What is medical retirement?

1 min readLast updated January 30, 2024by Unbiased team

Learn what it means to be medically retired and how you can take medical retirement as a military personnel or as a regular citizen.

Summary 

  • Medical retirement is an option for US military personnel and civilians unable to continue working due to disability, injury, or illness. 

  • A doctor must confirm you are unable to work in order to take medical retirement. 

  • Medical retirement does not have an age limit or age requirement. 

  • There are various benefits of medical retirement, including home loans and pension grants.  

What is medical retirement? 

Medical retirement is a term used to describe when a person accesses their pension or retirement fund due to poor health. The term is more commonly applied to military personnel than to regular citizens.  

If you serve in the US military and you develop a medical condition that prevents you from performing your military duties, you may be issued a medical retirement.  

However, if you injure yourself permanently or develop a debilitating illness, you may also qualify for medical retirement, even if you are not a member of the military. As a civilian, you can become medically retired if you are unable to work due to health impairments. 

Regardless of whether you are a civilian or in the military, a doctor would need to confirm that your condition prohibits you from earning a living.  

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 regular retirement age of 65.  

Regular retirement is what happens when a person reaches the senior phase of their life, typically around 65-68, and makes the decision to remove themselves from the workforce on a permanent basis. They then rely on retirement savings or state pensions to live off into old age.  

In a nutshell, medical retirement occurs when a person is considered medically unfit to participate in the workforce, regardless of their age. Regular retirement occurs simply when a person reaches the senior phase of their life.  

What are the benefits available in medical retirement? 

Despite being the outcome of illness or injury, there are some practical benefits to medical retirement that make it a positive option for those who are no longer physically capable of work.  

For example, if you are a member of the military, you may be eligible to receive VA disability compensation, which can provide necessary financial support in times of 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. There is the qualification for applying for Social Security disability benefits, as well as Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSA).  

Medical retirement vs. regular retirement: distribution tax 

When it comes to taxes and tax distribution, there are also a fair few differences between regular retirement and medical retirement to consider.  

In order to prepare for retirement, most people (disabled and abled alike) set up a​ retirement​​​​​ fund to cushion them once retirement age comes around. But if you suddenly fall ill or become 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. While regular, able-bodied retirees may incur a 10% tax penalty for withdrawals before the age of 59, medical retirees do not.  

This exemption applies mainly to the 401k 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. There are benefits to being medically retired that make it easier to prepare for life post-work and service.  

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. 

Writers

Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.