Early Retirement

Chapter 3: Section 5

Both the Civil Service Retirement System and the Federal Employees Retirement System allow employees who do not meet the normal age and service requirements to retire early if offered the opportunity. The purpose of this early retirement option is to assist an agency in carrying out personnel or workload changes with less disruption. (Notes: Voluntary early retirement commonly is offered along with “buyout” separation incentive payments as described in Chapter 9, Section 3, but there is no requirement for agencies to offer them together. Those taking early retirement are not eligible for phased retirement; see Phased Retirement in Section 1 of this chapter.) 

There are two general types of early retirement, voluntary and involuntary (commonly referred to as discontinued service retirement). Whether the early retirement is voluntary or involuntary, the following definitions apply:

Reduction in Force—A reduction-in-force (RIF) action means the release of a competing employee from his or her competitive level by furlough for more than 30 days, separation, demotion, or reassignment requiring displacement, which is required because of a lack of work, shortage of funds, insufficient personnel ceiling, reorganization, an individual’s exercise of re-employment or restoration rights, or reclassification due to erosion of duties when it occurs within 180 days of a formally announced RIF in a competitive area.

Furlough—Under RIF procedures, a furlough means the placement of an employee in a temporary non-duty/non-pay status for more than 30 consecutive calendar days or more than 22 workdays if done on a non-continuous basis, but not for more than one year when the action is based on one of the RIF reasons and is not in accordance with pre-established conditions of employment.

Reorganization—Reorganization means the planned elimination, addition, or redistribution of functions or duties in an organization.

Transfer of Function—Transfer of function means: transfer of the performance of a continuing function from one competitive area and its addition to one or more other competitive areas, except where the function involved is virtually identical to functions already being performed in the other competitive area(s) affected; or the movement of the competitive area in which the function is performed to another commuting area.

Function means all or a clearly identifiable segment of an agency’s mission, including all integral parts of that mission, regardless of how it is performed.

Early Voluntary Retirement

An agency or segment of an agency that is undergoing a reduction in force, reorganization, restructuring, or major transfer of function may ask the Office of Personnel Management to permit early voluntary retirement for its employees who are at least 50 years old with at least 20 years of creditable service, or any age with at least 25 years of service (see below for special rules applying to the Department of Defense). If it agrees, OPM designates the specific geographic area(s) or occupation(s) covered by the RIF retirement option and stipulates the time the option will remain in effect. The agency may, at its discretion, end the period earlier.

RIF/Reorganization/Transfer of Function—If your agency offers you early retirement due to a major RIF, a major reorganization, or a major transfer of function, you may apply to retire on an immediate annuity if you satisfy those general age and service requirements and you:

• meet the minimum civilian service requirement, which is at least five years of creditable civilian service (If you are a CSRS employee who has the minimum five years of creditable service, creditable military service may be used to meet the balance of service necessary for an early voluntary retirement. If you are a FERS employee with military service, you cannot use it to meet the service requirement unless you make a deposit for it before retirement.);

• separate from a position subject to either CSRS or FERS coverage under other than a time-limited appointment;

• if covered by CSRS, meet the “one-out-of-two” requirement—that is, be covered by CSRS for at least one year within the two-year period immediately preceding the separation on which the annuity is based. This one year does not have to be continuous (there is no “one-out-of-two” requirement for FERS employees);

• have served in a position covered by OPM authorization for at least 31 calendar days before the agency’s initial request to OPM and must have remained continuously on the rolls without a break in service of more than four days since that time; and

• separate by the end of the last day of the early-out period authorized by OPM or the last day permitted by the agency, if it ends the period earlier.

Further, you must not be in receipt of a decision of involuntary separation for misconduct or unsatisfactory performance.

Workforce Restructuring—5 U.S.C. 35, 83 and 84 and 5 CFR 831 and 842 authorize permanent voluntary early retirement across the Executive and Judicial Branches to delayer, correct skill imbalances, or reduce operating costs. Offers can be targeted on the basis of organizational unit, occupational series or level, geographic location, specific periods, skills, knowledge, or other job related factors, or a combination—but not performance.

An agency (other than the Defense Department; see below) that uses early outs for workforce restructuring must submit to the OPM a detailed plan describing the planned use of the authority and how the agency’s workforce would be restructured. This must include a detailed summary of the agency’s personnel and/or budgetary situation that will result in an excess of personnel because of a substantial delayering, reorganization, RIF, transfer of function, or other workforce restructuring or reshaping, consistent with agency human capital goals.

