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“Dear Micah, Thank you for this series. I can retire in October 2019 with 30 years under FERS. I will be 56 years and 10 months old and did not think that I would be eligible for the SRS until age 57.
I filed for my retirement the first part of April and when my retirement counselor called me she told me that I will be eligible for SRS immediately upon my retirement in October because I have 30 years in and that I do not have to wait until age 57 to draw the supplement.
Have you come across this particular issue with any of your clients? Very Respectfully,” – Marti
Marti – this is a great question! There is so little information about how the FERS Supplement works that we understand entirely why you may be a little concerned before accepting a Voluntary Early Retirement.
In this article on the FERS Supplement we are going to:
Provide you with the FERS Supplement Calculation,
Eligibility Rules for FERS Supplment,
Provide information on income taxes when it comes to your FERS Supplement and,
Tell you how to start your FERS Supplement.
But first, we need to answer Marti’s question: yes! Based on the information you provided here Marti, it does sound like you are eligible for the FERS Supplement under your election to accept a Voluntary Early Retirement Authority (VERA) application.
Let’s dive into how we made this determination with the information you gave us.
Voluntary Early Retirement Authority
In order to retire from Federal Service under FERS and receive your benefits, like your pension, you have to meet the eligibility requirements for an immediate retirement.
Eligibility for an immediate retirement means that you have met your Minimum Retirement Age (MRA) and have the required years of creditable service completed.
If you meet one of the following sets of age and service requirements, you are entitled to an immediate retirement benefit:
Years of Service
This is for a normal, unreduced immediate retirement.
From time to time though the Federal Government offers an earlier retirement option to some employees through their Voluntary Early Retirement Authority (VERA).
Voluntary Early Retirement Authority (VERA) allows agencies that are restructuring, reshaping, downsizing, cutting their budgets… however you want to say it… to reduce the employees that they have by allowing volunteers to retire earlier than normal.
One of the concerns most Federal Employees considering a VERA have is determining if they are going to lose any of their retirement benefits by taking the early out.
In order for an employee to be eligible to participate in a VERA, they have to:
Meet the minimum age and service requirements –
At least age 50 with at least 20 years creditable Federal service, OR
Any age with at least 25 years creditable Federal service;
Have served in a position covered by the OPM authorization for the minimum time specified by OPM (usually 30 days prior to the date of the agency request);
Serve in a position covered by the agency’s VERA plan; and
Separate by the close of the early-out period.
If an employee participates in an early retirement their pension is not reduced because they did not meet their MRA.
But what about the FERS Supplement? Are you still eligible for the FERS Supplement if you retire under a voluntary early retirement?
Yes. If you accept a voluntary early retirement you can still be eligible to participate in the FERS Supplement.
A FERS pension supplement is paid to FERS Employees who have completed at least 1 calendar year of creditable service when he/she reaches Minimum Retirement Age (MRA). MRA is age 55 to 57, depending on the date of birth.
While this does not apply to Marti’s question, had he been age 54 and met all the other conditions, he is still eligible for the FERS Supplement when he reaches his MRA.
If this happens to you, when you reach your MRA make sure that you contact OPM if they did not automatically start your FERS Supplement.
Now, let’s dive into how to determine if you are eligible for the FERS Supplement, how to calculate your FERS Supplement, taxes on the FERS Supplement and finally how to apply for the FERS Supplement.
Eligibility for FERS Supplement
To be eligible for the FERS Supplement, you must meet two qualifications:
You must be an active FERS employee with 30 years of creditable Federal Service,
You must be your Minimum Retirement Age (MRA) or be age 60 and have 20 years of creditable service.
The first rule might sound obvious – but people really do ask… Yes, you must be in the FERS Retirement system to get the FERS Supplement.
And the Supplement is unique to FERS – there is no counterpart to the Supplement in the Civil Service Retirement System (CSRS).
The second requirement is that you must have a normal immediate retirement, not an early retirement (MRA+10). This means you must have 30 years of creditable service and meet your MRA. Or you can have 20 years of creditable service and be age 60.
