Phased retirement: who qualifies and what it costs

Fewer people qualify than most assume. Phased retirement is open only to employees who are already eligible for an immediate, unreduced annuity by one of two specific routes, and being eligible to retire in some other way doesn’t count.

The two routes are your minimum retirement age with 30 years of service, or age 60 with 20 years. The statute names those two paths and no others.

That leaves out two common routes. Retiring at 62 with at least 5 years is a perfectly ordinary FERS retirement, and so is MRA+10 (the reduced early option), but neither one opens the door to phasing. A 62-year-old with seven years of service can retire outright and still can’t phase.

There’s a second requirement that is easy to miss. You must have worked full-time for at least the three years immediately before you elect, so a stretch of part-time work late in your career can disqualify you on its own.

You work half. The regulation sets your schedule at one-half the hours you would have worked full-time, so this isn’t a schedule you negotiate down to a third or up to three-quarters.

You draw half. Your working percentage and your phased retirement percentage always add to 100, so working half-time pays half the annuity you’d have received had you retired outright, on top of your half-time salary.

At least a fifth of your working hours have to be mentoring. That’s a floor on how you spend the time, not a change of job title, and you keep doing your actual work with the rest of the hours.

You also keep earning. Phased retirement is still federal employment, so the years you spend in it continue to count toward the annuity you eventually collect in full.

The biggest cost has nothing to do with the half-time pay. A phased retiree is not eligible for the annuity supplement, the payment that normally bridges an early FERS retiree from their retirement date to age 62.

Think about who that hits. Anyone phasing under the minimum retirement age route is by definition under 62, which is exactly the group the supplement was built for. Phasing gives it up for the whole phased period rather than delaying it.

Your insurance, on the other hand, is protected unusually well. For health benefits you’re treated as a full-time employee, and for life insurance you are treated as still earning your full-time salary, so your FEGLI coverage doesn’t shrink along with your paycheck.

None of this is a recommendation either way. Whether the trade works turns on how long you’d phase, how much supplement you would give up, and what the half-time salary does to your household budget.

Your annuity gets rebuilt rather than simply resumed. When you separate for good, the two pieces combine into what the law calls a composite retirement annuity.

The first piece is the phased annuity you were already drawing, carried forward with the cost-of-living adjustments it received along the way. The second piece covers the phased period itself, computed on your full-time-equivalent annuity and scaled by the share of time you were working.

Your unused sick leave waits for this moment. It’s credited when you separate for full retirement, not when you enter phased status, so time spent phasing doesn’t cash it in early.

Any survivor election you make reduces the composite annuity once it’s assembled. And phasing isn’t a one-way door: with your agency's authorization, you can end phased employment and go back to regular status instead.