An agency plan cannot be implemented without the approval of OPM, which can modify the plan before approving it. The plan also must specify the period during which the authority would be used, as well as the number of employees for which it would be used, although there is no cap on the number of employees to whom early retirement can be offered. Employee eligibility rules mirror those for early outs for RIF, reorganization or transfer of function purposes.

Note: Many of the same requirements apply to buyouts, which the same law also authorizes for such purposes; see Chapter 9, Section 3.

DoD Authority—5 U.S.C. 9902(i) gives the Defense Department permanent voluntary early retirement authority (as well as buyout authority; see Chapter 9, Section 3) for either restructuring or downsizing.

The law authorizes DoD to offer voluntary retirement to its employees without first seeking approval from OPM. According to internal DoD policy, the reasons for approving an early retirement offer may include substantial delayering, reorganization, RIF, transfer of function or other workforce restructuring. Offers may be used to reduce the number of personnel or to restructure the workforce to meet mission objectives without reducing the overall number of personnel. Offers may be based on occupational series or grade, skills, knowledge or other factors related to a position, to organizational, geographic and non-personal and objective factors, or any combination.

Only employees continuously employed within the department for more than 30 days before the date on which the determination to conduct a workforce restructuring or reduction has been approved are eligible. Also ineligible are employees serving under time-limited appointments, re-employed annuitants, those with disabilities that would qualify them for disability retirement and those in receipt of involuntary separation notices for misconduct or unsatisfactory performance.

Each installation using early retirement determines and publicizes the maximum number of approved offers and the anticipated number of election opportunities required. Multiple windows may be used. The general announcement of a single opportunity must indicate the dates for opening and closing, the number of anticipated separations and the factors being considered. Usage may cover more than one organizational element and more than one geographic location.

When used for downsizing, the retiring employees must be off the rolls by the expiration or termination date (RIF effective date). Recipients may not be retained in a duty status after the effective date for any reason.

Discontinued Service Retirement

A discontinued service retirement (DSR) is an involuntary retirement that provides an immediate annuity to employees who are separated against their will through no fault of their own. Employees who are separated for conduct or performance reasons are not eligible for a discontinued service annuity.

DSRs can lessen the impact of an involuntary separation of a long-service employee. The final responsibility for determining whether a separation is in fact involuntary for discontinued service annuity purposes rests with OPM. Whether a separation is voluntary depends on the facts on a particular case. It is the substance of the action that governs, not the methods followed or the terminology used. 

Note: If it is later discovered that a separation does not meet the standard for a DSR, that separation may be canceled, or an annuity denied or terminated.

Eligible separations include, but are not limited to, separations for:

• reduction in force;

• abolishment of position;

• lack of funds;

• expiration of an incumbent’s term of office;

• unacceptable performance (unless due to the employee’s misconduct);

• transfer of function outside the commuting area;

• reassignment outside the commuting area when there is no mobility agreement;

• failure to continue to meet qualification requirements of the position (provided the separation is non-disciplinary and the action is initiated by the agency);

• separation during probation because of failure to qualify due to performance (not misconduct);

• separation of a National Guard technician because of loss of military membership or the rank required to hold the National Guard position; and

• removal from the Senior Executive Service for less than fully successful performance.

Among the situations that do not constitute a basis for a DSR are reclassification to a lower grade as a result of prior misclassification or the application of a new standard (including the correction of title, series and/or grade) and resignation because of ill health. In the latter case, it is qualifying if you are removed by adverse action or equivalent procedures (or retire after a decision to remove has been issued), because of illness resulting in one or more of the following:

• continued absence;

• inability to perform your duties; or

• endangering your health or that of other employees.

To qualify for discontinued service retirement, you must receive a specific written notice of a proposed involuntary separation. The notice must be directed to you and must:

• inform you that you face involuntary separation from your position or from the federal service;

• specify the reason for the proposed action (impending organizational change, etc.); and

• state the date proposed action is to be effective. 

