Q. How many people know that there is an earnings limit on their pension if they retire under FERS? It’s my understanding that if you plan to retire after 30 years and at your full retirement age of 55 or 56 and keep earning money so that you do not have to dip into your TSP too soon, think again. Is it true that the earnings limit is under $16,000 per year, and if you go over that, you must pay $1 back for every $2 you go over the limit?
A. Your conclusions are close, but not entirely accurate. Close may not be suitable enough when determining what you want your retirement to look like, so let’s iron this out a bit.
According to the Office of Personnel Management (OPM) “Information for FERS Annuitants” booklet (Section 8, Employment in the Private Sector) your outside employment will not affect your FERS pension.
However, you are partially correct. It’s not your pension that could get reduced. Your FERS pension/annuity does not receive a haircut due to additional earnings after retirement. Instead, it is the Special Retirement Supplement (SRS) “bridge payment” that would be prone to taking a hit!
Special Retirement Supplement
If you are a FERS employee and you’re receiving SRS benefits, those benefits are payable from the date you retire until age 62. It approximates the amount of Social Security benefit you earned while working as a FERS employee.
Since the SRS approximates Social Security benefits, it is subject to some of the same rules. The Social Security Administration (SSA) puts a limit on income until you reach your full retirement age. That range is 65-67 years of age depending on when you were born. Therefore, because the SRS (in this case) is treated the same as a Social Security benefit, it can be reduced or eliminated if you exceed the earnings limit.
The limit for earnings before impacting either SSA or SRS payments is $17,040 in 2018. The $2 to $1 aspect you mentioned is correct. Once the $17,040 limit is reached, the SRS benefit is reduced by $1 for every $2 earned (over $17,040) in 2018.
A retired FERS employee is receiving $1,000 per month from the SRS benefit. They decide to take a job outside the federal government, earning $25,040 annually. Since this amount exceeds the limit, they will experience an SRS benefit reduction of $4,000 for the year or approximately $333 per month. ($25,040 – $17,040 = $8,000. $8,000 ÷2 = $4,000. $4,000 ÷12 = $333).
This means the original SRS payments of $1,000 per month will be penalized down to a real benefit of $667 per month ($1,000 – 333 = $667).
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