Read This Before Taking a Job in Retirement

If you work in retirement, you could find that your benefits are reduced if you earn too much money.

Generally, people get jobs (either part time or full time) in retirement for one of 2 reasons: First, they want the extra income. Second, they want something to do. 

Either of these reasons may be plenty of motivation to get a job or even start a business, but if you aren’t careful, you may end up lowering your overall income lower than you expect. 

FERS Supplement

For those that are unfamiliar with the FERS supplement, it is extra income that FERS (Federal Employees Retirement System) retirees can enjoy if they retire with an immediate pension before age 62. It is also called the special retirement supplement (SRS) or social security supplement. Not all FERS retirees will be eligible for this benefit but it can be a great blessing for those that do. 

However, retirees will only receive this benefit if their earned income is under certain limits. This is called the earnings test.

In 2021, the earnings threshold after which your FERS supplement starts to get reduced is $18,960. For every $2 you make over the threshold, your benefits are reduced by $1. 

For example, if you make $100 dollars over the threshold ($19,060) your FERS supplement will be reduced by $50. If you make too much, your supplement can be reduced down to 0. 

The good news is that the only income that counts towards this threshold is “earned income”. The IRS defines this as income from a W2 job or from a business that you own and work in. Your pension, TSP, and other retirement income doesn’t count towards the earnings test. 

But it is important to note that even with the lower amount that you’d get from your FERS supplement it still may make sense for you to work. The important thing is to understand what your total income will be considering everything (including taxes).

Social Security

Before you reach your full retirement age for Social Security (between age 65-67), Social Security has a similar earnings test as your FERS supplement.

Here are some of the key differences between the earnings test for your FERS Supplement and social security.

  • The earnings threshold is the same for both benefits until the year that you reach your full retirement age for Social Security. That year your earnings threshold for Social Security rises to a higher amount ($50,520 for 2021) and your benefits are only reduced by $1 for every $3 dollars you make over the threshold.
  • For Social Security, this earnings reduction is technically only a withholding. This means that the benefits you lose will increase your benefit once you reach your full retirement age. 

Once you hit your full retirement age, you are no longer subject to the earnings test for Social Security.

Because of this rule, it may not make sense to take Social Security before your full retirement age if you are planning to work or run a business.

Final Thoughts

Again, even with these earnings tests that come into play, it still may very well make sense to work for financial or emotional reasons. The most important thing is to understand the rules well enough to make an educated decision for you. 

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.