Reg Jones Expert's View

Last week I went over the changes to federal employee salaries and TSP contribution limits, and cost-of-living adjustments (COLAs) for retirees. This time I want to tell you about what’s up with Social Security and the FERS special retirement supplement.

The Social Security COLA increase for 2015 was 1.7 percent. How much that means in dollars depends on the size of your benefit, which in turn depends not only on your work history but when you begin drawing benefits.

While you are first eligible for a Social Security benefit at age 62, if you start receiving it at that age, you’ll get less than if you waited until your full Social Security retirement age. That age ranges between 65 and 67, depending on your year of birth; currently it’s 66. The farther away you are from full retirement age, the larger the reduction will be. To illustrate. If your full retirement age was 65, and you began receiving the benefit at age 62, the reduction was about 20 percent. Looking ahead, if it’s 67 (which will apply to those born in 1960 and later) and you receive it at age 62, the reduction will be around 30 percent.

Similarly, if you delay receiving benefits past your full retirement age, benefits will increase—although there is no additional boost for waiting past age 70.

Many of us retire only to go back to work. If you do get another paying job, are already receiving a Social Security benefit, and you haven’t reached your full Social Security retirement age, you’ll be subject to the annual Social Security earnings limit. For 2015 that limit is $15,720. If you haven’t yet reached your full Social Security retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over that limit. In the year you reach your full retirement age, the reduction will be $1 for every $3 above a different limit. In 2015 that limit is $41,880. The good news is that ere is no reduction beginning with the month in which you reach full retirement age.

The earnings limit on pay also applies to FERS retirees who are receiving the special retirement supplement. The SRS is based on the amount of Social Security benefit you earned while a FERS employee and essentially takes the place of a Social Security benefit for those who retire under FERS before age 62. It continues until you reach age 62, when you are eligible for a Social Security benefit. As a rule, your SRS will be reduced by $1 for every $2 you earn from wages of self employment that exceed the 2015 earnings limit. As noted above, that limit is $15,720.

There are two situations in which your SRS won’t be reduced if you earn more than the annual limit. First, if you retired before your minimum retirement age (MRA—which also varies by year of birth; currently 56) and were employed under the special provisions for law enforcement officers, firefighters and air traffic controllers. Second, if you were a military reserve technician who was separated because of a loss of military membership and hadn’t yet reached your MRA. In either case, you’ll be subject to the earnings limit when you reach your MRA.

Next week, I’ll fill you in on changes in Medicare and employee death benefits.