Retirement doesn't have to be an all-or-nothing proposition. For federal employees, phased retirement offers a middle path—a way to ease into retirement while continuing to make meaningful contributions. At GovRet.com, we've helped many feds navigate this option, which can provide both financial and psychological benefits during the transition to full retirement.
What Is FERS Phased Retirement?
Introduced in 2014, phased retirement allows eligible federal employees to work half-time while receiving half of their earned pension. It's designed to:
- Facilitate knowledge transfer from experienced employees to their successors
- Provide a smoother transition to retirement
- Allow agencies to retain valuable institutional knowledge
- Give employees a chance to "test drive" partial retirement
But it's not just a flexible schedule—it's a formal program with specific rules and requirements.
Eligibility Requirements: Are You Qualified?
Before applying for phased retirement, ensure you meet these criteria:
- Must have been employed full-time for at least three consecutive years before applying
- Must be eligible for immediate retirement with 30 years of service at your MRA, or age 60 with 20 years of service
- Your agency must agree to your participation (it's not an automatic right)
- Cannot have received a notice of involuntary separation
Certain positions are excluded, including law enforcement officers, firefighters, and other special category employees.
How Phased Retirement Works: The Mechanics
Under phased retirement, your work and benefits split into a specific arrangement:
- Work Schedule: Exactly 50% of your previous full-time schedule
- Salary: 50% of your previous full-time salary
- Annuity: 50% of what your annuity would be if fully retired
- Mentoring Requirement: Must spend 20% of work time mentoring other employees
Use GovRet.com's phased retirement calculator to model your specific income scenario.
Financial Implications: Crunching the Numbers
How will phased retirement affect your bottom line? Let's examine a typical scenario:
Consider a GS-13, Step 10 employee in the Washington, DC area:
- Current full-time salary: $134,798
- Expected full retirement annuity (30 years service): $40,439
- During phased retirement:
- Half-time salary: $67,399
- Half-pension: $20,219
- Total annual income: $87,618
This represents approximately 65% of full-time income while working only 50% of the time—a financial advantage for many employees.
Building Your Annuity During Phased Retirement
Your pension continues to grow during phased retirement:
- You earn additional service credit proportional to your work schedule
- Each year in phased retirement adds approximately 0.5 years to your service computation
- Your High-3 salary can continue to increase with step increases and COLAs
- Upon full retirement, your annuity is recomputed to include this additional service
This continued growth can make phased retirement more financially attractive than immediate full retirement.
TSP Considerations During Phased Retirement
Your Thrift Savings Plan options change somewhat during phased retirement:
- You can continue contributing based on your half-time salary
- You'll receive matching contributions on these half-time contributions
- You cannot take TSP withdrawals during phased retirement (unless age 59½ or older)
- You cannot take a TSP loan during phased retirement
Your TSP investment strategy may need adjustment to accommodate your new income and timeline.
Health Benefits, Life Insurance, and Other Benefits
Most of your federal benefits continue with some modifications:
- FEHB and FEGLI: Coverage continues with same government contribution
- Annual and Sick Leave: You earn leave at a rate proportional to your work schedule
- Social Security: You continue earning credits based on your half-time salary
- Medicare Eligibility: Unaffected by phased retirement status
There are no reductions in health or life insurance coverage—a significant advantage compared to other part-time arrangements.
Tax Implications of Phased Retirement
Your tax situation becomes more complex during phased retirement:
- Your income comes from both salary (fully taxable) and pension (partially taxable)
- FERS contributions are still deducted from your salary portion
- You may need to adjust tax withholding to avoid underpayment
- State taxation may differ for the salary and pension portions
Consult a tax professional familiar with federal benefits to optimize your tax strategy.
Ending Phased Retirement: Your Options
Phased retirement isn't permanent—you have several exit options:
- Full Retirement: Most common path, with annuity recalculated to include phased service
- Return to Full-Time Status: Possible but requires agency approval and ends annuity payments
- Accept Another Position: Requires ending phased retirement status first
- Separation from Service: Treated similarly to full retirement
There's no maximum time limit for phased retirement, but most employees transition to full retirement within 1-3 years.
The Mentoring Requirement: A Core Component
The mentoring aspect of phased retirement isn't just a suggestion—it's a requirement:
- 20% of your work time must be spent mentoring other employees
- This mentoring should focus on knowledge and skill transfer
- A formal mentoring plan is typically required
- Your agency may have specific documentation requirements
This requirement ensures institutional knowledge is preserved and reinforces the program's knowledge transfer purpose.
Agency Discretion: Why You Might Be Denied
Phased retirement isn't an entitlement—agencies have significant discretion:
- Some agencies have embraced the program while others rarely approve applications
- Denials often relate to staffing challenges or difficulty dividing position responsibilities
- Mission-critical positions may be excluded if half-time coverage is insufficient
- Agencies must develop internal policies governing the program
Research your agency's track record with phased retirement before planning on this option.
Pros and Cons: Is Phased Retirement Right for You?
Consider these factors when evaluating phased retirement:
| Pros | Cons |
|---|---|
| Gradual transition to retirement | Limited to exactly half-time schedule |
| Higher income than full retirement | Agency may deny participation |
| Continued benefit growth | Required mentoring component |
| Full health and life insurance | More complex tax situation |
| Opportunity to test retirement lifestyle | Limited TSP withdrawal options |
| Purpose and structure during transition | May reduce time for personal pursuits |
The ideal candidate values both continued engagement and increased flexibility.
Alternatives to Formal Phased Retirement
If formal phased retirement isn't available or suitable, consider these alternatives:
- Part-Time Schedule: Request a reduced schedule without the formal program
- Retire and Return: Fully retire, then return as a rehired annuitant
- Telework: Maintain full-time status but with increased workplace flexibility
- Job Sharing: Split a position with another employee
Each alternative has different implications for your benefits and income.
The Application Process: Step by Step
If you decide to pursue phased retirement, follow these steps:
- Confirm your eligibility using OPM's requirements
- Review your agency's specific phased retirement policies
- Discuss the possibility with your supervisor informally
- Submit a formal written request to your agency
- Complete SF-3116 (Phased Employment/Phased Retirement Status Elections form)
- Develop a formal mentoring plan with your supervisor
- Establish a timeframe for your phased retirement period
Allow several months for the approval and implementation process.
The Bottom Line
Phased retirement offers a unique opportunity to balance continued career contribution with more personal time. It provides financial benefits while easing the psychological transition to full retirement.
However, it's not for everyone. The strict 50% schedule, mentoring requirement, and agency discretion make it suitable for specific situations and personal preferences.
Use GovRet.com's phased retirement analyzer to model this option with your actual numbers and compare it to full retirement and continued full-time employment. This analysis will help you determine whether phased retirement aligns with your financial goals and lifestyle preferences as you plan your transition to the next chapter of your life.