How do you figure they are "retired"?
They take them off the books. They aren’t counted as part of the official debt, and they’ll never be repaid. It’s not like the Fed is ever audited or can go broke.
Here’s a little better explanation of how the Fed monetizes debt. Additionally I’ve heard Tom Sullivan talk about the amount of debt the Fed has bought being far more than what they report holding, in other words it’s been retired.
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How does this monetize the debt? The U.S. government borrows from individuals, corporations and even foreign governments when it auctions Treasury bills, bonds and notes. The Fed turns this debt into money, by taking those Treasuries out of circulation. This decreases the supply of Treasuries, making the remaining Treasuries more valuable.
Treasuries that are more valuable don’t have to pay as much in yield to get buyers. A lower yield drives down interest rates on the U.S. debt. Lower interest rates means the government doesn’t have to spend as much to pay off its loans. This is money it can use for other programs.
The net effect is that it is as if the Treasuries bought by the Fed didn’t exist. But they do exist on the Fed’s balance sheet. Technically, the Treasury must pay the Fed back one day. Until then, the Fed has given the Federal government more money to spend and increased the money supply. This is called monetizing the debt.
http://useconomy.about.com/od/monetarypolicy/f/fed_monetizing_debt.htm