Did you receive an approval for Federal Disability Retirement? Congratulations!
Being approved for disability retirement can be bittersweet. On one hand, you’re in a position you never thought you’d be in. On the other, a new opportunity has arisen and now you must figure out what you want your future to look like.
Where do you begin? What should you be thinking about?
After approval for Federal Disability Retirement the Office of Personnel Management (OPM) will start working on your annuity payments. You will start receiving interim payments before your annuity payments are finalized. Your interim payments are typically around 80% of what your finalized annuity will be. The time it takes OPM to calculate your final annuity payments varies depending on their backlog and the time of year.
Now it’s time to start thinking about planning for your future on retirement! You have so many options available to you at this point that it can be overwhelming, but we’ve broken down some of the key things you need to know.
For more information, check out our webinar on Planning for your Future!
While on Federal Disability Retirement, you have the option to maintain your health and life insurance if you have been on the insurance for at least five years. You will be able to maintain all your current options, including dependents.
If you have lost your insurance, it will not be reinstated until your annuity is finalized, but you do have the option to reinstate it retroactively. If you choose to reinstate it retroactively, OPM will reimburse you for any out-of-pocket expenses.
The ability to continue your insurance while on Federal Disability Retirement can be a huge relief to many federal employees and their families.
Private sector work
You also have the option to work in the private sector after approval. This can be a great option for those who are still able to work. We see a lot of clients go on to find a new career after Federal Disability Retirement that they are really passionate about.
Remember for Federal Disability Retirement, you are just proving that you have an occupational disability not total disability, so a lot of our clients are able to find a fulfilling job within the private sector to help maximize their income.
If you are able to work, you will be able to make up to 80% of your old position’s current salary. This 80%, in addition to your monthly annuity payments, ultimately allows you to make more money than you were making while in your federal position. This can be life-changing for so many applicants, and it’s something that should not be overlooked.
If you do happen to make more than the 80% limit, the OPM will consider you to be administratively recovered and will stop your annuity payments. If this happens, you will also lose all accrued creditable years of service on Federal Disability Retirement.
It’s important to note that you should not return to work in the federal government as your new paycheck will be offset by your annuity payments. Your private sector job should be significantly different than the federal job that you were found to be disabled from.
If you are married at the time of application, you will have to elect a survivor annuity in the event of you passing before your spouse. Survivor annuities provide financial security to your spouse for years after your passing and can provide a lot of stability, but it’s not right for everyone. Keep in mind that your spouse is the only one that qualifies as a survivor for Federal Disability Retirement purposes. If your spouse passes first, you do not receive your money back.
Here are your options:
- Choosing a maximum survivor annuity would reduce your annuity payments by 10% to leave a 50% benefit to your spouse. Your spouse will also be able to carry on your insurance benefits.
- Partial survivor annuity would reduce your payments by 5% for a 25% benefit. Your spouse will be able to carry on your insurance benefits.
- If you elect no survivor annuity your payments will not be reduced, and your spouse will not be eligible to continue your health and life insurance benefits.
Survivor annuities are a great option if you have a spouse that is uninsurable due to their health.
Thrift Savings Plan
A lot of people ask about their options for their Thrift Savings Plan once they receive Federal Disability Retirement. After approval, you will no longer be able to contribute to your Thrift Savings Plan, but you have three alternatives.
- You can leave it alone and let it accrue interest
- You can roll it over into another retirement account or private sector product
- You can withdraw it, but you may incur a penalty depending on your age
We recommend speaking with a financial advisor to determine which option is best for you as there are many private sector products that can offer significantly more returns.
Don’t forget, the OPM will perform annual reviews after approval to ensure you still qualify for this benefit.
OPM income reviews go out every February to make sure you are not exceeding the 80% income cap. It is important to include accurate information in this review as the OPM will find out if you are making any additional income not listed. Remember, the OPM only considers EARNED income in this review.
OPM medical reviews also come in February requesting updated medical documentation. We recommend that you continue treating with your medical providers every six months post-approval to help this review process.
Don’t worry, very rarely do these reviews cause issues. Just make sure you are under the 80% cap and still treating with your medical doctor at least every 6 months.
At age 62
Federal Disability Retirement provides you with a “bridge to 62” in order to reach your regular FERS retirement. It essentially acts as a form of early retirement. At age 62, your Federal Disability Retirement will automatically transfer into your regular retirement pension.
Your regular retirement pension will be calculated based on your high 3 average and your creditable years of service. If you have less than 20 years of service (including years on Federal Disability Retirement) you’ll receive 1% of your high-3 salary for each year of service. If you have more than 20 years of service, you’ll receive 1.1% of your high-3 salary for each year of service. This is why the ability to gain creditable years of service while on Federal Disability Retirement is so important.
You will be eligible to start drawing regular social security once you transfer into regular retirement. If you were receiving SSDI, it will automatically transfer into regular social security.
Your health and life insurance will remain the same in retirement as it did on Federal Disability Retirement.
Benefit Interactions to be aware of
If you were approved for multiple benefits, you should be aware that there could be offsets.
If you are receiving OWCP workers compensation you cannot receive Federal Disability Retirement at the same time. You can put your Federal Disability Retirement on hold until your OWCP runs out.
If you are approved for Social Security Disability Income (SSDI), your Federal Disability Retirement annuity payments will be reduced by 100% of your SSDI payments the first year and 60% of your SSDI payments every year after.
While receiving an approval for Federal Disability Retirement can be a long and difficult process, it is worth it to have the peace of mind that these benefits can offer. You have a bright future ahead, so make sure you are taking the time to plan properly.
If you have questions about your retirement or are interested in applying for Federal Disability Retirement, schedule a free consultation today.