Social Security & the FERS Supplement: What Federal Employees Need to Know

6.13.25: Audio automatically transcribed by Sonix

6.13.25: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement Show. I'm your host Val Majewski with American Benefits Exchange. Really appreciate you taking the time out of your busy schedule. To view our content to view this episode, be sure to check out all of our other episodes, all of our other recordings. Uh, it's here for you, the federal employee that's looking for information regarding benefits and retirement. Why? So you can make the best decisions going forward? That's what we do. I'm not going to consider myself the foremost expert to say that I know every single thing. But in my experience, almost 13 years now of working exclusively with federal employees, I know a whole lot and hopefully can guide you and get you the answers that you're looking for. If you do have additional questions, you do have additional things that you want to talk about. You want to review your entire situation? Go to our website, WW retirement Show.com fill out the form. One of our experts, if it's not me personally, one of our folks nationwide will reach out to you, review your benefit situation and answer all of your questions. Get you the information you're looking for. So today's episode we're going to be talking about Social Security in the first supplement. And we have done episodes on this topic before. Or these two topics before. But why is this important now? And as you've heard me say, if you're an avid listener and I if you are, I appreciate that.

Speaker1:
If you are not, please subscribe. Get notified when new content is coming out. Do me a favor. Also, share it with your colleagues, the people that you're working with. Because if you have questions, I'm sure they do too. And this can be a great place for them to find their answers. Okay, back to it real quick. So when you've seen us before, we've talked about Social Security and the first supplement, but why is this really important to bring up again? Well, with the changes that are going on and the budgeting requests and or the legislation that's out there, you could see that there have been some updates, and there's been a lot of panic when it comes to federal employees not understanding or knowing exactly what's going to go on when it comes with the first supplement or even Social Security. Now, I'll tackle this here in a second, but I just want to say this is a concern of a lot of federal employees. If it's not for you, no big deal. Again, check out our other our other content or other information. But a lot of federal employees that I'm talking to that are contemplating retirement within the next couple of years. We're relying on these things specifically the first supplement, and the new legislation can change what is going to come to the federal employee once they retire. As far as income is concerned, I'll get into that in just a second.

Speaker1:
So again, we've done other episodes on Social Security and the first supplement, but the conversations I'm having recently have turned a little more to concern and panic when it comes to what's going on and how do we plan accordingly if changes are made. And that's the big thing. It's not just giving you information, it's just saying, how can we help plan properly for your future, for retirement? With the changes that are going to be made with new information, with what's going on? So I'm here to try to calm it a little bit and say, look, we can still plan ahead. You still have time. We can make the most of this. And I don't want to I don't want to be in panic mode. I don't want to think negatively. I don't want to complain. But let's say if this is it, there's no changing it. There's nothing we can do by, you know, say, complaining, arguing, things like that. Let's just say how is the best way to move forward? How can we plan properly going ahead. So let's dive into today's content. We're going to talk today about Social Security and the first supplement. First of all Social Security right. Social security you've heard of this before. It's one of the three retirement income sources for a Fers employee. And I'm speaking mostly to Fers today because we're talking about Social Security in the Firs supplement, but one of the three retirement income sources on top of pension and TSP Social Security.

Speaker1:
Now what is it? Well, it began with the Social Security Act, which started in August 14th of 1935. Uh, this was amended numerous times. Right. Social security was updated numerous times over the years. It was not originally meant to be a primary retirement income source for folks. It was actually considered like an insurance claim benefit, right. Because it's also known as old age survivors and disability insurance. You may have seen that on your leave and earnings statement, your paycheck stub or SDI, old age survivors and disability insurance. That's another term for Social Security. And what that is again, it's a claim payment. It's an insurance benefit that you're given. Um, and it was the first one of its kind to provide like this social income source for the US. And again it's been it's been amended numerous times to what it is today. Currently in our present situation, um, the minimum age that you can get this is at age 62 is when you can start getting claims in a traditional sense. We're not talking about Social Security disability, we're just talking about traditional Social Security benefits. And your full retirement age for Social Security currently is age 65 to 67, depending upon your birth year. If you have a question of when your full retirement age is for Social Security, reach out to us. We can let you know.