And while you can seek a normal immediate retirement at age 62 with 5 years in service – the Supplement is only paid until age 62. So if you retired at 62 with 5 years of service, you would not get this benefit.
How to Calculate your FERS Supplement
In order to estimate your Supplement amount, you’ll want to have your annual Social Security statement handy. You’ll also need to know how many years of creditable service you would have at your estimated retirement.
The calculation for the FERS Supplement is multiple steps. In order to calculate your FERS Supplement, you will need to know what your Social Security Benefits are at age 62 as well as the years of creditable service you have from your Federal Employment.
Here is how to estimate what your FERS Supplement may be.
Years of Creditable Service: this is the number of years that count towards your retirement, and possibly some military time. (Time in military service counts here *only* if it was performed during a period covered by military leave with pay or leave without pay from civilian service. See Section 51A2.1-3 of the CSRS / FERS Handbook)
40: this is a fixed number and does not change
Your Age 62 SS Benefit: You’ll find this number on page 2 of your Social Security statement. And it doesn’t matter what age you plan to start receiving Social Security – for this formula, you must use the age 62 Social Security benefit amount.
You can see that almost by design, the Supplement will be less than your Age 62 Social Security benefit. Unless, of course, you have 40 years of service.
The calculation for the FERS Supplement is extremely complex and time-consuming. If you’re interested in an exact calculation, check out the OPM CSRS/FERS Handbook, Chapter 51, Retiree Annuity Supplement
Example on How to Calculate FERS Supplement
Say Sue is a FERS, and she will retire with 30 years of creditable service. She has reached her MRA, which is 57. And her age 62 Social Security benefit will be $1,200 a month.
Approximately how much will her FERS Supplement be?
Well, we take 30 years of service divided by 40 (30/40) = .75 Now take .75 times $1,200 (her age 62 SS benefit) = $900.
So Sue’s Supplement will be approximately $900 a month. And she’ll receive this supplement once she retires and up until the month she turns 62.
But we’re not done quite yet.
That is an estimate of the gross amount, but what is the approximate net amount Sue will receive?Will Sue’s Supplement be subject to any reductions? And will it be subject to taxes?
Yes! It is very likely it will be subjected to income taxes.
One of the most overlooked areas of planning for retirement as a Federal Employee are estimating taxes. I cannot tell you how many times that I have to debunk the myth that as a retiree a clients taxes will be SUBSTANTIALLY lower.
Keep in mind, your FERS retirement system is a three-legged stool. If you have not read about our tax planning in retirement, finish this article and make sure you do.
Reduction in FERS Supplement
The Supplement is treated much like Social Security Income.
And if you take any Social Security income before your Full Social Security Retirement Age (Your FRA varies from 65 to 67 depending on the year you were born) your Supplement is subject to a reduction and possibly taxes.
If you will have earned income (ex: a part-time job) after you retire from Federal service, your Supplement may be reduced.
The reduction is significant and because the income threshold is so low, it will impact many FERS retirees. Especially FERS who plan to get another job, even a part-time job, after they retire from Federal service.
Back in the 1990’s, there were some big changes to the way Social Security was taxed. The government decided that they would reduce the amount of Social Security (and FERS Supplement) someone could receive before they reached their Full Retirement Age (for Social Security) and if they earned more than a certain amount. These changes continue to impact the FERS Supplement today.
In 2019 the earnings limit is $17,640
What counts toward that limit? Earned income – which is essentially any income you receive as a W-2 wage. So if you earn more than $17,640, your FERS Supplement will be reduced. For every $2 you earn above the limit, your FERS Supplement will be reduced by $1.
Here’s How the Reduction Works –
Let’s go back to our example with Sue. Say Sue gets a part-time job after her federal retirement. That job pays her $30,000 a year, which is $12,360 over the income limit.
Half of $12,360 is $6,180, which is her annual reduction. Divide that by 12, and we get a reduction $515 a month.
