FERS Supplement Basics: What is the FERS Supplement?

Social Security is a significant part of the FERS benefits. However, Social Security retirement benefits are not payable before age 62. Since federal employees may retire before age 62, the FERS Supplement, in addition to the basic benefit, will be paid by the Office of Personnel Management (OPM) until the age of 62. Therefore, the FERS Supplement covers the gap for employees who have attained their years of service but are not yet eligible for Social Security. This does not mean you must start collecting your Social Security benefits at age 62.

Eligibility

In addition to at least one full calendar year of FERS service, an employee must retire on an immediate annuity under one of the following combinations of age and service requirements to be eligible to receive the FERS Supplement.

• at the Minimum Retirement Age (MRA) with 30 years of service (see FERS page)
• at age 60 with 20 years of service
• Special Provisions employees, such as firefighters, law enforcement personnel, air traffic controllers, and military reserve technicians, may be eligible as early as age 50 with 20 years of service or, in some cases, at any age with 25 years of service.

Calculating your FERS Supplement

The FERS supplement is calculated on the estimated amount of Social Security benefit you would earn if you had been employed for a full career under Social Security, retiring at age 62. Calculating an estimate for your FERS Supplement requires that you know your years of service and your age 62 Social Security benefit amount. You can find your age 62 monthly benefit amount on the Social Security website. 

FERS Supplement formula: (Your years of creditable service ÷ 40) × your Social Security benefit at age 62 = Your Estimated FERS Supplement

For Example:

Roger retires on his 60th birthday after 25 years of creditable service.
His age 62 Social Security benefit is projected to be $2,000 per month.
25 ÷ 40 = 0.625
0.625 × $2,000 = $1,250
Roger would receive about $1,250 monthly (before taxes) until age 62.

Other Important Factors 

• The supplement is taxable.
• No cost-of-living adjustment (COLA) is added to the supplement, meaning the payment amount remains the same from start to finish.
• There is an earnings test for the FERS supplement, which means it could be significantly reduced or eliminated.
• The years of civilian or military service for which an employee may have made a deposit or re-deposit are not included in the calculation.
• Civil Service Retirement System (CSRS) employees are only eligible if their pension has components of both CSRS and FERS.

The Earnings Test (Or Earnings Limit) 

The FERS Supplement has the same earnings test as Social Security benefits. This means that for every $2 you earn above the annual limit, your FERS Supplement is reduced by $1.

Earnings Limit in recent years:

$18,960 for 2021
$19,560 for 2022
$21,240 for 2023

Only earned income applies to the Earnings Test, which is typically income received from a W-2 or self-employment. Income derived from TSP or IRS distributions, rental property, and investment income does not count toward the earnings limit. IRA contributions do not reduce your earnings for testing purposes.

Just because one retires “early” from the federal government does not mean they will never work elsewhere again. Therefore, an essential financial planning element to review is understanding how working beyond your federal retirement can impact your FERS Supplement.

NOTE: Special Category Employees are not subject to the earnings test until they reach their Minimum Retirement Age.

Here’s How the Earnings Test Works

Let’s go back to our example with Roger. Say Roger gets a job after his federal retirement. That job pays him $30,000 annually, which is $8,760 over the 2023 earnings limit.

$30,000 – $21,240 = $8,760
$8,760 ÷ 2 = $4,380 (for every $2 earned above the limit, the supplement will be reduced by $1)
$4,380 ÷ 12 months = $365

Earlier, we estimated Roger’s Supplement to be $1,250 a month. Once we factor in his reduction, we see that Roger’s Supplement will be closer to $885 monthly. But we must consider taxes before we know what Roger’s net amount will be.

Taxes are complex, but for easy numbers, let’s say he pays taxes at a rate of 15%. 15% of $885 would be $133, leaving Roger with a FERS Supplement of $752 monthly. Roger’s FERS Supplement will stop the month he turns 62, regardless of drawing his Social Security at 62 or delaying it until later.