Speaker1:
Again, depending on your birth year, this is something that you pay for. You look at your paycheck stub. You look at your leave and earnings statement. You'll see a deduction for Social Security 6.2% in addition to the deduction that you have for your Fers retirement system. So you have money going into two different plants automatically. You can't determine whether you want to contribute or not. You automatically contribute to the first retirement system, and you're not able to determine if you want to contribute or not to Social Security. 6.2% comes out of every paycheck going towards that system, so those things are set for you to then collect the benefit when the time is right. When you retire, you're going to get your pension. When you decide to elect Social Security, you'll start getting that benefit. I didn't mention the max. You can wait in order to take Social Security at age 70. Now, when we look at this right, you've got a deduction 6.2 each pay period. And when can you take money. Just understand it's determines by when you take it how much you're going to get right. Your full retirement age is the max not the maximum but your full benefit. I said the maximum. You can wait till age 70, but for every year prior to your full retirement age that you take money out, you're going to see a reduction of your benefits of about 6.25%, 6.25% less for every year prior to your full retirement age.

Speaker1:
The opposite is true. It's about 8% increase for every year beyond your full retirement age up to age 70. Now, when you want to take it, that's up to you. Most federal employees I talk to want to take it right away when they retire or when they're first eligible, because they're counting on this as a retirement income source, when they're when it's all said and done. Now, there are there are questions about Social Security as well. Before we get into the first supplement, there are questions that are out there. I did an episode on the Social Security Trustees report from 2023. This was in the beginning of 2024. This episode came out and we were talking about in plain English. When you look at their their trustees report, they're telling you that Social Security financially is in trouble. And if a correction is not made, if if a edits aren't made, if changes are made to Social Security, that by the year 2033, the fund will be exhausted and they're not going to be able to pay all the the benefits that they've promised going forward. In fact, they're saying they'll only be able to pay about $0.77 in the dollar beyond that. Now, what is that saying? Again, in plain English, it's just saying they're going to have to make some corrections to Social Security if we want it to remain in the position that it is now.

Speaker1:
And if they don't make any changes, well, you can expect and this is what they're telling us. Less benefit right. Almost 25% less going forward. Now that may not mean anything to a lot of us because maybe we've planned ahead. Maybe Social Security is kind of like a bonus. Maybe you're not banking on it as a big retirement income source for you. So that's just extra money. It's not something that is a major concern, but a lot of people that I talk to, having the right amount or the declarative amount of Social Security benefit is a big deal. Because as I said at the beginning, it's one of your three retirement income sources if you're a Fers employee or Fers retiree. So Social Security has its own issues that we're dealing with, not just with the current budget legislation, but just with funding in general. Why? Because there's more and more people that are collecting Social Security. People are living longer, so it's paying out more benefits than it's collecting. And eventually those numbers aren't going to work, right. If you're paying out more than you're collecting, eventually it's going to exhaust the fund, which is what they're telling us is going to happen. I hope it does not happen. I hope it gets corrected or fixed or their numbers are inaccurate. But this is straight from their own trustees report. Okay, so that's Social Security. What about the first supplement? What is it? Now, I said Social Security is one of the three retirement income sources for a Fers employee.

Speaker1:
But what is the first supplement. It's for those Fers employees that retire with full benefits prior to being Social Security eligible. Now, if we go back to our previous episodes where we've talked about the Fers retirement system, there are three ways that a first employee traditionally can retire with full benefits. You have to meet one of these three requirements. You have to be age 60 with at least 20 years of service, 62 with at least five, or have 30 years of service and hit your minimum retirement age. Those are ways that you could retire on an immediate pension. Full benefits. Right now, two of those you can retire prior to being Social Security eligible, right? Age 60, with 20 years of service or 30 years of service hitting your minimum retirement age, which is age 55 to 57, depending upon your birth year. Notice it's different than full retirement age for Social Security, which is 65 to 67. This is MRA minimum retirement age for a Fers retiree between 55 and 57. Now if you hit those requirements in a traditional sense, then you're not yet eligible for Social Security. In those two that I just mentioned. What do you do then? And that's where the first supplement kicks in. Now, this is also true for those that retire as a result of being part of a special group.