General Eligibility Requirements—The eligibility requirements to retire for CSRS and FERS employees facing involuntary separation are essentially the same as those for early voluntary retirement. In brief, you must:

• meet the age and service requirements (at least 50 years old with at least 20 years of creditable service or at any age with at least 25 years of service);

• meet the minimum civilian service requirement, which is at least five years of creditable civilian service;

• separate from a position subject to either CSRS or FERS coverage;

• if covered by CSRS, meet the “one-out-of-two” requirement—that is, be covered by CSRS for at least one year within the two-year period immediately preceding the separation (there is no “one-out-of-two” requirement for FERS employees); and

• not decline a reasonable offer of another job.

A job that meets all of the conditions below is a “reasonable offer.”

• The agency offer of the position must be in writing.

• You must meet established qualification requirements for the position.

• The offered position must be in your agency, including an agency to which you with your function is transferred in a transfer of function between agencies.

• The offered position must be within your commuting area, unless you are under a geographic mobility agreement.

• The offered position must be the same tenure—that is, same service (competitive, excepted, Senior Executive Service, etc.), same type (career, permanent, indefinite, etc.), and same work schedule (full-time, part-time, etc.).

• The offered position must not be lower than the equivalent of two grade/pay levels below your current grade or pay level. If you are not under grade retention, your grade or pay level is the grade or pay level of the position currently occupied. If you are under grade retention, your grade or pay level is the retained grade or pay level.

Retirement Options—If you are eligible for more than one type of retirement, you are entitled to apply for the option you prefer. That choice may depend on your interest in subsequent federal employment. See Other Early Retirement Rules and Considerations, below.

Eligibility for Severance Pay—Severance pay is not payable to those taking discontinued service retirement. 

Annual Leave—Under 5 CFR 630.212, if you have received a specific notice of termination in a RIF or relocation (including transfer of function) situation, you may use annual leave past the date you would otherwise have been separated in order to establish initial eligibility for immediate retirement, including discontinued service or voluntary early retirement. Eligible annual leave for this purpose includes all accumulated, accrued, and restored annual leave to your credit prior to the effective date of the RIF or relocation and annual leave earned by you while in a paid leave status after the effective date of the RIF or relocation. The employing agency may approve the use of annual leave donated to you under voluntary leave transfer or leave bank programs, as of the effective date of the RIF or relocation. Advanced annual leave may not be used for this purpose.

Sick Leave—Unused sick leave may not be used to establish eligibility to retire. See Credit for Unused Sick Leave in Section 3 of this chapter for policies on crediting in annuity computations. 

Annuity Computations—In general, annuities for early voluntary and discontinued service retirees are calculated in the same way as those for employees retiring under standard age and service combinations (see Section 4 in this chapter). However, there are some exceptions.

• CSRS: If you are under age 55, the annuity rate is reduced by one-sixth of one percent for each full month (2 percent a year), you are under age 55. The reduction is permanent and will not be eliminated when you become age 55.

• FERS: There is no annuity reduction if you are a FERS employee who takes an early voluntary retirement. However, if you have a CSRS component and are under age 55, that portion of the annuity will be reduced in the same way it is for full CSRS employees. Once again, that reduction will be permanent.

In general, if you are a FERS-covered employee taking an early voluntary retirement or DSR, you will receive a Special Retirement Supplement when you reach the minimum retirement age (see Section 4 in this chapter).

Commencement of Annuities—The commencing date of an annuity is the day on which a retiring employee is put on the annuity roll. An early retiree’s entitlement to an annuity begins in accordance with the following rules:

Early Voluntary Retirement—Under CSRS, the annuity of an employee who meets the age and service requirements to retire, is in a pay status, and retires during the first three days of a month will begin the day after separation. The annuity of such an employee who retires after the third day of the month will begin on the first day of the month following retirement. Under FERS, regardless of the retirement date, the annuity will begin on the first day of the month following separation. 

Discontinued Service Retirement—Under CSRS and FERS, the annuity of an employee who meets the age and service requirements and is involuntarily separated begins on the earlier of the day after separation or the day pay ceases.

See Commencing Date of Annuities in Section 4 of this chapter.

Cost-of-Living Adjustments (COLAs)—See Chapter 4, Section 3 for information on how and when COLAs are granted.

Eligibility to Continue Insurance—See Chapter 2 for rules on continuing insurance benefits into retirement.

Survivor Annuities—The rules governing the provision of a survivor annuity to a surviving spouse of an early voluntary or discontinued service retiree are the same as those for an employee who retires after completing a full career. See Section 4 of this chapter.

