FERS Phased Retirement: What It Is, How It Works, Eligibility, and How Federal Employees Can Use It to Their Advantage

Planning for retirement under the Federal Employees Retirement System (FERS) can feel complex, especially for long-serving federal employees who want a smoother transition out of full-time government work. For many, the shift from full-time employment to full retirement can feel abrupt—financially, professionally, and personally. That’s exactly why FERS Phased Retirement was created. It provides a structured bridge between a full federal career and full retirement, allowing employees to step back gradually while still earning income and accruing benefits.

Despite its value, FERS Phased Retirement is still widely misunderstood and significantly underutilized. Many federal employees don’t realize the program exists, and many agencies choose not to implement it. For employees whose agencies do offer participation, though, phased retirement can be a powerful and flexible tool for balancing work, life, and long-term financial planning.

This comprehensive guide breaks down everything you need to know, including:

• What FERS Phased Retirement is

• How the program works

• Who is eligible

• How the annuity is calculated

• How to use phased retirement strategically

• Advantages and limitations

• Whether phased retirement may be a good fit for your situation

What Is FERS Phased Retirement?

FERS Phased Retirement is an optional program (offered at the discretion of each federal agency) that allows eligible federal employees to reduce their work schedule to part-time while simultaneously receiving a portion of their FERS annuity. In other words, phased retirees are both employees and retirees at the same time.

Instead of moving directly into retirement, phased retirees:

• Work part-time (typically 50% of a full-time schedule)

• Continue earning part-time salary

• Receive a partial retirement pension

• Continue accruing creditable service toward their final full retirement benefit

The intention of the program is twofold:

1. Support employees by giving them a gradual transition into retirement

2. Support agencies by retaining experienced employees longer and enabling them to mentor newer staff

In practice, it helps federal workers reduce hours, maintain income, preserve benefits, and still move toward full retirement financially.

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How FERS Phased Retirement Works

FERS Phased Retirement is structured so that an employee can shift to part-time work without losing their connection to the federal workforce. Here’s how the core components of the program operate:

1. Switching to Part-Time Employment

Phased retirees move from full-time employment to part-time hours. The standard model is a 50% schedule—meaning:

• Approximately 20 hours per week

• Half of their previous salary

• Half of full-time retirement credit for service time

While 50% is the standard, each agency can define the exact work schedule in the phased retirement agreement.

2. Receiving a Partial FERS Annuity

During phased retirement, employees receive:

• Their part-time salary, plus

• 50% of the annuity they would have received if they fully retired on that date

This partial pension supplements income and makes the reduced work schedule financially viable.

3. Accruing Additional Service Credit

Even though employees are working part-time, they continue earning service credit. This helps:

• Increase the full retirement annuity they’ll receive later

• Ensure their “final” annuity reflects all years of service, including the phased retirement period

Importantly, the annuity earned during phased retirement is calculated separately and added to the final benefit once the employee fully retires.

4. Entering a Phased Retirement Agreement

Participation requires a formal written agreement between the employee and the agency. The agreement outlines:

• Work schedule

• Expected mentoring responsibilities

• Duration of phased retirement

• Annuity calculation method

• Expected date of full retirement

This agreement protects both the employee and the agency by setting expectations clearly.

5. Ending Phased Retirement and Moving to Full Retirement

After completing the phased retirement period—often one year or more—the employee fully retires. At that point:

• The annuity is recalculated

• Additional service credit from the phased period is added

• Any applicable cost-of-living adjustments (COLAs) are included

The result is a larger full retirement annuity than if the employee had simply retired on day one.

Eligibility for FERS Phased Retirement

Not all federal employees are eligible, and not all agencies participate. To qualify for phased retirement, employees must meet all of the following criteria:

1. Must Meet Immediate Retirement Eligibility

Employees must already qualify for immediate, unreduced retirement, which generally means:

• Age 62 with 5 years of service

• Age 60 with 20 years of service

• Minimum Retirement Age (MRA) with 30 years of service

Employees eligible only for MRA+10 (reduced annuity early retirement) are not eligible.

2. Must Have Been Full-Time for the Previous 3 Years

The employee must have been continuously employed in a full-time position for at least three consecutive years leading into phased retirement.

3. Must Be in a Participating Agency

Agencies are not required to offer the program. Even if eligible, an employee may not be able to participate unless their agency approves it.

4. Must Be Willing to Perform Mentoring Duties

A key requirement of phased retirement is that participants spend a portion of their work time mentoring junior employees. This is one of the main benefits to agencies and a core part of the program.

5. Special Provisions Employees Have Limited Access

Certain categories—such as law enforcement officers, firefighters, and air traffic controllers—may be excluded unless their agency explicitly allows participation.