Speaker1:
Special groups. Law enforcement. Uh. Air traffic control. Firefighters can retire earlier than these things that I mentioned. Normally, there's our age, 50, with at least 20 years of service or any age at 25 years of service, that you're also eligible for this first supplement. So if you retire again, immediate pension, full benefits prior to the age of 62, you are entitled to the first supplement. It is not something that you have to apply for. It's not something that you've paid into. It's not something you have to elect. If you're eligible for it, you automatically get it. It does not come from Social Security, even though people consider it a Social Security bridge or a Social security gap filler. It comes from Fers, so it'll be the same as your first pension. You'll get the first supplement. Now it automatically comes as I mentioned, and it will automatically shut off at age 62. So I talked to people. They said, what if I defer the first up. You can't. Um, will I get more if I wait to take it? Well you can't. It's automatic. It comes and then it'll automatically shut off at age 62 when you become Social Security eligible. Now, you do not have to elect Social Security, but the supplement will automatically shut off. Now, who is eligible for this? Therefore, I want to tell who's eligible. And that way you can understand who might be affected.

Speaker1:
If the Social Security or the sorry, the Fers supplement gets eliminated as a result of the new legislation. Because what it's been saying and what you've heard me say, and we had a corrected episode where, yes, the the budgeting legislation says that the first supplement be eliminated for new retirees, new retirees. And the way that we're reading into it is that it's new retirees after the date the legislation becomes effective. So people are considering retiring at the end of the year. People are considering retiring as a result of the deferred resignation, and they're going to retire as of September 30th. They could be affected by this based on the way that it's worded now, we don't know what the final thing will be once it gets resolved if it does pass. But we can just look at the way it was said in the legislation or the proposed legislation. It's for new retirees. So just important to note again, I'm going through what the first supplement is. But the reason we're having this conversation today is because what do we do if it goes away? What if it's not there? So who is eligible? You have to retire on an immediate pension. It's got to be full benefits. It's unreduced okay. Full benefits Unreduced immediate pension. Now you might still be eligible with everything that we just went through, if there's a reduction in force, a riff or a major reorganization, or you're offered and take the Vera, you still may be eligible for the first supplement.

Speaker1:
So I said it's normally typically Fers employees retire with full benefits prior to age 62. In these cases, you can retire with less than full benefits if it's a riff, a Reorganization or a barrier that you're offered, they could still give you the first supplement. Just check the wording. Check what's all in that offer that they're giving you to ensure that the first supplement is still part of that? Now, who is not eligible just in a traditional sense, to receive the first supplement? If you are not receiving an immediate pension, if you defer or postpone your retirement, you're not going to be eligible for the first supplement if you have a disability benefit, meaning disability retirement. This is not for VA disability benefits, but if it's disability retirement, why? Because you're going to have to automatically apply for Social Security disability. And that would be your your Social Security benefit, not the Fers supplement. And if you choose to retire on an immediate pension but voluntarily early using the MRA plus ten provision, you would not be eligible for the Fers supplement. So just real quickly, I want to go over before we talk about strategy here of how this is calculated, just so you can get some ballpark numbers. The first supplement is calculated by a simple math equation. Okay. So this is a guideline as to how to determine what your Social Security or sorry I keep saying that your Fers supplement benefit will be calculated.

Speaker1:
First we need to know your number of Fers service years. So this is just first service years only it doesn't count your military time you purchased back or the sick leave time that's credited towards your pension calculation. This is just for service years. Take that number, divide it by 40 and then multiply it by your age. 62 Social Security benefit. So pretty simple calculation. Again fers service years. Divide that number by 40. Multiply that result by your age 62 Social Security benefit. So let's look at an example. Let's say a federal employee had 30 years of service as a Fers employee and was going to get $2,000 a month at age 62. Fairly simple math here. We take 30 divided by 40. That result multiplied by $2,000 a month. This person's going to get 1500 a month from the first supplement. Pretty easy to understand the math. A pretty easy way to do it. Now, the supplement, as well as your future Social Security benefits, are subject to an earnings test. I just want to let you know that now the supplement as I said, it's automatic. It comes. You can't avoid it. So if you're going to work extra in retirement, this could affect you. But the earnings test applies to W-2 or earned income, right. It's not going to apply to your first pension.

