Designed to supplement Social Security benefits until age 62, the FERS Supplement helps some feds retire earlier. But it is subject to the earnings test, limiting how much income it can add to your retirement.
Have more questions about the FERS supplement or retiring early?
Retiring before the age of 62 is a real possibility for federal employees with enough amount of service time. However, there is a prevalent misconception that retiring from the federal government before the age of 62 will allow the retiree to maintain a comfortable lifestyle. Unfortunately, a lot of feds get a rude awakening when retiring early because their FERS pension is not as much as it would’ve been if they waited until reaching 62, when retirement calculations get a 0.1% boost. 0.1% may not seem like much, but it adds up over time. Other common misconceptions about retiring under FERS often revolve around the FERS Supplement, also known as the special retirement supplement (SRS). Reviewing eligibility of the SRS and understanding the earnings test are two crucial steps when deciding if retiring before age 62 is a wise decision.
FERS Supplement
The SRS is designed to supplement social security, but it is not provided by the Social Security Administration like normal social security benefits that can be claimed at age 62. The SRS is funded by FERS and it was created because some Federal jobs have to take a mandatory retirement before age 62- like Law Enforcement Officers, Firefighters, and Air-Traffic Controllers. (To learn how the SRS is calculated, check out this FEDZONE article.)
SRS Eligibility
First, there are types of early retirement that don’t qualify for the SRS. These include:
- Immediate, reduced annuity
- Postponed retirement
- Deferred retirement
- Disability retirement
Therefore, FERS employees retiring under “normal requirements” are eligible to receive the SRS, and these include:
- Immediate, unreduced annuity
- VERA/VSIP retirements
- Mandatory retirements
(Check out this article for more information about the above types of retirement under FERS.)
The Earnings Test
What is often overlooked when FERS employees opt to retire from federal service before reaching age 62 is that the SRS involves an earning test. For feds who were planning to work in the private sector, and as well receive the SRS, can become blindsided by the earnings test. They end up receiving a considerable amount less from their retirement income than anticipated. The earnings test reduces the FERS supplement $1 for every $2 of earnings over the limit, which is $19,560 for 2022. The reduction is applied monthly. So, for example, if a FERS annuitant receives $1000 monthly from SRS but earns $20,000 annually, their supplement will be reduced by $18.33 ($220 divided by 12):
- $20,000 - $19,560 = $440 over the limit
- $440 / 2 = $220
- $220 / 12 = $18.33 reduction
- $1000 - $18.33 = $981.67 SRS amount
If they earn $44,000 annually, their supplement is completely reduced:
- $44,000 - $19,560 = $24,440 over the limit
- $24,400 / 2 = $12,220
- $12,220 / 12 = reduction
- $1000 - $1018.33 = less than zero (no SRS received)
So what counts as earnings for the earnings test? Well, almost all income except for the following:
- FERS pension income
- The FERS Supplement itself
- Investment income
- Distributions from TSP
- Distributions from IRAs
- Annual leave payment
- Rental income from real estate
Everything else counts, even 401(k) contributions made at the federal retiree’s new job. There is only one exception where the SRS earnings test does not apply, and that is for feds who had to take a mandatory retirement before reaching their minimum retirement age. Although, once this age is reached, the earnings test kicks in.
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Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
