What is medical retirement? benefits, qualifications, and financial considerations

Summary 

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. 

To qualify for medical retirement, your disability must be long-term and the reason you cannot work.

A doctor also needs to confirm that your condition prohibits you from earning a living.  

What is military medical retirement?

Medical retirement is more commonly applied to military personnel than to regular citizens. So, how do you get medically retired from the military?

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

Similarly to civilian media retirement, your disability must stop you from performing your military duties. Here, 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 if 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 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.  

Ultimately, the main difference between the two lies in the decision to retire. For regular retirement, it is up to the person, while for medical retirement, the decision is made for them.

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).  

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 retirees 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 2½%. 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 

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

In order to prepare for retirement, most people 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. Medical retirees do not incur the 10% tax penalty associated with 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. 

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