Speaker1:
It's not going to apply to your Social Security amount. It's not going to apply to your TSP, your other retirement savings accounts. This is going to apply to W-2 and earned income, business income that you have coming in in retirement. Now, what are the limits in 2025 if you're under the age of your full retirement age for Social Security. There's only so much that you can earn. You can earn up to $23,400 per year before seeing a decrease in your benefits, and your benefits are decreased $1 for every $2 over the limit in the year in which you're going to hit your full retirement age. Again, that's age 65 to 67, depending upon your birth year. That increased amount or increased earnings limit amount goes to $62,160 before seeing any reductions, and you'll be reduced $1 for every $3 over that limit. Once you hit your full retirement age, there are no reductions, no matter how much you earn. Okay. Now this is this is important for a couple reasons, right? Because again, the first supplement, there's no choice that you have to elect it. So if you are working in retirement, unfortunately if you make too much money your first supplement will be reduced. Nothing you can do about it. But when it comes to electing Social Security. You might want to put off getting Social Security if you're making too much money because you don't want to see it reduced. Now benefits there.

Speaker1:
If you're making too much money, great. Maybe you don't need Social Security right away. And the longer you can delay your Social Security, not only will it not get reduced while you're making too much money, but it will continue to grow that benefit will the longer you defer and wait to take it. So again, why are we talking about this? What is the point of going over this again? As I mentioned at the beginning, there's this legislation that's out there, the new budgeting legislation. We've talked about it before, but I like to have these conversations with you all, with the specific federal employees that that you brought this up and shared their concern with me. Thus, now the reason why we're doing this episode, but the questions that they're asking, after going all through this baseline knowledge and giving you all the understanding, now, what do we do from here? What's the reason we're having this and what can we do? Right. We don't want to just pass along the information. We want to say, what do we do to fix it? How can we alleviate this pain? I say this in just a very simple, matter of fact way. I want you to plan. And you could reach out to me if you. If you agree, disagree, whatever. I want you to plan as if Social Security in the first supplement are not going to be there. So we know your pension is going to be there.

Speaker1:
They're not taking that away. Um, and you contribute to your TSP and that could be a retirement income source for you. But let's plan as if Social Security is not going to be there at all. Now it should be there in some capacity. But plan take Social Security in the first supplement out of the equation and plan accordingly. So how much extra would you have to put aside each pay period each month? How much more would you have to save and get ready for your retirement? If we eliminated one of those three retirement income sources, if you had to fill that gap and create your own retirement income, how would you do that? Now, the longer time that you have between now and retirement, the easier This problem solving equation here, this problem solving situation will will be because you have time on your side. Now if time is not on your side, well that's something that we've got to speed up that process with, right. Um, you've got to decide. Am I going to put some more? Do I leave it to chance at Social Security in the first supplement will be there that no changes are going to be made, that I'm going to get the benefit that I'm thinking of? I'm not a big fan of rolling the dice. I'm not a huge gambler. I like to take care of the what ifs on my own, and that way I'm clearing them off the table.

Speaker1:
If you come up with that what if question, what if neither of these are here? Social security in the first supplement. What if they're gone? How am I going to survive in retirement? Is my pension and TSP income if I choose to take income from TSP going to be enough? If that answer is no or you don't know, you don't know. Number one, you need to do a benefits evaluation. You need to sit down and look at all the numbers, see what the projections are, and ensure you're on the right track. Number one. Number two. That if you don't know, then you got to see how much income will you need in retirement and how how can we replace that if Social Security and the first supplement are not there? How much additional? Like I said earlier, how much additional do you have to put aside put away each pay period each month so that you can live as comfortably as you want so you can get as close to your pre-retirement income in retirement. Live the same lifestyle when you retire. The last thing I'd want to see is is us just be a little overconfident, right? Little false sense of security that not the government's going to work it out. And all this is going to remain the same. There's no way they're going to take this away from me. There's no way Social Security is going to pay me less.

Speaker1:
I'm confident in that, and I'm just going to let it ride. I'd rather you over prepare as best you possibly can. So that way, let's say you over prepare. And you may have heard me say this before through some of the episodes, but I've never had a federal employee get to retirement. Call me up and say, Val, we did something wrong. We have a problem here. I don't know how this happened. I don't know why it happened, but this is an issue. I have way too much money in retirement. If that's never happened to me before, it's not going to happen. I don't anticipate it happening. If you over prepare as if Social Security in the first supplement are not going to be there and they happen to be, now you've got some bonus money. You've got extra money that you can do with as you please in retirement. But if you prepare just for the minimum and for some reason they're not there or they're not there in the same capacity that you thought they were going to be, you're going to be disappointed and you're going to have two options, basically two options. You can live a lesser lifestyle and retirement, retirement, retire at the same time with a lesser lifestyle in retirement, or you're going to have to continue working. Until now, you've built up a comfortable retirement income that you can live on.

