If you are thinking about retiring, you probably wonder how Social Security fits into your plans. Well, how it fits in depends in large measure on which retirement system you are in. For FERS retirees, it’s an essential ingredient, one of the three legs that make up a financially secure retirement possible. The other two are the FERS defined benefit, based on age and years of service and the Thrift Savings Plan, with its matching government contributions.
For pure CSRS retirees, a Social Security benefit – if they are eligible for one –is usually a supplement to their more generous defined benefit and personal contributions to the TSP. For CSRS Offset employees, it is the amount of the Social Security benefit they earned while covered by CSRS Offset, and which is deducted from their CSRS annuity.
Regardless of whether you are covered by FERS or CSRS, the amount of your Social Security benefit is controlled by a number of variables. One of these is the age at which you are eligible for full benefits. That can range from 65 to 67, depending on the year in which you were born. While you can begin receiving benefits at 62, there is a trade off to be considered. The earlier you begin receiving those benefits the smaller they will be; on the other hand, you will be receiving them over a longer period of time.
Let me illustrate what the reduction will be. If your full Social Security retirement age is 65, the reduction in your benefit would be about 20 percent if you began receiving them at age 62, 13 1/2 percent at 63, and 6 2/3 percent at age 64. If it were 67, the reduction would be even steeper. Beginning them at age 62 would produce a 30 percent reduction, 25 percent at age 64, and 13 1/3 at 66.
Another of the variables is the amount of your average indexed monthly earnings (AIME). Unlike the defined benefit plans under FERS and CSRS, Social Security benefits are not directly proportional to your earnings. In fact, the higher your AIME, the less you will receive in benefits compared to what you contributed through payroll deductions. That’s because Social Security is a social insurance program that provides proportionally greater benefits to low income workers that it does to higher salaried ones.
Yet another variable is the amount of earnings from wages or self-employment you bring in after you begin receiving a Social Security benefit. If you are under full retirement age, $1 in benefits will be deducted for every $2 in earnings above the limit, which is $12,480 in 2006. In the year you reach your full retirement age, $1 will be deducted for every $3 above a different limit, which is $33,240 in 2006.
This same reduction applies to the special retirement supplement which is given to eligible FERS retirees to help bridge the gap between retirement and age 62 when they become eligible for a Social Security benefit. Note: The SRS reduction doesn’t apply to special category employees, such as law enforcement officers, firefighter or air traffic controllers, who retire before reaching their minimum retirement age. It does apply after they reach their MRA.
If you are a CSRS retiree, you will have an uneasy relationship with Social Security. That’s because you will be affected by two provisions of law that can reduce or eliminate those benefits. The windfall elimination provision will reduce – but not eliminate – any Social Security benefit you earned if you have fewer that 30 years of substantial earnings under Social Security. And the government pension offset will usually eliminate any spousal or survivor Social Security benefit to which you might otherwise be entitled based on your spouse’s Social Security-covered work record. Note: The GPO does not apply to those retirees who are covered by CSRS Offset; the WEP does.