Earlier, we estimated Sue’s Supplement to be $900 a month. Once we factor in her reduction, we see that Sue’s Supplement will really be closer to $385 a month.
But we have one more hurdle before we really know what Sue’s net amount will be. Taxes…
Taxes and the FERS Supplement
When we discuss the Supplement in the FERS Pre-Retirement classes I teach, some people think, “If the government already reduced my FERS Supplement – surely they wont’t tax it too.”
Well – they can – and they do.
While the reduction in the FERS Supplement is calculated by the Social Security reduction rules; the way the FERS Supplement and Social Security are taxes is different. While the majority (but not all) of your Social Security income will likely be subject to tax; ALL of your FERS Supplement will be subject to ordinary income tax.
Looking at Our Example…
Going back to our example with Sue – she has a part-time job that pays her $30,000 a year. In our example, her Reduced FERS Supplement was approximately $385 a month. Taxes are complex, but for the sake of easy numbers let’s say she pays taxes at a rate of 15%. 15% of $385 would be $58, leaving Sue with a FERS Supplement of $327 a month.
Mind the Gap: FERS Supplement to Regular Social Security
The FERS Supplement will stop the month you turn age 62. And it stops whether or not you have started drawing Social Security at age 62.
Some people may choose to start drawing Social Security at age 62 – but others will want to delay until later.
Why delay? The longer you wait, the higher your benefit will be. That is, up until age 70. The amount will not increase if you wait any longer than age 70 to draw Social Security.
But if you delay drawing Social Security to get a larger benefit – it means you have to go that many more years without the monthly benefit.
This can create a money gap – and it’s important to plan ahead for it.
How to Apply for the FERS Supplement
There is no website or online application to apply for the FERS Supplement.
If you are eligible to receive the FERS Supplement in retirement than you will receive the allotment automatically. You do not have to “apply” for the FERS Supplement.
Likewise, you do not have to cancel or stop your FERS Supplement at age 62. That will cease when you reach age 62 automatically as well.
The Government seldom forgets to stop a retirees FERS Supplement, don’t worry! 🙂
However, once you retire you may want to confirm that OPM has your particular file flagged as eligible for the FERS Supplement.
How to verify your FERS Supplement Enrollment
When you retire from Federal Service, you will receive a small retirement booklet in the mail.
The booklet looks like a piece of junk mail; we cannot tell you how many people throw out their retirement benefits booklet confirming their FERS Retirement information from OPM because they mistook for nothing of consequence.
Contained with your FERS Retirement booklet from OPM you will see confirmation of your eligibility to receive the FERS Supplement. The OPM mails you the booklet after they finalize your retirement, a process called certifying your retirement.
On average it takes OPM around 3-9 months to process FERS Retirement files.
The booklet contains all of the information about your retirement to verify its accuracy. You will see your gross, net pension as well as all of the deductions and survivor benefits. Additionally, you will see your FERS Supplement verification.
You have a limited amount of time after you have retired from the Federal Government to ensure the accuracy of your FERS information. To verify that you will receive the FERS Supplement, review your Retiree benefits booklet that OPM has sent you via post.
If you find that you are eligible for the FERS Supplement because you:
Have reached your minimum retirement age (MRA) and have at least 30 years of creditable service
Or have reached your minimum retirement age, are age 60+ and have 20 years of creditable service.
My understanding is that if I take immediate retirement at MRA before 62, then I will: 1) get the FERS Supplement to my FERS annuity; and 2) but I will
Your Financial Planners
Get the most out of your federal retirement benefits by taking advantage of the FERS resources created by Micah Shilanski, CFP®, and the team of independent financial advisors at Shilanski & Associates, Inc. Join the thousands of federal employees who trust us to guide them in their retirement planning journey because of our unique perspective of how your FERS benefits contribute to your comprehensive financial plan.
3 Critical Concepts that Most Federal Employees Miss When Planning Their Retirement
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