The FERS Annuity Supplement: What Makes The Estimate Wrong

February 4, 2010 8:37 PM
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The FERS annuity estimate is really simple to calculate.

Using your most recent Social Security statement, just divide the age-62 benefit by 40, then multiply the result by your years of Federal civilian service. Easy, isnt it?

But the actual supplement you are paid can be significantly less than the estimate. How does this happen?

In calculating your Social Security benefit, Social Security uses all your earnings, regardless of source and regardless of age. The Office of Personnel Management (OPM), on the other hand, uses only your FERS earnings—actual or deemed— as a Federal employee, to calculate your supplement. OPM does not use any other earnings you may have accrued in the private sector, such as weekend or other part-time work, or work during a break-in-service, or self-employment income. Also, OPM does not count any income as a Federal civil servant prior to age 22.

Deemed earnings are those where you had less than a full year of Federal employment. Your earnings in your first full year of Federal employment are compared to the average total wages (ATW) for the year, and a fraction is derived. Then for all years from age 22 through the year prior to your retirement, where you did not have a full year of FERS earnings, this fraction is applied to the ATW for the individual year(s), and the resulting deemed figure is treated the same as actual earnings.

So, if you happen to have extensive work in the private sector and/or significant Federal work time prior to age 22, your Social Security earnings may well be substantially higher than the earnings used by OPM. The higher Social Security numbers translate directly into a higher, misleading estimate of your supplement.

Compounding the situation is the fact that, incredibly, OPM provides no documentation of the actual numbers they use to calculate an individual supplement. It is a case of trust me.

Additional confusion arises from the fact that the estimate can be too low! This would happen when your Social Security earnings from non-Federal work are at or near -0-, and your years of deemed earnings are more than one.

© 2021 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.


About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.