Can You Take Your FERS or CSRS Pension as a Lump Sum?

If you ever look at your paystub and wonder what “cumulative retirement” means, it refers to the total amount of contributions that you have made to either FERS or CSRS. And many might wonder, upon retirement – can’t they just take this full amount instead of receiving guaranteed monthly payments for life? And while from 1986 to 1994, this was generally true for most federal retirees, the law was changed so this “alternative annuity benefit” is only available to those with a life-threatening condition or some “other critical medical condition.” Ultimately, OPM will determine one’s eligibility for the lump-sum payment when processing their retirement application.

The alternative annuity benefit is a lump-sum option available to those who are not expected to live beyond a few years, at most. This can only be done with immediate retirements, and is not available if you retire with a disability annuity. If you request the alternative annuity benefit, it cannot be switched to a disability annuity after OPM has finished processing the retirement claim – regardless of whether or not they approved the alternative benefit. For those requesting the lump-sum, they must submit their application with both their spouse’s written consent and a physician’s certificate verifying the medical condition. If an ex-spouse is entitled to any portion of their FERS or CSRS pension via court order, the lump-sum payment is not allowed.

The alternative benefit is a reduced lump-sum credit for FERS or CSRS annuitants with the dollar amount determined by an actuarial factor based on life expectancy. Any survivor benefits are not affected. However, any unpaid deposits for military service, temporary service, or any redeposits for refunded contributions all are considered paid and will boost the lump-sum amount.

Tax Implications

Note that alternative annuity benefit creates a tax liability, even if it is eventually returned to OPM. With the lump sum, there is usually a taxable portion and a non-taxable portion. The taxable portion, which is typically 80% – 95% of the total amount, can be rolled over to an IRA so taxes won’t be due until withdrawn from there. Click HERE to read more.