Lump-Sum Annual Leave Payment—All employees leaving the government will receive a lump-sum payment for their unused annual leave. See Lump-Sum Payments in Chapter 5, Section 1.

Taxability of Retirement Income—All retirement annuities are treated as ordinary income in the year they are received. However, a small portion of an annuity is nontaxable. See Chapter 14, Section 3. Additional information is in IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits, available at (800) 829-3676 or www.irs.gov/pub/irs-pdf/p721.pdf. 

Thrift Savings Plan Account—All those who leave government service, whether for retirement or other reasons, have a range of withdrawal options. See Chapter 6, Section 4.

Other Considerations—If you are eligible for optional retirement under standard eligibility rules (see Section 4 in this chapter), you may choose discontinued service retirement if that option is available. While the amount of annuity will be the same, there is an advantage in taking a DSR if you return to the federal service. Your annuity will stop and you will begin earning a regular salary. When you retire again, your annuity will be computed on your total years of service and what is often a larger high-3 years of average salary.

If you aren’t eligible for optional retirement, take a DSR, and return to work for the government, as a rule your annuity will be stopped (see Chapter 4, Section 4). When you leave government again, your annuity will not be reinstated unless you are entitled to an immediate annuity based on the new separation. If you don’t meet a required combination of age and service for an immediate annuity, you might be eligible for a deferred annuity. (See Retirement: Main Types and Eligibility Conditions in Section 1 of this chapter.)

If you take early voluntary retirement and return to work for the government, as a rule your salary will be reduced by the amount of your annuity. Your full annuity will resume once you leave government again. In addition, you may be eligible for either a supplemental or recomputed annuity, depending on the amount of time you worked. (See Supplemental and Re-determined Annuities in Chapter 4, Section 4.)

Under both early voluntary retirement and discontinued service retirement, annuities will continue in full if you go to work outside the federal government or become self-employed.

Advantages and Disadvantages of Early Retirement

If you qualify for and are offered early retirement you need not accept, but it could be to your advantage to do so. You would begin receiving an annuity sooner than you had expected, perhaps by a number of years. 

However, that benefit will not be as large as if you had continued working to a later date. As a result, your annuity may be insufficient to meet your needs, especially if you have no expectation of further employment. Further, if you are a CSRS employee under age 55, you will have your annuity permanently reduced for every month you are under that age. That’s one-sixth of 1 percent per month or 2 percent per year. There is no reduction under FERS, although if you transferred to FERS and will receive a combined CSRS and FERS annuity, that reduction will be imposed on the CSRS retirement portion.

Benefit policies are the same regardless of type of retirement. If you have been enrolled in the Federal Employees Health Benefits program for five years before retirement or from their first opportunity to enroll (this requirement can be waived in certain situations), you will receive the same health insurance coverage as when you were employed (see FEHB Coverage After Retirement in Chapter 2, Section 1). The same is true of Federal Employees’ Group Life Insurance program coverage (see Life Insurance in Retirement in Chapter 2, Section 2). Eligibility for coverage in the Federal Long-Term Care Insurance Program and the Federal Dental and Vision Insurance Program continues for early retirees, with no prior enrollment requirement and with premium rates the same as for active employees. 

However, there are some differences between benefits for active employees and those for retirees that could make a difference in deciding whether to accept an early retirement offer. Foremost, pretax payment of FEHB and FEDVIP premiums, which effectively lowers their cost to employees, is not available to any retirees. Also, if you are a Postal Service employee the FEHB premiums will increase to the amount paid by all other federal employees and retirees (under negotiated agreements, the Postal Service pays a higher percentage of the health benefits premiums for its employees but that does not apply to retirees).

Survivor benefit rights also are the same regardless of type of retirement. A full survivor annuity for CSRS survivors is 55 percent of the basic, unreduced annuity. For FERS it is 50 percent. Under certain conditions an employee may provide a reduced annuity for a spouse (25 percent under FERS and any amount down to $1 a year under CSRS) or no survivor annuity. See Section 4 in this chapter.  

Applying for Early Retirement

If you are eligible for an optional, early voluntary or discontinued service annuity, you should fill out an Application for Immediate Retirement (Standard Form 2801 under CSRS, SF 3107 under FERS) and file it with the appropriate office of your agency. These forms are available from your personnel office or at www.opm.gov/forms.

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