Congress created the Federal Retirement Employee Retirement System (FERS) FERS in 1986 and it went into effect on January 1, 1987. It is a retirement plan that offers future benefits from three different sources. Covered employees will retire with payments from a FERS Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).
Human Resources at your federal agency can give you an estimate of your FERS pension. The TSP has several calculators and resources to help you project future income options from your TSP account balance, but what about your Social Security benefits?
Your MRA and Social Security
The my social security website provides a forecast of your Social Security retirement, but the forecast assumes something important for those retiring at their Minimum Retirement Age (MRA). This article will explore why those retiring from their MRA should be aware of how their decision to work or not after federal service affects their Social Security retirement.
FERS employees can have a full (unabridged) immediate annuity at age 62 with a minimum of 5 years of service. When they complete their MRA with at least 30 years of service or are 60 with 20 years of service, they are also eligible for a full, immediate FERS pension.
The FERS MRA is 55 – 57 years, depending on the year of birth. Those born before 1948 have the lowest MRA at age 55, while those born in 1970 or later are at the high end of the MRA spectrum at age 57.
If you’re retiring from the federal workforce with enough years on your MRA or an age before age 62 to qualify for retirement, the good news is that you’ll also receive the Retiree Annuity Supplement (RAS). The Office of Personnel Management (OPM) will pay the supplement on top of your FERS annuity, and you are entitled to it if your FERS retirement salary does not exceed $19,560 before 2022. For every $2 over the limit, your supplement will be reduced by $1.
The RAS stops the month you turn 62, regardless of whether you start signing Social Security at age 62. The OPM devotes an entire chapter in its CSRS and FERS handbook to these and other details about the RAS. The OPM also lists frequently asked questions about the supplement. The RAS does not affect your final annuity. However, by receiving the non-work allowance, you also don’t pay FICA taxes, meaning your Social Security account has no inflow of wages during this time.
The My social security online account provides insight into your payroll history which is used in a formula to generate your expected retirement. However, the projection reflects an annuity based on: if you kept working up to age 62, your full retirement age or age 70. These projections assume that you will continue to earn approximately the same amount of money each year as your most recent year.
Do you have a 35-year history of paying Social Security taxes with your MRA? Remember that Social Security de maximum 35 years of your income to build up your pension. Since your annual income tends to increase over time, postponing retirement usually allows you to replace some low-income years with higher-income years, which increases your benefit. However, if you have less than 35 years of pay, you will not be credited with income for each year that you have not worked when calculating your pension.
If you plan to retire from your MRA and not continue earning wages, a workaround is to use Social Security’s online calculator for a custom assessment. Please note that this option involves a lot of time and detailed data entry.
I suggest you avoid the calculator challenge and get professional help. See if you can contact Social Security by phone for personal assistance to get an accurate picture of your Social Security pension if you stop working before age 62. Make sure all information on your my social security account is correct. Then use the toll-free telephone number, 1.800.772.1213. This is available on working days from 08:00 to 19:00.
I recently spoke with a Social Security representative and was told that their phone lines are less busy during the early mornings from 8am to 9am and in the late afternoon and evenings from 5pm to 7pm. The rep suggested not calling them early in the week and early in the month.
© 2022 Francis Xavier (FX) Bergmeister. All rights reserved. This article may not be reproduced without the express written permission of Francis Xavier (FX) Bergmeister.