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How the FERS Supplement Could Help You Retire Early

Mar 15, 2022 | Episodes | 0 comments

How the FERS Supplement Could Help You Retire Early: Audio automatically transcribed by Sonix

How the FERS Supplement Could Help You Retire Early: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Well, welcome back, everybody, to the Federal Retirement Show. I am your host, Val Majewski, vice president of sales and marketing here at American Benefits Exchange. And there's a huge topic that we've been getting asked a lot of questions about over the years. There's a benefit out there for you as a federal employee if you're part of the system that you may or may not know about. And we want to go over that in a detailed format, but also just make sure it's very simple and easy to understand. So today we're going to be talking about the FERS Retirement Supplement, also known as just the FERS Supplement. We're going to talk about what it is, who receives it, and really what you can count on when it comes to the first supplement as part of your retirement income. Now, first of all, let's talk about what it is, right? What is the first supplement? Maybe you've heard of it, maybe you haven't. But the reason why we want to discuss it is because a lot of federal employees are not aware that this even exists. So if you recall, as a FERS employee, there are ways in which you can retire prior to the age of 62 with full benefits. Now, why is the age of 62 important? Because at age 62, that's when you're eligible to collect Social Security. Now, Social Security is one of the three main retirement income sources for a FERS employee.

Speaker1:
So you may think, well, okay, I can retire with full benefits prior to the age of 62, but one of my main income sources in retirement I'm not yet eligible for. So what do I do then? Now, that is where the FERS retirement supplement comes in. It is designed to help bridge the gap between when you retire and when your Social Security eligible. It is an entitlement. It is a free benefit. It's not something that you as a FERS employee pay for and it is available. I'll go into more detail about this for those who retire with full benefits prior to being Social Security eligible. Now I will say that this is only for FERS employees, only for FERS employees. Csrs. There is not an equivalent for this for you. Why? Because, number one, you are not eligible for Social Security as a CSRs employee. So this is for FERS only now which FERS employees are eligible? Well, those who retire voluntarily, those who retire on an immediate annuity, immediate annuity. Now, what does that mean? Well, there are two ways that you can retire are two criteria that you can satisfy in order to retire voluntarily and retire on an immediate annuity prior to being Social Security eligible. That is, if you have 30 years of service and hit your minimum retirement age, which is anywhere between age 55 and 57, depending upon your birth year, if you have 30 years of service, it's your mirror.

Speaker1:
You can retire. And if you have at least 20 years of service and you hit age 60, you can then retire voluntarily as well with full benefits prior to the age of 62. So that is when you will be eligible for the first supplement. Again, this is an entitlement and it's automatic. It's not something you have to elect like Social Security when you retire. If you satisfy those criteria, you will automatically get the first supplement and that supplement will continue until you are Social Security eligible at age 62. Now, what if you retire involuntarily? So if you happen to be part of a major reorganization or a reduction in force, also known as a riff, you may still be eligible for the first supplement if you retire involuntarily before hitting your mirror. Now, there are also some criteria out there, and I've been getting asked this question a lot recently, is what if the government offers an early out? If there's an early buyout or an early out for retirement, am I still eligible for the first supplement? Typically the answer is yes. Now that's usually in the criteria of that early out, but there is a possibility you could still get the first supplement in those circumstances.

Speaker1:
Now the opposite. Who is not eligible for the first supplement? Well, first, employees who receive a deferred benefit. So as I mentioned before, you need to be on an immediate annuity in order to be eligible for the first supplement. So if you elect a deferred retirement or a deferred benefit, you're not eligible for the first supplement. If you receive a disability benefit, meaning you're receiving a disability retirement, well, you're already going to be receiving then Social Security disability. So you will not need this Social Security bridge in that instance. And then there's another way that you can retire. Early on an immediate pension, but it is not considered full benefits for retirement. So those that satisfy the immediate Mara plus ten benefit, they are not eligible for the first supplement. So what does that mirror plus ten? That just means you've hit your minimum retirement age. You have at least ten years of service and you want to voluntarily retire early, but it's not considered full benefits. So you will not be eligible for the first supplement. Now, the next question, what is it and how much can I anticipate? Right. So we decided the first supplement is an entitlement. It's something that is available for FERS employees. We get that. It's available to those that retire on a full pension, on reduced immediate annuity.

Speaker1:
But now how do we calculate it? Well, in order to do so, you first need to know what your age 62, Social Security benefit is going to be. Now, this is something that you can go on to Social Security, dot gov or SSA gov and go through their criteria and get your estimate. I can certainly walk you through or any member of our team can walk you through the quick calculator on Social Security's website to get a ballpark amount of what your age 62 benefit will be. So we start with that. Then we need to know how many years of FERS service time you have because this is only for FERS service time. You may have military by back time. That does not count towards the first supplement. So we take your number of FERS service years, divide that number by 40. This is the calculation they use and then multiply that by your age, 62, Social Security benefits. So let's look at an example of what this can look like. So let's assume that you're a FERS employee and you have 30 years of first service and just running the numbers your age. 62, Social Security benefit is 1000. Now I'm just using this to keep the math simple. So let's say you take 30 years of first service, divide that by 40, that's 75% and multiply it by your age.

Speaker1:
62 benefit in this case is 1000. You will be paid $750 a month from whenever you retire until you are eligible for Social Security at age 62. So the first supplement is automatic. In this case, we pay $750 a month from whatever this person retired until age 62 when their Social Security eligible, the first supplement will stop. Now, this does not mean you have to take Social Security at age 62. You can still choose to take it whenever you want, but it just means that the first supplement will stop and then Social Security could begin. Now it's important to note that it is subject. The first supplement is to an earnings test similar to Social Security. Now there's an earned income limit that you can have before seeing a reduction in your first supplement benefits. Now, earned income, what is included in earned income? Because people ask this all the time to well, is my pension included in that earned income limit? And the answer is no, pension is not included. This is earned income. W-2 income and business income are counted in this earnings test. Now, the limit did increase before seeing any reduction. So you can earn up to in 2022, $19,560 before seeing your first supplement benefits reduced. What does that reduction look like? For every $2 over that earnings limit, your first supplement will be reduced by $1.

Speaker1:
So for every $2 over the limit that you earn, your first supplement will be reduced by $1. It does not say that it cannot go down to zero. It just means if you're making too much money in retirement, your first supplement could be reduced. Now, making too much money is not necessarily a bad thing. You just won't see much from the supplement. So when we talk about retirement and we talk about making sure you understand all of your retirement income sources and where everything's coming from, it's important to take into consideration the first supplement if you're going to be eligible to retire with full benefits prior to age 62 when you are Social Security eligible. If you need an estimate of what that Social Security supplement or the first supplement is going to look like, reach out to us. We'll be happy to run a report for you, show you what your estimated retirement income is going to look like. We will take the first supplement into consideration. We'll also see what that will change, like if you decide to turn on Social Security once hitting age 62. So hope you enjoy this information on the first supplement. Reach out to us with any questions and look forward to seeing you on a future episode. And.

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