The answer to this question should be easy. It is just arithmetic, after all. But it is not easy, because the calculation of the annuity supplement is quite intricate and lengthy. Consider:
The calculation uses FERS basic salaries paid over an employee’s entire career, capped by a Social Security maximum for each year. It “indexes” these salaries for inflation in accordance with the official “average total wages” for each year. Note: by law, there must be a salary – actual or deemed – for all years from age 22 through the year before retirement.
Before indexing, for any years where the employee was not on the payroll for the entire year, the salary must be deemed. To do this, divide the starting salary for the first, full year of FERS service by the average total wages (ATW) for the year; then multiply the resulting fraction (known as the earnings ratio) by the average ATW for the year in question.
To index, just multiply each individual salary by the index figure for the year, which is the ATW for 2016 divided by the ATW for the individual year. Prior to adding these deemed, indexed figures, you must find and delete the five lowest. Then do the addition. After that, divide the total by the number of months in the years used.
The result is the AIME, or Average Indexed Monthly Earnings. Now apply the three tier, 2018 Social Security formula for determining the PIA, or Primary Insurance Amount. Then reduce the PIA in accordance with number of years below the full retirement age. Now divide the reduced benefit by 40 and multiply the result by number of years (rounded) of FERS service. You have just calculated the FERS annuity supplement.
Is it any wonder our friends at OPM need an average of three hours per case to do this? Are you surprised that nearly all “experts” on Federal retirement take refuge in the simplistic, unreliable Social Security short cut? (Divide the latest Social Security estimate for age 62 retirement by 40, then multiply by FERS years. This estimate-based-on-an-estimate uses a projected start figure for Social Security at 62, which is problematic considering the annuity supplement ends at age 62. Also, Social Security conflates FERS and non-FERS earnings.)
Returning to the original question, the maximum annuity supplement for retirements in 2018 has been electronically computed for twelve levels of ages and years of service – see below.
|– Age Reduction –|
|Birth Year||FERS Years||Max Earnings*||PIA**||Percent||Reduced||Years Proration||Supplement|
Above calculations performed with software from: [email protected]
* Earnings for non-full years, starting at age 22, are deemed in accordance with Social Security figures; all earnings except last two years are indexed for inflation.
** PIA = Primary Insurance Amount – for this and max amounts and average total wages, by year, see www.ssa.gov