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.
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.
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.
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.
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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.