Being approved for Federal Disability Retirement is a big accomplishment. You’ve worked months or maybe even years on an application for this benefit, and you’ve finally been approved.
But the payments you receive on Federal Disability Retirement may not be enough to support you or your family, if necessary (we can give you a free benefit estimate to help you find out how much you could earn).
The good news is that on Federal Disability Retirement you can find a new job in the private sector and continue earning money. There are a few rules to follow, but ultimately, you can earn more money than what you were making in your federal job.
Let’s cover everything you need to know.
How Much Can You Earn?
While on Federal Disability Retirement you can earn up to 80% of your federal position’s current salary. The Office of Personnel Management (OPM) will not tell you this number, but they do post the federal pay scales on their website every year for you to reference. You’ll have to do some math here, but once you find the grade and step of the position you retired from, you can find the current salary for that position, and then stay under 80% of that.
For example, looking at the general schedule annual salary for 2024, if you were grade 7 step 9 when you retired, that salary is currently $53,158. You could make up to 80% of that, which is $42,526.
Earned Income
Not all income is counted towards this 80% limit, however. Only earned income counts.
Earned income is any money you make through:
- Wages, salaries, bonuses, tips
- Basically, any money you make from work, self-employment, or providing a service is counted as earned income
- Other income like alimony, retirement pensions, and 401K distributions can also count as earned income. While you aren’t actively working for this money, it’s still taxed the same.
Passive Income
Passive income, on the other hand, does not count towards your 80% limit.
This is any money you’re not actively working to earn, like:
- Investments and dividends
- Income from limited partnerships (businesses you’re invested in but don’t play an active role)
- Certain types of tax-sheltered investments
It’s highly recommended to reach out to a financial advisor to figure out how your income is taxed so you can maximize your income.
What Jobs Can You Get?
You can work in the private sector in a variety of jobs!
It’s not recommended to return to work in the federal government, as you can lose your disability retirement benefits, but any other job, including state and local government jobs are ok.
You also can’t work in any job that has similar duties to the federal role you retired from. If you’re struggling to do your job, like standing for long periods or lifting heavy boxes, it wouldn’t make sense to go to the private sector and get a job that requires the same thing.
As long as you’re following these basic guidelines, you’re able to continue working and earning money.
There are lots of online job sites to search through, and most have filters to help you sort through a minimum wage, industry, title, and even remote work.
Try out these resources to get started:
- LinkedIn/Indeed
- Weworkremotely.com
- Amazon Jobs
- AARP Job Board
- Work For Good | Nonprofit Jobs
- 12 Part-Time Jobs for Retirees and Where to Find Them
What Happens If You Earn Too Much?
If you earn too much money in the private sector, you’ll be considered administratively recovered. At this point, your Disability Retirement benefits will stop:
- You’ll no longer receive your monthly payments
- You won’t be eligible for your federal health insurance
- You’ll lose any creditable years of service you’ve gained on disability retirement
Let’s look at an example: if you’ve been on Federal Disability Retirement for five years, and in the 6th year you go over your 80% income cap, you’ll lose the five years you’ve earned. Even if you prove to the OPM that you’ve gone back under your income cap, you cannot get those years back. This is extremely important to keep in mind when looking at your income potential.
We always recommend working with a financial advisor or tax professional to ensure you’re not breaking any rules the OPM sets.
Don’t risk your benefits– knowing your earning limits and job restrictions can help you make the most of your income and stay on track for a secure retirement.
We’re here to help guide you toward a future where your income is maximized and you have the flexibility you need to address your medical condition. Schedule a free consultation today to ask any questions and get a free benefit estimate.
