The only thing 100% clear about the FERS annuity supplement is that it ends at age 62, which is when the retiree first becomes eligible for Social Security.
For retirees under age 62, some get the supplement and others do not. Some are subject to the “earnings test “ while the rest are exempt. Some receiving the supplement are penalized for earning too much money. Among those who are penalized, some over-report income, and lose money needlessly.
Who does not get the supplement? If the employee retires on a VERA—Voluntary Early Retirement Authority – and is less than the minimum required age (MRA), then he will not receive the supplement until he reaches the MRA. So, you can retire and be too old for the supplement, but you can also retire and be too young. Also, note that it is possible to retire on a VERA and still be subject immediately to the supplement and the earnings test. This would happen, for example, if the person is 58 years of age and has 26 years of service – such a person has the age but not the years, and needs the VERA in order to retire.
An important exception to the preceding is special employees: police, fire fighters, and air traffic controllers. These employees can retire earlier than others, and they receive the supplement immediately, without regard to their age. Thus, a special employee can, by law, retire as early as age 43 with 25 years service, and he will receive the supplement for the next 19 years. And he can make an unlimited income from working, while being exempt from the earnings test, but not for the entire period.
Once they reach the MRA, special employees are subject to the earnings test, just like everybody else.
The Earnings Test
An excellent source of accurate, dependable information is RI-92-022, the 2010 Annuity Supplement Earnings Report. In summary, it states that for persons receiving the supplement, in 2010, the first $14,160 in earnings are exempt, after which there will be a reduction of $1 for every $2 earned. Wages earned after retirement and net earnings from self-employment are reportable, but—a common mistake—annual leave paid upon retirement and separation incentives are not.
The reduction is applied starting in July for earnings during the previous year. The earnings threshold increases annually. Form RI 92-22, which is required to be submitted annually by retirees to whom it applies, also lists various kinds of income which are reportable vs. non-reportable.