Five Important Facts to Remember About Social Security

Considered one of the “legs” of a FERS retirement – here’s a list of fast facts that you should keep in mind about Social Security benefits.

Welcome to part six of our series of “listicles.” We’ll be going over 5 key points to remember for several areas of retirement planning and employee benefits for members of the Federal Workforce. The first five topics we covered were FERS, CSRS, the TSP, FEHB, and FEGLI. Now we’ll be covering social security.

Learn how to get the most out of your social security! Attend our next no-cost webinar on social security for federal employees and retirees

1. What is Social Security?

Social security started in 1935 when it was signed into law by President Franklin D. Roosevelt. Taxes were first collected for social security in 1937 and monthly benefit payments began in 1940 for individuals aged 65 and older. Unlike other aspects of federal benefits we’ve covered in this series, social security it available for all American citizens, not just federal workers. Retirement benefits are paid to individuals who are at least 62 and have earned at least 40 “credits,” which are garnered by working for a minimum amount of hours in a given year for a certain wage at a job that pays social security taxes. Survivor benefits were added in 1939 and disability benefits began in 1956.

2. The Earnings Test and Benefit Amount

Choosing when to start taking social security benefits depends on several factors, but one option is to claim the retirement benefits at age 62, the earliest age possible. Other than the monthly amount being less than the full benefit one would receive if they waited until their “full retirement age,” the income is also subject to the earnings test. For 2023, if one’s annual income is at least $21,240 ($1770/month) from employment, the earnings test would reduce their social security benefits by $1 for every $2 in earnings over this limit. (Note the special retirement supplement for FERS retirees under age 62 is also subject to the earnings test after reaching the minimum retirement age.) Regarding how the benefit is calculated, remember the 35 years of work with the most earnings are used. If someone has less than 35 years, a zero is used for all the years less than 35, considerably lowing the average that is used to compute the dollar amount to be received from social security.

3. When to Withdraw

Other than age 62, you can also choose to take social security at your “full retirement age” (FRA) or at age 70, after which it makes no sense to keep delaying. Taking the retirement benefits before reaching the FRA (which is 67 for those born in 1960 or later) entails a reduction in the income amount. Similarly, waiting until age 70 means a boost to your monthly amount. With all else considered equal, this is where life expectancy and health comes into play. Although the IRS life expectancy tables are not involved in calculating social security, longevity and family health history should be considered. If you pass at 71 after taking a higher benefit amount at age 70, the total dollar amount received would be considerably less than if you had been collecting a lesser annual benefit amount for more years (since age 62, for example).

4. Social Security for Feds: SRS, GPO, and WEP

Along with the TSP and the FERS pension, social security is considered one of the three legs of a figurative stool comprising a “FERS” retirement. (Click here to learn about the fourth leg.) For the older CSRS retirees, they do not pay into social security and therefore don’t receive the retirement benefit in normal circumstances. However, CSRS-offset, trans-FERS, and CSRS employees who received social security credits from outside employment might be entitled to some social security income. However, these three categories of Feds have to worry about the Windfall Elimination Provision (WEP), which reduces the amount received. For trans-FERS and CSRS employees who paid into social security outside of their federal employment (but not CSRS-offset retirees), their spouse might get hit with a similar reduction when claiming social security survivorship after the federal employee has passed. This reduction of benefits is known as the Government Pension Offset (GPO). Then, for FERS workers who retire before age 62 under normal requirements, they are eligible for the Special Retirement Supplement (SRS), which is paid from FERS (not the social security administration) and acts a supplement to social security benefits before reaching 62. With the SRS, it is important to keep in mind that the income might be subject to an earnings test and also, there are no cost-of-living adjustments (COLAs).

5. COLAs and Medicare B

Like both the FERS and CSRS annuities, social security income experiences a COLA in any year where the CPI-W (consumers price index for clerical workers) shows positive inflation for the year prior. If the CPI-W increases 1% for example, social security benefits see a 1% bump the following year. (If there’s 0% inflation or deflation, there is no COLA the following year.) The 2023 COLA for social security was 8.7% - the largest such adjustment since the 1980s. And lastly, Medicare B premiums are taken out of your social security income on a monthly basis. Increases in Medicare B premiums can therefore sometimes cancel out any boosts from a COLA. For example, in 2022, there was a 5.9% COLA but Medicare B premiums shot up by 14.77%, so affected social security recipients saw a net decrease in their benefit amount of -8.87%. Thankfully, for 2023, the COLA was 8.7% and Medicare B premiums actually dropped by -3%, making up the difference from the previous year’s adjustments.

Next Steps

If you’d like to dive into more detail about social security for federal employees and annuitants, check out this page. On that page, you can also register for the next social security webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your retirement benefits and start making a plan! For an even deeper dive into your retirement planning as a federal employee, check out our entire (no-cost) webinar series.

----

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.