How the FERS Phased Retirement Annuity Is Calculated

While in phased retirement, the employee receives half of the full annuity they would have earned if they fully retired the day they entered phased status.

Example:

• Full retirement annuity if fully retired today: $40,000/year

• Phased retirement annuity: $20,000/year

• Salary at 50% schedule: $50,000 full-time → $25,000 actual

Total income during phased retirement: $45,000/year (half salary + half annuity)

When the employee fully retires:

• A second piece of annuity is calculated based on service earned during phased retirement

• The annuity from the phased period is added to the original

• COLAs are applied

• High-3 salary is recalculated only if necessary (usually unchanged)

Most employees experience a noticeable boost in their final annuity, because they received extra service credit without having to work full-time.

How Long Phased Retirement Lasts

Although agencies have discretion, the phased retirement period generally lasts:

• A minimum of 6 months

• Often 1 to 3 years

• Can be extended with agency approval

Once the phased period ends, the employee transitions to full retirement and begins receiving their full, recalculated annuity.

How FERS Phased Retirement Can Be Used Strategically

FERS Phased Retirement offers several strategic advantages for federal employees looking to maximize their financial stability, lifestyle flexibility, and overall retirement readiness. Here are some of the most effective ways to leverage the program.

1. Smooth Financial Transition Into Retirement

Moving from a full salary to a pension can feel abrupt. Phased retirement softens the impact by allowing employees to:

• Ease into reduced income

• Adjust their lifestyle gradually

• Reduce reliance on savings early in retirement

It prevents the psychological “income cliff” that many retirees struggle with.

2. Increase Your Lifetime Annuity

Because phased retirees continue to earn service credit, the additional time can significantly increase their long-term pension. For employees already near a service milestone—such as hitting the next “high-3” anniversary or reaching a higher percentage multiplier—phased retirement can offer a meaningful financial boost.

3. Maintain FEHB Health Insurance Without Extra Cost

During phased retirement, employees retain full health insurance benefits under FEHB at employee rates. This is extremely valuable, especially because:

• FEHB is one of the best health plans available to retirees

• Retaining FEHB for life requires meeting strict rules that phased retirement helps satisfy

This is often one of the biggest incentives to participate.

4. Continue TSP Contributions

Phased employees can continue contributing to the Thrift Savings Plan (TSP) out of their part-time salary, and agencies continue contributing matching funds. This allows employees to bolster savings even as they step back.

5. Transfer Knowledge and Mentor New Employees

Employees with decades of experience are valuable institutional assets. Phased retirement ensures:

• Newer employees receive guidance

• Agencies retain institutional knowledge

• Important processes continue smoothly

This mentoring requirement is often rewarding for seasoned employees.

Advantages of FERS Phased Retirement

For Employees

• Gradual transition into retirement

• Supplemented income (salary + partial annuity)

• Continued FEHB and FEGLI coverage

• Continued TSP participation

• Additional service credit toward full retirement annuity

• Improved financial readiness

• More free time for personal pursuits

For Agencies

• Retention of skilled employees

• Structured mentoring for new staff

• Continuity of operations

• Reduced hiring and training burden

• More predictable workforce planning

Limitations and Considerations

While powerful, phased retirement does have some limitations:

1. Not All Agencies Participate

Participation is at the agency’s discretion. Many federal organizations simply do not offer phased retirement.

2. Schedule Flexibility Is Limited

Phased retirement typically requires a 50% schedule, not any part-time schedule of your choosing.

3. Must Commit to Mentoring

Employees must dedicate a portion of their part-time hours to mentoring, which some may not prefer.

4. Not Ideal for Employees Who Want Immediate Full Retirement

If an employee wants to stop working entirely, phased retirement won’t be appealing.

5. Annuity Begins Early

Because you start receiving part of your annuity early, that portion does not grow during the phased period—but the final portion does.

If you would prefer to learn directly from an FERS Expert please select this button to schedule a free consultation

Phased retirement is an excellent option for federal employees who:

• Want a gradual transition into retirement

• Want to supplement part-time earnings with partial pension income

• Wish to increase their lifetime retirement annuity

• Are comfortable mentoring junior staff

• Value maintaining FEHB and TSP contributions

• Want additional work-life balance as they near retirement

It may not be ideal for employees who:

• Want to stop working entirely

• Are at risk of burnout and need a full break

• Cannot reduce their workload effectively

• Work for agencies that do not offer phased retirement

Final Thoughts

FERS Phased Retirement offers federal employees a unique and highly valuable opportunity to ease into retirement while maintaining income, benefits, and future financial growth. It’s ideal for those who want flexibility, security, and stability as they transition from full-time federal service to the next chapter of their lives.

For employees who qualify—and whose agencies participate—the program can significantly improve both the quality of the retirement journey and the strength of the final retirement package.

Is FERS Phased Retirement Right for You?

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