mind that an immediate retirement benefit is one that starts within 30 days from the date you stop working. If you retire at the Minimum Retirement Age (MRA) with at least 10, but less than 30 years of service, your benefit will be reduced by 5 percent per year for each year you are under 62.

Let’s look at the following charts to see if you meet the age and service requirements to be eligible for regular FERS retirement. Refer to the Minimum Retirement Age (MRA) chart to find out when you can retire based on the year you were born.

Immediate Retirement

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Minimum Retirement Age

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Thrift Savings Plan

If you are covered by the Federal Employees’ Retirement System (FERS), the Thrift Savings Plan (TSP) is one part of the three-part retirement package that also includes your FERS basic annuity and Social Security.

“The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time.” – TSP

Each pay period your agency deposits into your account amount equal to 1% of the basic pay you earn for the pay period. If you choose to make your own contributions to your TSP account then your agency will match all contributions up to 5%. All contributions that are made to your TSP account are tax deferred.

At the end of the day, the TSP is very similar to a private sector 401k.

Social Security

The third component to your FERS retirement is Social Security. Anyone that has worked for at least 10 years is eligible to receive social security benefits. Social Security replaces a percentage of your pre-retirement income based on your lifetime earnings. The amount you will receive in Social Security varies depending on how much you have earned and when you choose to start benefits.

To learn more, click here.

But what if I can’t keep working and I need to retire now?

With so many different types of benefits, determining which one is right you can be difficult as some benefits like Federal Disability Retirement might get overlooked. This benefit allows injured or disabled federal employees to retire early and receive a monthly annuity before reaching the retirement age, amongst other great benefits.

Let’s look a little deeper into Federal Disability Retirement.

Federal Disability Retirement

Disability retirement is available to Federal employees who do not meet age and service requirements for a regular retirement and have a medical condition that prevents them from performing at least one of the duties of their position.

The Main Benefits of Federal Disability Retirement

Secure Monthly Income

The first year you are approved for Federal Disability Retirement you will receive 60% of your high-3 average salary (the highest average salary over a consecutive 36-month period). Then, from year two and beyond you will receive 40% of your High-3 each year until you turn 62.

Let’s look at an example federal employee and see what Federal Disability Retirement can provide him and his family.

Federal Employee Example

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Retirement Annuity Example

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John was injured while playing recreational soccer and is no longer able to perform the requirements of his USPS position. He then applied for Federal Disability Retirement at age 47 and was approved by the Office of Personnel Management (OPM). This means that he would continue to receive a monthly annuity from Federal Disability Retirement until age 62 and his total benefit payment would be $446,400.

This recurring monthly benefit payment can be crucial to federal employees that can no longer work in the federal government. It is a way to have a secure income for you and your family along with the other benefits that Federal Disability Retirement offers.

Keep in mind that you have the option to combine Federal Disability Retirement with Social Security Disability Insurance and/or Veterans Administration Disability but there will be certain offsets that you need to be aware of. To learn more about what those offsets are and how they will affect your Federal Disability Retirement annuity, click here.

The Option to Work in the Private Sector

If you leave your federal position on Federal Disability Retirement, then you can work in the private sector and earn up to 80% of your old position’s current salary on top of your disability retirement payments. You have the potential to bring in a combined 120% income after your first year on Federal Disability Retirement. This means that you would be making more when working in the private sector while on Federal Disability Retirment than you were making at your previous federal position.
Private Sector Pay

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As you might expect, many federal employees are not able to continue working in any capacity while on the benefit due to their illness or injury. Therefore, it is very important to apply for Federal Disability Retirement as soon as possible in order to take advantage of all the benefits. It will offer a secure monthly income for those that are no longer able to continue working in their current position or in the private sector.

Examples of Private Sector Work

Here is a list of possible job opportunities in the private sector based on feedback from previous Federal Disability Retirement clients. For more information on private sector employment click here.

  • Teacher
  • Freelancer
  • Nurse
  • Retail Merchandiser
  • Real Estate Agent
  • Orthodontic Assistant
  • Paralegal
  • Bank Manager
  • Security Officer
  • Customer Service Specialist
  • Executive Assistant
  • Tax Consultant
  • Writing Assistant

Earn Creditable Years of Service

One of the biggest benefits of Federal Disability Retirement is that every year on the Disability Retirement benefit counts as an earned creditable year of federal service. The additional years accumulated while on Federal Disability Retirment will be added to pre-existing creditable years of service at age 62. This is especially important when considering what your retirement pension will look like.

The following chart depicts the calculation of creditable years of service of a federal employee that went on Federal Disability Retirement after working 10 years under a FERS career position. The 22 years that was spent on Federal Disability Retirement counts towards their entire FERS pension years of service which are beneficial when calculating how much you will receive in retirement.

Creditable Years of Service

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Maintaining Health and Life Benefits

Federal Employees approved for Disability Retirement will continue to receive their health and life insurance once on the benefit.

While on Disability Retirement, your health insurance premiums will be deducted from your monthly annuity from the OPM, and the government will continue to pay the employer portion. This can be very beneficial to federal employees on Federal Disability Retirement because it can help with any medical expenses that might arise due to your illness or injury.

How to qualify for Federal Disability Retirement

1. To qualify for Federal Disability retirement, you must have completed at least 18 months of Federal civilian service which is creditable under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS).

2. You must also have a medical condition that prevents you from fulfilling the duties of your position, and your medical condition is expected to persist for a minimum of 1 year.

3. Prove that your agency is unable to “reasonably accommodate” your medical restrictions.

4. If you have been separated, you must apply within one year of your separation.

5. You must apply for Social Security Disability, but it is not required that you be approved in order to be considered for Federal Disability Retirement.

What is considered a disability?

The definition of a disability for Federal Disability Retirement is, “any medical condition that inhibits an employee from continuing to complete at least one of the major functions of their current position.” This condition does NOT have to be caused by your employment. To learn more about what qualifies as a disability click here.

Don’t “ride it out”

If you find yourself struggling day-to-day to perform the duties of your federal position, you have options that can help alleviate some stress. Many times, the right decision is to find a benefit that will secure a better future for you and your family. That’s what your federal employee benefits are for, and we have seen thousands of lives change due to Federal Disability Retirement.

As you can see, Federal Disability Retirement would be a great option for those that are struggling to perform the duties of their job. This would offer many benefits, from the recurring monthly annuity to additional creditable years of service, and it can become a long-term financial security option.

How to get started, take the next step

Every federal employee’s situation is unique which is why we recommend calling our office to schedule a FREE consultation to find out which benefit is best for you.

Keep in mind that you can still apply for Federal Disability Retirement while on full duty, modified work, OWCP wage loss and on FMLA. However, if you have been separated from service, you have a strict ONE YEAR deadline to file your application. If you have been separated for longer than one year, then you will not be eligible to apply for Federal Disability Retirement.

So, DON’T WAIT! Start the process now and understand what your options are.

For more questions about eligibility, continuing your federal health care benefits, accruing additional credible years of service, survivor benefits and more, Call us today to schedule a FREE consultation.