Many federal employees will be fortunate enough to retire before the age of 62. Those individuals will be eligible to collect additional income from the FERS supplement. This entitlement is specifically to help supplement federal employees’ retirement until they reach age 62.
The supplement is available to the following employees:
- Employees retiring under normal retirement requirements prior to age 62
- Employees retiring under a VERA once they reach MRA
- Law enforcement officers that meet retirement requirements
The amount of a FERS employee’s supplement can be found by multiplying your Social Security estimate at age 62 by your years of service under the FERS system, divided by 40. If we look at a federal employee retiring at age 57, with 30 years of service, and a Social Security estimate of $1400 at age 62; the calculation will look like this:
$1400 x 30/40 = $1050
The employee will receive the $1050 a month until they turn 62, or until their earnings are too high. It is important to note that there will be no adjustments to the Supplement for inflation or cost of living.
The Earnings Test
The maximum a retiree can earn before the supplement is reduced is $17,040 in 2018. For every $2 earned over the limit, your FERS supplement will be reduced by $1. Only wages and self employment income are included in the $17,040 limit. Here is a list of income sources that are not included:
- FERS annuity
- FERS supplement
- Investment income
- Distributions from TSP
- Distributions from IRAs
- Annual leave payment
- Rental income from real estate
The earnings reduction is applied annually in July for earnings during the previous year. Retirees that have earnings above the $17,040 threshold are required to fill out form RI 92-22.
You may be wondering if contributions to a 401k are included in the earnings test, and yes, they are. You cannot reduce your earnings with 401k contributions.
There are exceptions to the earnings test for law enforcement officers (LEO) and air traffic controllers (ATC) that retire before minimum retirement age (MRA). Both can collect the supplement after retiring with 25 years of service, or at least 20 years of service at age 50. Once retired, they can make unlimited earnings until reaching MRA. At MRA the earnings test is the same as it is for regular federal employees.
How will my Social Security be affected if I collect the Supplement?
The answer is that collecting the Supplement will not affect your Social Security at all. Even though the amount of the Supplement is based on Social Security, your Social Security is completely independent of the Supplement.
Will the Supplement be there when I retire?
Excellent question! My opinion is that it will be around for those that are currently working. I think there is a chance, and maybe even a good chance that lawmakers will change the Supplement for new employees, BUT, I am not aware of any past change in federal benefits that has negatively impacted current employees or retirees. So my recommendation for planning would be to plan based on what you know now.
Federal employees retiring before the age of 62 should understand how the FERS Supplement works and how it will be affected by earnings. If possible, you will want to keep your earned income below the earnings limit.
Do you know all details of the FERS Supplement and your retirement benefits? If not, putting together a retirement plan would be a great idea. If you would like to discuss our retirement planning service you can schedule a call here.
The scenario mentioned above is hypothetical and is meant to be used for illustrative purposes.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.