As a FERS participant you may be counting on the FERS Supplement as added income if you’re planning on retiring before age 62. Not so fast. Since the FERS Supplement is subject to the Social Security Earnings Test, you may not be eligible at all.
The FERS Supplement: Eligibility Requirements
Under FERS, you can retire with an immediate annuity at your Minimum Retirement Age (MRA) with 30 years of creditable service. Depending on the year you were born, your MRA can range from age 55 to 57. Or, you can retire at age 60 with a minimum of 20 years of creditable service. If you choose one of these options you’re eligible for the FERS supplement. Other types of retirements that may be eligible include VERA/VSIP retirements and mandatory retirements
How The FERS Supplement Is Calculated
The FERS Supplement fills the income gap for the years between retiring with an immediate annuity and age 62, which is the age you first become eligible for Social Security. It’s calculated as if you filed for your Social Security benefit at age 62 as long as you meet the Social Security requirements for benefits.
According to the OPM.gov website, to calculate your FERS Supplement, they estimate what your full career Social Security benefit would be. Then they calculate the amount of your service under FERS and reduce the estimated full career Social Security benefit accordingly.
“Then again, if you’re planning on working in the private sector after you retire, or launching that small business you’ve been thinking about, this type of income counts toward the earnings test and must be reported to the OPM.”
The FERS Supplement Is Subject To The Social Security Earnings Test
Even though the FERS supplement is paid to you through the OPM, the amount you receive is subject to a Social Security Earnings Test. The limit is established annually by the Social Security Administration and tends to increase each year.
For example, in 2023, the Social Security earnings limit is $21,240. For every $2 of earnings exceeding that limit, $1 will be withheld in from your FERS Supplement. Keep in mind that your FERS annuity and TSP distributions are not considered earnings. Other exceptions to the Social Security Earnings Test include investment income, distributions from IRAs and your lump sum annual leave payment.
Then again, if you’re planning on working in the private sector after you retire, or launching that small business you’ve been thinking about, this type of income counts toward the earnings test and must be reported to the OPM.
Touch base with an FRC® trained advisor who can help you determine a realistic estimate of the retirement income you can count before you decide to retire in your mid-50s.
