One of the less understood of federal retirement benefits is the “special retirement supplement.” Many retirees and near-retirees apparently have heard of it but know little about it and may mistakenly include it in their retirement planning when they are not eligible for it, or fail to take it into account even though they are eligible.
The special retirement supplement applies only to certain FERS—no CSRS—retirees who retire on an immediate annuity not reduced for age or who retire involuntarily before attaining minimum retirement age (no younger than 56, currently) or voluntarily because of a major reorganization, reduction in force, or an early retirement. Except for those in the first category—those retiring on an immediate annuity not reduced for age–the payment is not made until reaching minimum retirement age.
In sum, the special retirement supplement represents what you would receive for your FERS service from the Social Security Administration and is calculated as if you were eligible to receive SSA benefits on the day you retired. Eligibility continues until the earlier of the last day of the month before the first month for which you would be entitled to actual Social Security benefits, or the last day of the month in which you reach age 62.
The Office of Personnel Management first estimates what your full career (40 years) Social Security benefit would be. Then it calculates the amount of your civilian service under FERS and reduces the estimated full career Social Security benefit accordingly.
For example, if your estimated full career Social Security benefit would be $1,000 and you had worked 30 years under FERS, it would divide 30 by 40 (.75) and multiply the result by your estimated full career Social Security benefit ($1,000 X .75 = $750). The result would be your special retirement supplement, prior to any reductions.
The supplement is subject to a Social Security earnings test, which can reduce or even eliminate the benefit if you have enough outside earnings. However, the basic FERS benefit is not considered earnings, and any reduction due to the earnings test will not affect the basic benefit.
ask.FEDweek.com: FERS Retiree Annuity Supplement