SUMMARY:
The age old question, “Should I retire from federal service when I am eligible and just go get another job that I enjoy?” As for job satisfaction, that may not be a bad move for you. However, there are some important things to know about how working at another job after federal service can affect benefits such as the Special Retirement Supplement (SRS).
BACKGROUND:
The SRS was designed to partially bridge the gap between the time an employee retirees and the time they are eligible to draw Social Security benefits at age 62. Although the SRS and SS benefit amounts are different, the programs are identical in one respect—if you make too much, you might have to give some of it back!
CHALLENGE:
Many folks are acutely aware of the Social Security Earnings Test that applies to those who draw Social Security benefits before they’ve reached the deemed “Full Retirement Age” as outlined by Social Security (between age 65 and 67). But did you know that the same earnings test applies to the SRS between the time an employee retires and age 62?
FACTS & FIGURES:
If you intend to take another job after retirement (and plan on making at least $16,920 per year), you’ll need to do some calculations to determine how much your SRS will be reduced because of earned income (wages) you make after you’ve already retired from federal service.
The scenario:
Let’s say an employee is in the following situation:
- Regular FERS employee (not Law Enforcement, Firefighter or Air Traffic Controller)
- Eligible to retire this year at age 56 (their Minimum Retirement Age) with 30 years of actual FERS service (not including any CSRS or military years)
- Social Security Benefit at age 62 is $1,200 per month
- Plans on working at the local country club part-time and earn about $1,500 per month (or $18,000 per year)
Step #1: Figure the full SRS benefit (without any reductions).
SRS formula: SS benefit at age 62 x (# of FERS years ÷ 40) = the SRS benefit
SRS calculation: $1,200 x (30 ÷ 40) = $900/mo (or $10,800/year)
Step #2: Figure the reduced SRS benefit (with reductions because of the SS Earnings Test).
The SRS is subject to the SS Earnings Test which states that for every $2 over the annual limit (which for 2017 is $16,920), they lose $1 of the SRS benefit. Since this employee will be making about $18,000 per year, their SRS will be reduced based on the following calculations.
First, $18,000 – $16,920 = $1,080 (to get the amount over the allowable limit of $16,920)
Then, $1,080 ÷ 2 = $540 per year or $45 per month (to determine the reduction to the SRS benefit)
So the SRS benefit will be reduced from $900 per month to $855 per month. Since there are no Cost of Living Adjustments for the Special Retirement Supplement for any employees, this $855 will remain level up until age 62 when the benefit stops completely.
Consider this, once this employee makes $38,520 in a given year, they have worked themselves completely out of the Special Retirement Supplement (for which they would have received $10,800/year). Of course, the good news is that that they made $38,520.
Step #3: Know the impact that this benefit has on your situation.
Some important considerations:
- The SRS affects Social Security in absolutely no way. However, the SRS will stop at age 62 when you are ELIGIBLE for Social Security benefits regardless if you actually draw Social Security at that time.
- Money received from your FERS pension, the TSP or similar retirement accounts does not count as “earned income,” so it will not be considered in the reduction of your SRS benefit. The only type of pay that is used in the earnings test are true wages or self-employment income.
- While those who retire prior to age 62 may receive an SRS benefit, no COLAs are given to the Special Retirement Supplement. Once the base calculation is made, it remains level until it stops at age 62.
- Some retirees who choose to continue to work (either in another career, or something slower-paced like a part-time job) may work themselves out of the Special Retirement Supplement benefit all together when the earnings test is applied.
- The Earnings Test does not apply for Law Enforcement Officers, Firefighters and Air Traffic Controllers until they reach their Minimum Retirement Age (MRA is between 55 and 57 depending on the year of birth), so these employees are able to make any amount of money between the time they retire and their MRA without any reduction to their SRS benefit.
TAKE-AWAYS & DECISION POINTS:
Rarely does the government allow you to have the best of both worlds. Those who desire to continue to work for pay after they have retired from the federal government may do so, but at a price. Since this SRS benefit is at no cost to the employee, losing it might not hurt so badly. However, most do not want to pass up the opportunity to get something for nothing. Recognizing this benefit for what it is can take the surprise out of the equation and may sway you to work a little longer before retiring from federal service.
