Can I Live Off Federal Disability Retirement?

by | Jan 22, 2024

Can I Live Off Federal Disability Retirement?

If you’re applying for Federal Disability Retirement, you may be wondering if you can live off the monthly annuity payments. Living with a disability can be costly and having to take an early retirement can be scary, especially when looking at the future of your finances.

The good news is that there are other ways to earn income while on Federal Disability Retirement, which can help you pay off debt, travel, support loved ones, and enjoy life.

How Much Will I Make on Disability Retirement?

When you’re approved for Federal Disability Retirement, you’ll receive a secure monthly annuity payment from the OPM. This payment will be 60% of your high-3 average for the first year after approval, and 40% of your high-3 average for every year after that. Your high-3 average is the average of your three highest consecutive years of basic pay.

For example, if Scott’s high-3 average was $70,000, the first year he would receive $42,000 ($3,500 every month) and every year after that until age 62 he would receive $28,000 ($2,333 every month).

For some, your monthly annuity may not feel like it’s enough to reach your financial goals. Thankfully, one of the great benefits of disability retirement is that it allows you to work in the private sector to make additional income.

Working in the Private Sector

While on Federal Disability Retirement, you have the option to work in the private sector and make up to 80% of your previous position’s current salary on top of your annuity. This allows you to potentially make more than what you did at your federal job.

In Scott’s example, he could make up to $56,000 working in the private sector on top of his first year $42,000 annuity. In total, he’d end up earning $98,000, which is significantly greater than the original salary of his federal job.

Every year after that until age 62, he could continue to earn up to $56,000 working in the private sector on top of his $28,000 annuity. He’d receive $84,000 in total, which is still more than he was making in his federal job.

It’s important to know that OPM will review you annually to make you’re not exceeding your salary limit. If you are, they’ll call you recovered, and you’ll lose your annuity and all your additional years of service.

There are many jobs in the private sector that potentially could accommodate your disability and would allow you to find a new career. We’ve seen clients find a brand-new passion after being approved for disability retirement.

Earned income vs. Passive Income

When looking for a private sector job while on Federal Disability Retirement, it’s important to consider earned vs. passive income.

Anything you make that’s categorized as “earned income” would apply to your 80% salary cap.

Earned, or active, income includes money earned from a job such as salaries, wages, bonuses, and tips. It also includes self-employment income, such as from work done as an independent contractor, and income from a business that you actively participate in. This category also includes alimony that you receive, as well as certain forms of retirement income like pensions and distributions from 401(k)s and traditional IRAs. While these forms of income are not being actively earned, they are taxed as such.

Anything you make that’s categorized as “passive income” would NOT apply to your 80% salary cap.

Passive income includes income from real estate investments, including investments in actual properties, and dividend income received from REITs. It also includes income from limited partnerships (businesses in which you are invested but don’t play an active role) and certain other types of tax-sheltered investments. This passive income is not included in your 80% private sector income cap.

Earned vs. Passive Income

Additional Benefits

Beyond Federal Disability Retirement, there are additional benefits you may be eligible for to provide greater financial stability, including the Office of Workers’ Compensation Programs (OWCP), Social Security Disability Insurance (SSDI), and Veterans Administration (VA) Disability.


If you were injured on the job, you may be eligible for OWCP workers’ compensation benefits which you can receive prior to Federal Disability Retirement. You can’t receive OWCP wage loss at the same time as Federal Disability Retirement, but you can receive a schedule award or medical payments while on Federal Disability Retirement.


You must apply for SSDI when applying for Federal Disability Retirement, but you do not have to be approved to receive Federal Disability Retirement. If you are approved, there will be an offset, and SSDI will become your main benefit. While on SSDI you will have a strict earning cap as most people are completely unable to work if they qualify for this benefit.

VA Disability

If you’re a veteran who was injured during active duty, or whose service made an existing condition worse, you may be eligible for VA Disability. This can provide an income based off your disability rating. You can receive VA Disability and Federal Disability Retirement at the same time.

Thrift Savings Plan (TSP)

Your federal retirement consists of three main parts: your retirement pension, social security benefits, and your TSP. Your Thrift Savings Plan is one great benefit of becoming a federal employee, and if you are not taking advantage of your TSP, you may miss out on valuable compensation in retirement.

Your TSP is an investment plan – you can add money from each paycheck and your agency will contribute based on how much you add. Your federal agency will match your TSP contributions up to 5% of your base pay.

Talk to a Professional

Keep in mind that there are other investment options that could provide a significant return, and speaking with a financial advisor experienced with federal employee benefits may be helpful.

There are many ways Federal Disability Retirement can help you live the life you want to. With careful planning, it can help you secure your financial future and even find a new passion.

Schedule a FREE consultation today to receive a free case evaluation and discover if you qualify for Federal Disability Retirement.

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