“I retired from Federal service on Dec 31, 2020. My annual leave balance was paid out to me in a lump sum at the end of the first pay period in January 2021. Is the annual leave payout I received in 2021 considered earnings, and will it affect the FERS supplement that I’m receiving in 2021? Since the annual leave payout was substantial, a considerable amount of the FERS supplement would be taken away.” – Brian.
Your FERS Special Supplement Could Be Taken Away
The FERS Supplement is also called the Special Retirement Supplement or SRS. All of those terms are referring to the same benefit that Federal Employees receive when they retire before they are eligible for social security benefits.
The FERS Special Supplement was designed to help bridge the money gap for certain FERS who retire before age 62.
The Special Retirement Supplement for FERS Employees will supplement your missing Social Security income until you reach age 62.
Not all FERS are eligible to receive the Supplement and even if you are eligible, the Special Retirement Supplement for Federal Employees could be taken away from you. We will discuss how.
Rules of Eligibility for FERS Supplement
There are rules for FERS employees if they want to receive the Special Retirement Supplement for Federal Employees.
Rule number one is that you must be eligible for Special Retirement Supplement for Federal Employees. I know, that sounds rather obvious but this is the Government we are talking about – we don’t answer “why” the Government does things here – just how.
Special Retirement Supplement for Federal Employees 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.
In order to receive the Special Retirement Supplement for Federal Employees you cannot retire with an early retirement (MRA+10).
To receive the Special Retirement Supplement for Federal Employees you must have:
- 30 years of creditable service and meet your MRA or,
- 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.
Special Rules for Special Provisions
I want to note here that Special Provisions FERS (ATC, LEO, or FF) have some different rules for the Supplement. Click here if you are Special Provisions.
How Annual Leave impacts your Special Retirement Supplement for Federal Employees
In this FERS Federal Fact Check we are going to dissect a real Federal Employee’s question about how his annual leave will work towards his eligibility for the Special Retirement Supplement for Federal Employees. Brian submitted his question to us online for the chance of having one of our Federal employee benefit experts answer.
In this case, Brian is planning to retire under what we will assume are normal rules in December. If everything goes according to his plans, he anticipates receiving his annual leave pay (leave he did not use while employed) in January of the following year.
Your benefits as a Federal employee are pieces to a much larger financial puzzle. Knowing how all of these pieces tie together is important.
FERS Retirement Benefits
When we talk about your FERS Retirement, we’re really talking about several different benefits. FERS (Federal Employees Retirement System) has three main components:
- Basic FERS Retirement Pension
- Social Security
- Thrift Savings Plan (TSP)
Your FERS pension and Social Security will be fixed dollar amounts. But the money you get from your TSP will depend on how much you contributed and how well you managed the money.
As a Federal Employee there is a strong likelihood that you will retire from Federal Service before you have reached the age of being eligible for social security benefits. The earliest age that you can begin to draw your social security benefits is age 62. HOWEVER, drawing social security at age 62 may be damaging to your wealth. We talk a lot about making sure that you have laid out your strategy for maximizing social security here.
Because you are eligible to retire before social security begins, you could receive the Special Retirement Supplement for FERS Employees.
If you would like to learn how to estimate your Special Retirement Supplement for FERS Employees read this article.
Because your Special Retirement Supplement for FERS Employees are based on social security benefits, there are earning limitations. Earning beyond these limitations could make you ineligible for receiving your Special Retirement Supplement.
Special Retirement Supplement for FERS Employees & Social Security Limitations
Social security benefits are reduced if you exceed earning limitations within a calendar year. Because the Special Retirement Supplement for FERS Employees is based on social security benefits that you would receive otherwise at age 62, it can be subject to earnings limitations as well.
Every year the social security administration sets the earnings limitations for the tax year.
Your annual leave is not subject to social security earnings limitations. Therefore, your Special Retirement Supplement for FERS Employees is not reduced when you receive your annual leave pay in the year that you retire. Annual leave was earned thought out your working years and therefore not subject to the earnings limitations associated with social security benefits or in this case, your Special Retirement Supplement for FERS Employees.
However, other earning income would jeopardize your benefit. We see this happen frequently with nurses who retire and being to work part-time in retirement picking up a few shifts here and there. Oftentimes, in this situation, the individuals earn income beyond the earnings limitations and then have their benefits offset.
If you have earned income that exceeds the earnings limitations set by social security, your Special Retirement Supplement for FERS Employees will be reduced. The social security office reduces your benefits by $1.00 for every $2.00 that you are over the limitations.
Should you earn income if it is going to offset your Special Retirement Supplement for FERS Employees?
That question is two-fold.
First, do you want or need the extra income? If you have run the numbers and determined that the income that you would receive while working exceeds the reduction in benefits you would be subjected to, you may want to consider continuing to work.
Second, does working provide a sense of security and purpose? Transitioning into retirement can be financially and emotionally challenging. Oftentimes, some people like to know that they haven’t entirely left the workforce and could keep working as long as they wanted to.
Either way, we want you to make an informed and educated decision. If you have questions like this, fill out the form below for your chance to have your question be featured in FERS Federal Fact Check.