Speaker1:
So I'd rather you over prepare. Now, what does that look like? It's different for everybody. First you've got to know what your numbers are. You've got to see if pension and TSB are going to be enough for you. If we eliminated Social Security in the first supplement, you've got to look at what those numbers are. You've got to see the projections. I want you to have peace of mind. I want you to check all these boxes so that you're not leaving it to chance. You're taking control of your future retirement, whether that's five years from now, ten years from now, 30 years from now, now is the time to act right. It's never too early. It's definitely never too late. But it's back to it's never too early to start planning. There's a lot of federal employees I talk to and they're like, oh, what is this about? If I give a seminar or a talk? So we're going to talk about federal benefits and retirement. Oh, retirement. Retirement so far away I don't need to go to the class. I said yes, you do. The earlier you can learn this stuff, the better. That way you could maximize it along the way. It's going to take less effort. The time value of money. The longer you have, the better, right? You don't have to put in as much to get out a lot, but if you've only got a short window, well, now you've got to fund this thing and you've got to put a whole bunch in.

Speaker1:
So the longer you have until retirement or the earlier you can learn this stuff, The better the better. So looking at again Social Security in the first supplement, what if it's there? Great. You hopefully you've learned during this episode what it is and what it's going to do for you. Um, but what if it's not there? What if this legislation passes and boom, new retirees from that point on, no first supplement and you're counting on that? Well, that will will that determine when you retire? Will that have an effect in your retirement? What if you're planning for the future. Right. What if you're planning for the contingency plan? What if you are acting as if Social Security, the first supplement, are not going to be there? I'll give you an example. Let's say you've got 30 years to retirement, and this piece of budget legislation doesn't pass and the supplement stays. I got news for you. In my almost 13 years of working with federal employees, there has always been a piece of legislation out there to eliminate the first supplement. Why? Because this is a free benefit. It's an entitlement. It's not something that the federal government employees pay for, and it would eliminate billions of dollars the government doesn't have to pay if they got rid of it. Right. And free benefits. So if it doesn't pass this time, trust me, it's going to be back on the chopping block.

Speaker1:
And I want to ensure or make sure that you are properly prepared for that day when it comes that they finally do eliminate it. Okay. I have a feeling they will. I hope they don't. But I've got a feeling they eventually will. And just because if we're talking about balancing the budget and trying to save money, this is one way that they can do it. I don't want them to do it. But let's prepare as if it's going to happen. And in the end, if it's still there, great bonus money. Awesome. You did a great job. So I hope you found value out of today's episode. Hope you like our content. Again, I'm going to remind you go subscribe. Tell your colleagues. Get notified when we have new episodes out there. Go back and view our entire library of content. There's a lot of great stuff in there, and you can see all the topics that we've discussed. We have over 130 of them now. And very thankful to those of you who are diligent and dedicated, uh, listeners. But if you are, if you're finding value, you can pass this along to your colleagues. Let them tune in as well so they can get the same value that you have gotten. I appreciate you joining me today. I look forward to seeing you all in a future episode.

Speaker2:
Imagine this you just purchased your spacious new dream home with new memories on the horizon. But there's one thing hovering in the background that could cost you dearly your home insurance. I'm Jim Takaoka for the retirement radio network powered by Amira Life. According to a report by USA today, a 2024 study from the Insurance Information Institute found 12% of Americans no longer have home insurance. That number way up from the 5% figure in 2019. Karen Collins of the American Property Casualty Insurance Agency recently told CNBC. Insurance companies continue to seek alternatives.

Speaker3:
We, as insurance companies are advocating for solutions to really. Try and help address these increasing costs that families, individuals and business owners are facing. This is the economic safety net that helps rebuild homes, neighborhoods and communities. And it's really, truly vital.

Speaker2:
About 40% of Americans who own their home view homeowners insurance as a discretionary purchase. And despite the risk a handful of Americans have decided upon self insuring their homes. So how can you get the best deal for you and your family without paying too much for homeowner's insurance? Well, first, check your coverage. You don't want to insure your home for more than it's worth. And second, assess your deductible. A higher deductible could lower your premium. Third, consider bundling your car insurance with your home insurance, as companies offer discounts when you combine multiple policies. By being informed and proactive, you can make sure you're paying a fair price and protecting your property. For the retirement Radio Network powered by Imara Life, I'm Jim Tabaka.

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