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Federal Employees Retirement System (FERS) Supplement or Special Retirement Supplement (SRS)
This puts a whole different view on Social Security.
I am always amazed at the things they don’t teach you in “Financial Planning school”. One of the topics that are rarely touched on is Federal Employee benefits. A lot of time is spent discussing Social Security benefits and Social Security claiming strategies. Whether to claim at 62, full retirement age (FRA) or even wait until age 70 to get the largest benefit possible. But what about Federal Employees who have SRS benefits, what are those and how do they play into retirement planning?
What is the FERS Supplement?
The Federal Employees Retirement System (FERS) Supplement, also known as the Special Retirement Supplement (SRS), is a payment made to eligible FERS retirees until they reach the age of 62. The FERS Supplement is intended to bridge the gap between the retirement date of a federal employee and their eligibility for Social Security retirement benefits. In this article, we will provide an in-depth look at the FERS Supplement, including how it is calculated, who is eligible, and how it can impact a retiree’s overall retirement income. When the retiree reaches the age of 62, the supplement ends and the retiree may begin receiving their Social Security retirement benefits.
How is the FERS Supplement calculated?
The calculation of the FERS Supplement is based on the retiree’s total years of creditable FERS service and their estimated Social Security benefit at age 62. The Social Security Administration (SSA) provides an estimate of the retiree’s Social Security benefit at age 62, which is used to calculate the FERS Supplement. The formula used to calculate the FERS Supplement is as follows:
FERS Supplement = (Total years of FERS service) x (Estimated Social Security benefit at age 62) / 40
For example, if a retiree has 20 years of creditable FERS service and an estimated Social Security benefit of $1,800 per month at age 62, the FERS Supplement would be calculated as follows:
FERS Supplement = (20 years) x ($1,800 / 40) = $900 per month
The FERS Supplement is subject to a reduction if the retiree receives income from other sources, such as a private pension or wages from post-retirement employment. The reduction is based on the retiree’s “earnings test” which is the amount of income they earn from other sources. The earnings test is calculated as follows:
Earnings test = (Excess earnings) / 2
Excess earnings are calculated as the amount of income the retiree earns in excess of the annual earnings limit, which is adjusted annually by the SSA. In 2023, the earnings limit is $18,960 per year. For every $2 of excess earnings, the FERS Supplement is reduced by $1. Once the retiree reaches the age of 62, the earnings test no longer applies, and they can earn as much income as they want without affecting their Social Security benefit or FERS Supplement.
Who is eligible for the FERS Supplement?
To be eligible for the FERS Supplement, a retiree must meet the following criteria:
Be a FERS retiree who is eligible for an immediate annuity
Be under the age of 62
Have at least one year of creditable FERS service
Not be eligible for Social Security retirement benefits
The FERS Supplement is only available to FERS retirees who are not eligible for Social Security retirement benefits. This typically applies to federal employees who retire before they have worked long enough to become eligible for Social Security retirement benefits.
How does the FERS Supplement impact retirement income?
The FERS Supplement can have a significant impact on a retiree’s overall retirement income. The supplement provides income to bridge the gap between the retiree’s retirement date and the date they become eligible for Social Security retirement benefits. This can be especially important for federal employees who retire before they have worked long enough to become eligible for Social
Now does this change when you should claim social security? The answer is a resounding “NO”. But having this information can be useful in financial planning. The average Financial Planner has no idea of the differences between Federal Employees and everyone else. Federal Employees are different and have different needs which need different solutions.
There are also other considerations to consider when considering SRS. Reductions can be made to SRS if you continue working in another job or even another part-time job after you retire from Federal service. Taxes are always a concern, remember SRS is subject to ordinary income tax.
The calculation for the FERS Supplement is extremely complex and time-consuming. If you’re interested in an exact calculation, check out www.OPM.gov. For further reading see Retiree Annuity Supplement.