For federal employees under the Federal Employees Retirement System (FERS), deciding when to claim Social Security benefits is an important financial decision that can have a long-lasting impact on retirement income. Social Security is just one part of your retirement puzzle, alongside your FERS pension and Thrift Savings Plan (TSP). Understanding how Social Security fits into your overall retirement plan is essential for making an informed decision.
Understanding Full Retirement Age (FRA)
Your Full Retirement Age (FRA) is the age at which you are eligible to receive your full Social Security benefit. For those born in 1960 or later, the FRA is 67. It is important to know your exact FRA and estimated benefit amounts, which can be accessed by logging into your account at SSA.gov. Your SSA account also allows you to verify your earnings history, which is vital, as any inaccuracies or missing earnings could reduce your future Social Security benefits.
What Happens If You Claim Early?
While you can begin receiving Social Security as early as age 62, claiming before your FRA results in a permanent reduction in your monthly benefits. This reduction is approximately 6% for each year you claim before your FRA. For example, if your FRA is 67 and you claim at 62, your monthly benefit will be about 30% lower than if you waited until age 67.
If you decide to claim early and continue working, you may be subject to the Social Security earnings limit. If your income exceeds a certain threshold before reaching your FRA, Social Security may further reduce your benefits. This is something many federal employees find surprising, especially if they retire early but return to work on a part-time or full-time basis.
The Value of Waiting
Delaying your Social Security benefits can increase your monthly payment. For each year you delay past your FRA, your benefit will increase by about 8%, up until age 70. This increase is guaranteed by the U.S. government and is typically higher than returns from most other types of investments. Waiting to claim benefits can be especially beneficial if you expect to have a longer life expectancy, as the higher monthly payments will continue for the rest of your life.
Survivor Considerations
The timing of your Social Security claim can also affect survivor benefits for your spouse. If you delay your benefits, your spouse may be entitled to a higher survivor benefit if you pass away. This aspect of Social Security is a crucial factor in your retirement and estate planning, as it can significantly affect your spouse’s financial security after your passing.
Make Social Security Part of Your Retirement Plan
Claiming Social Security is not a decision to make in isolation. It should be considered alongside other components of your retirement, including your FERS pension, TSP savings, survivor benefits, and tax implications. Given the complexity of these factors, working with a financial advisor who understands federal benefits can help you develop a comprehensive retirement strategy tailored to your long-term financial goals.
By carefully considering when to claim Social Security, you can optimize your retirement income and ensure that your benefits support your needs throughout retirement.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Micah Shilanski 00:02
As a federal employee, when should you turn on your Social Security? Do we turn it on early? Do we wait till our full retirement age? Do we delay it to get a better benefit? Well, if you’ve ever wondered the answer that question, then stay tuned for this FERS Federal Fact Check. Hi, I’m Micah Shilanski from Plan Your Federal Retirement and we have a great question coming in from Jerry, because this is something that applies to all federal employees, but it’s something that’s a little bit unique for federal employees compared to the average person. So he asked, what age should I start collecting Social Security retirement benefits? What is my full retirement age, and how does it change if I delay or file early? Jerry, that is an excellent question. Now a couple things come into play right here. Let’s talk about your Social Security benefits, but let’s dovetail in some other things that I see affect federal employees before you start turning your benefits on early. So what is your full retirement age? Well, depends on the age you were born. Let’s say you’re born after 1960, it’s kind of where a lot of us are right now, so if you’re born after 1960 your FRA full retirement age is 67 if you want to know your full retirement age number one, you can Google it. But the better option is go to ssa.gov, log in and look at your Social Security benefits. It’s going to tell you your full social security age. It is going to give you exact dollar amounts of all of your benefits. This is really important to do, middle side tangent on this one. Sorry. This is really important to do to make sure you look at your Social Security benefits and make sure your earnings are reported for the last several years. There’s been many times that earnings have not been reported accurately to Social Security and you don’t get all of the Social Security credit that you should. That means you get less money in retirement. This is one of those things. Every couple years you should be pulling this record, looking at it, making sure your earnings were accurately reported and that’s on page two of your Social Security statement, when you’re looking at that online. All right, so your full social security age is 67 What if you decide to take it early? How soon can we take Social Security? You can take it as soon as age 62 under normal circumstances, but when we take it early, there’s a penalty. How much is a penalty? The penalty is 6% per year. Every year you turn it on early. Well, what does that mean? Well, it means that 67 is my full retirement age, and I turn out 62 that’s five years, five times six, that’s a 30% permanent penalty. Permanent means it never goes away, right? It will wait. There’s more bad news coming your way. They also put an earnings limitation on when you turn on Social Security before your full retirement age, so at 62 that if you make, quote, too much money. I don’t know about you, I have never seen too much money. Supposedly, it’s out there. But all right, whatever, if you make too much money, you are not eligible for your full benefit. They’re gonna start pulling some of that benefit back. That’s the same with your FERS supplement. Where I see this by federal employees, is they turn their social security on at 62 then a year or two later, they get a little bored. They want to go do something. And these are people that promise they never would. Now they want to go do something. I start getting that earned income. Come in. It’s not it’s a very low threshold to get over too much income, and then they start owing their Social Security back because they made too much. That’s not a great position to be in, especially when you already had to pay taxes on that money. So you gotta be really careful about when you turn it on, because the penalty, because the earnings limitation and reduction that’s there. Also start with the longevity the benefit, right? If I turn it on early, it’s a 30% penalty you will be like waitt. It’s like 30 plus percent more in growth that that account is going to get. It grows by 6% because the penalty is going away. It grows by like a 6% a year. Okay? Where can you get 6% a year, guaranteed by the federal government right now, nowhere right money markets currently aren’t paying that rate. That’s not a guaranteed rate. You’re getting it in the Social Security bucket. It’s kind of something to think about. The other part about that is that 60 after your full retirement age, so we use 67 your Social Security grows by guaranteed 8% a year up until age 70, when it maxes out. I’m going to ask the same question again, where can you get a guaranteed 8% a year, guaranteed by the US government? Right now, I can’t find it anywhere. I think the only place is the social security. So sometimes we look at Social Security incorrectly. We look at it says, Hey, I better turn the money on now. Versus how do I maximize my benefit? We also will have this fear that if we pass away, all that money gets left in the system, and you are correct, and God forbid, if you pass away early, that is what happens. But there probably aren’t the odds that you’re in. The odds are you’re going to live longer than you anticipate, because that’s what we’re seeing time and time again. The marvels of modern medicine. People live longer and healthier lives, and we need to make sure your income is there, so be really careful about when you turn this on. We don’t have time to get into it too. But it also affects survivor benefits and how much your spouse is eligible to receive based on when you turn these benefits on. So this is a simple decision. You need to have a strategy for how Social Security comes in your retirement. Now, if that’s something that you need help with, go find a great financial advisor to work with. Of course, I’m biased. I think we’re pretty good up here in Alaska, and we have great advisors on our team, but this is something that you need to consult with someone about really understanding your situation to make sure you’re getting the best advice, whether it’s us or someone else who’s really good. Make sure you’re looking at this and putting Social Security in the context of your entire financial plan, which, of course, includes your taxes. If you have questions like this about your benefits, make sure you write in to us. Visit our website at plan-your-federal-retirement.com. Until next time happy planning.