The Federal Employees Retirement System (FERS) supplemental pension (or Special Retirement Supplement) is an often-overlooked benefit paid to eligible federal employees who retire “early.” The FERS Annuity Supplement is in addition to the standard FERS Pension and acts as a bridge for federal employees who have met their “years of service” requirement, but not yet eligible for Social Security.
The supplement pays until Social Security eligibility (age 62), but it doesn’t mean you have to start collecting your Social Security benefits. It provides an income source that closely mirrors your age 62 Social Security benefit but is computed using only civilian federal service credits towards your FERS retirement benefit.
It should be noted that Civil Service Retirement System (CSRS) employees are not eligible unless their pension has components of both CSRS and FERS.
It is important that you review your earnings history and immediately report any discrepancies to the office of personnel management to have your records updated.
Eligibility for the FERS Social Security Supplement
To collect the FERS Supplement, you must have at least 30 years of creditable service and meet your Minimum Retirement Age (MRA), which is determined by your year of birth. Alternatively, you can qualify for the FERS Supplement if you have 20 years of creditable service and are age 60.
Before we go further, if you are a “Special Provisions” employee (law enforcement officers, firefighters, air traffic controllers, etc.), then the rules for your eligibility are quite different. In many of these cases, the FERS Supplement may be payable as early as age 50 with 20 years of service. If you have past military duty, then those years could be used for your years-of-service requirement as well.
Calculating Your FERS Supplement (Special Retirement Supplement)
Calculating an estimate for your FERS Supplement is quite easy as long as you know your years of service and your age-62 Social Security benefit amount, which can be easily obtained from the Social Security website.
(Years of Creditable Service ÷ 40) × Your Age-62 Social Security Benefit = Your Estimated FERS Supplement
For example:
Alex retires on his 60th birthday after 30 years of service.
His age-62 Social Security benefit is projected to be $2,000 per month.
30 ÷ 40 = 0.75
0.75 × $2,000 = $1,500
Alex would receive about $1,500 per month until age 62.
Other Important Factors
The supplement is taxable.
There is no cost-of-living adjustment (COLA) added to the supplement, which means the payment amount remains the same from start to finish.
The supplement is subject to an earnings test, which means it could be significantly reduced or eliminated.
The Earnings Test (or Earnings Limit)
The FERS Supplement is subject to the earnings test, which means for every $2 you earn above the annual limit ($18,240 for 2020), your FERS Supplement is reduced by $1.
The earnings test applies to earned income, which is usually only income received via a W-2 or self-employment. Investment income, rental income, and TSP or IRA distributions DO NOT count toward the earnings limit. Also, contributions to IRAs do not reduce your earnings for testing purposes (even though they can help reduce your taxable income).
Oftentimes, retiring “early” from the federal government doesn’t mean an employee will no longer work. Weighing the options of doing consulting and how it can impact your FERS Supplement is an important financial planning element to have reviewed.
Before collecting the supplement, you should analyze various strategies to maximize this benefit and attempt to reduce or eliminate the earnings test. Working with a qualified financial planner will assist you in making the best decision based on your particular situation.
Discuss your situation with a fee-only financial advisor.
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