What is medical retirement?
Medical retirement is a term for when a person enters retirement and accesses their retirement fund due to poor health or disability.
You can become medically retired if you are unable to work due to health impairments. It is also referred to as “disability retirement” by the U.S. Office of Personnel Management (OPM), the federal agency that administers the program.
To qualify for medical retirement, your disability must be long-term and the primary reason you are unable to work.
A doctor also needs to confirm that your condition prevents you from earning a living and provide a proper diagnosis. Some people, particularly military personnel, will need to have a Physical Evaluation Board (PEB) review their case to decide their standing.
What is military medical retirement?
Medical retirement is more commonly applied to military personnel than to regular citizens.
Military personnel who serve in the US military and develop a medical condition or incur an injury that prevents them from performing their military duties may be issued a medical retirement.
Similarly to civilian medical retirement, your disability must stop you from performing your military duties. As noted, a Physical Evaluation Board (PEB) consisting of active-duty physicians decides if you are fit to serve or not. The result of their findings will determine whether you become medically retired or not.
Medical retirement vs. regular retirement: What’s the difference?
Medical retirement is defined as retirement brought upon by a person’s inability to work due to poor health or a debilitating physical injury. If deemed unfit to work, a person can medically retire before the typical retirement age of 65.
Regular retirement is the stage that occurs when a person reaches the senior phase of their life, typically in their sixties, and decides to leave the workforce permanently. They then rely on retirement savings, investments, or pensions to cover their expenses.
Ultimately, the main difference between the two lies in the decision to retire.
For regular retirement, it is up to the person’s specific wishes to stop working, while for medical retirement, the decision is made for them due to physical or mental inability to continue working.
What are the benefits available in medical retirement?
There are some benefits available to those who enter medical retirement.
For example, if you are a military member, you may be eligible to receive VA disability compensation, which can provide necessary financial support during physical impairment. There are also other military-related benefits, such as VA home loans, pensions, and medical benefits.
If you are not in the military, you can still receive some benefits from a medical retirement. You can apply for Social Security disability benefits, as well as Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSA).
Note, however, that accessing these benefits may be confusing and difficult, and may require the help of a professional.
How much do you get if you are medically retired from the military?
According to the Department of Defense, the basic retirement formula for medically retired military members is:
Retired Pay Base X Multiplier %
The retired pay base for a qualified disability retirement is determined under either the final pay method or the high-36-month method, depending upon when they first entered military service.
The multiplier percentage is at the member's discretion. The member may choose either the percentage of disability assigned or the years of creditable service times 2.5%. By law, this is capped at 75%.
To be eligible for medical retirement, the soldier must be deemed unfit for military service and have a disability rating of at least 30%.
If you qualify, you will receive monthly retirement pay immediately after retirement and for the duration of your lifetime.
Medical retirement vs. regular retirement: Distribution tax
There are also a few differences between regular retirement and medical retirement to consider when it comes to taxes and tax distributions.
In order to prepare for retirement, most people set up a retirement fund to cover their expenses once retirement age comes around. But if you’re suddenly sick or injured, you may need to withdraw from that fund earlier than expected, which can be tricky to manage long-term.
For this reason, the IRS grants medical retirees some tax leeway. Medical retirees do not incur the 10% tax penalty levied for making early retirement withdrawals.
This exemption applies mainly to the 401(k) distribution tax scenarios, as well as simple IRA plans, regular IRAs, SEPs, and SIMPLE tax plans.
Seek financial advice for a better understanding of medical retirement
Medical retirement is a type of retirement that supports people who are unable to work and, therefore, save for retirement, whether they are regular citizens or military personnel.
If you want to learn more about finances and how to navigate medical and other forms of retirement, let Unbiased match you with an SEC-regulated financial advisor.
By seeking expert financial advice from a professional, you can set yourself up for a solid financial future, no matter what happens.
Frequently asked questions
Who qualifies for medical retirement?
Individuals with long-term disabilities that prevent them from working may qualify for medical retirement, as confirmed or diagnosed by a doctor. There may be additional considerations for members of the military.
What’s the difference between regular retirement and medical retirement?
In broad terms, the main difference between regular retirement and medical retirement is that someone who is medically retired is forced to stop working due to being physically unable, whereas regular retirement commences at the worker’s discretion.
How much do you get paid if you’re medically retired from the military?
There are several factors that determine how much a member of the military is paid if they’re medically retired, but the basic formula boils down to their years of service multiplied by their percentage of disability and retired pay base.