FERS disability retirement pays 60% of your high-3 average salary for the first 12 months, then drops to 40% after that, with offsets for any Social Security disability benefits you receive. The calculation works differently depending on your age at retirement and whether your “earned” annuity (based on actual years of service) would pay more than the disability formula.
The High-3 Average Salary
Every FERS disability calculation starts with your high-3 average salary. This is the highest average basic pay you earned during any three consecutive years of federal service. For most employees, this is their final three years on the job, since pay generally increases over time. Basic pay includes your salary and any locality pay, but not overtime, bonuses, or other supplemental payments.
If you have fewer than three years of service, your high-3 is simply your average pay over your entire period of federal employment.
First 12 Months: The 60% Formula
If you’re under age 62 and not eligible for a voluntary immediate retirement, your disability annuity for the first 12 months equals 60% of your high-3 average salary, minus 100% of any Social Security disability benefit you receive during the same period.
Here’s what that looks like in practice. Say your high-3 average salary is $80,000. Your gross FERS disability annuity would be $48,000 per year, or $4,000 per month. If you’re also approved for Social Security Disability Insurance (SSDI) at $1,800 per month, your FERS annuity for that month drops by the full $1,800, leaving you with $2,200 from FERS plus $1,800 from SSDI, for a combined $4,000.
The offset only applies for months in which you actually receive Social Security disability benefits. If your SSDI application is still pending or you haven’t applied, OPM pays the full 60% with no reduction. Once SSDI kicks in, though, OPM will adjust your payments and may collect an overpayment for any months that overlapped.
After 12 Months: The 40% Formula
Starting in month 13, your annuity drops to 40% of your high-3 average salary, minus 60% of your Social Security disability benefit. Using the same example above, 40% of $80,000 equals $32,000 per year, or about $2,667 per month. The SSDI offset is now 60% of $1,800, which is $1,080. That leaves $1,587 from FERS, plus your $1,800 SSDI payment, for a combined total of roughly $3,387 per month.
This 40% formula, with the 60% Social Security offset, continues until you reach age 62, unless your earned annuity is higher.
When Your Earned Annuity Pays More
At any point, if your “earned” annuity exceeds what the disability formula would pay, you receive the earned annuity instead. Your earned annuity is the standard FERS retirement calculation: 1% of your high-3 average salary multiplied by your years and months of creditable service (1.1% if you retire at age 62 or later with at least 20 years of service).
This mainly matters for employees with long federal careers. If you have 25 years of service and a high-3 of $80,000, your earned annuity would be 25% of $80,000, or $20,000 per year. That’s less than the 40% disability formula ($32,000 before the SSDI offset), so the disability formula still wins. But for someone with 30-plus years of service, the earned annuity could be the larger number, especially after the Social Security offset is applied to the disability calculation.
What Happens at Age 62
When you turn 62, OPM recalculates your annuity as though you had worked continuously from the day you retired on disability through the day you turned 62. All those years on disability count as creditable service for this recalculation. However, your high-3 average salary stays the same as it was when you retired. It gets adjusted only by any cost-of-living increases (COLAs) that were applied to your annuity during the disability period.
The recalculated annuity uses the standard FERS formula: 1% (or 1.1% if applicable) of your adjusted high-3 multiplied by your total creditable service, now including the disability years. At this point, the Social Security disability offset disappears entirely because SSDI converts to regular Social Security retirement benefits at 62.
If You’re Already 62 or Older
Employees who are age 62 or older when they retire on disability, or who are already eligible for a voluntary immediate retirement, skip the 60%/40% disability formulas entirely. Instead, they receive their earned annuity from the start, calculated using the standard 1% (or 1.1%) multiplier. In most of these cases, the employee qualifies for a regular retirement and happens to be leaving due to a disability, so the standard computation applies.
Cost-of-Living Adjustments
FERS disability retirees do not receive COLAs during the first 12 months. After that, COLAs apply, but they’re based on the Consumer Price Index and are slightly different from what regular FERS retirees receive. During the period you’re on the 40% formula, your COLA is applied to the 40% figure. These adjustments are typically modest, often around 2% to 3% in most years, and they help your annuity keep pace with inflation over what could be a long stretch before you reach 62.
A Quick Example Start to Finish
Consider a 45-year-old federal employee with 15 years of service and a high-3 average salary of $90,000 who is approved for FERS disability retirement and SSDI of $2,000 per month.
- Months 1 through 12: 60% of $90,000 = $54,000/year ($4,500/month), minus $2,000 SSDI offset = $2,500/month from FERS. Combined income: $4,500/month.
- Month 13 through age 62: 40% of $90,000 = $36,000/year ($3,000/month), minus 60% of $2,000 ($1,200) = $1,800/month from FERS. Combined income: $3,800/month, plus COLAs over the years.
- At age 62: OPM recalculates using total creditable service (15 original years plus 17 years on disability = 32 years). Using the 1.1% multiplier (since this employee is now 62 with 20+ years), the annuity becomes 1.1% × 32 × the COLA-adjusted high-3. If COLAs brought the high-3 up to roughly $120,000 by then, the new annuity would be about $42,240/year.
The earned annuity at any point during the disability period would have been only 1% × 15 × $90,000 = $13,500/year, well below the disability formula, so the disability calculation applies until 62.
Taxes and Thrift Savings Plan
FERS disability retirement payments are taxable as ordinary income, though a small portion representing your own retirement contributions may be tax-free. Your Thrift Savings Plan (TSP) account stays in place when you retire on disability. You can leave it invested, take withdrawals, or roll it into an IRA. If you’re under 59½, early withdrawal penalties may apply to TSP distributions, though there is a separation-from-service exception if you left federal employment during or after the year you turned 55.
Keep in mind that earning too much outside income can affect your disability status. If your earnings from a job exceed 80% of the current salary for the position you held when you retired, OPM can restore you to employment or terminate your disability annuity. OPM reviews your earnings annually, so you’ll need to report any income from work each year.