Key Takeaways:

1. Understanding how FERS and Social Security work together can significantly impact retirement planning for federal employees.
2. Coordinating the timing of FERS pension benefits and Social Security can maximize retirement income and ensure long-term financial stability.

FERS and Social Security: What Every Federal Employee Needs to Know About Claiming Both

For federal employees, retirement planning involves balancing two key sources of income—FERS (Federal Employees Retirement System) and Social Security. Each of these programs plays a critical role in providing financial security during retirement. However, understanding how they interact and when to claim each benefit is essential for maximizing the advantages of both. This article explores how FERS and Social Security complement each other and offers guidance on making informed decisions to optimize your retirement benefits.

How FERS Works for Federal Employees

FERS is the retirement system that covers most federal employees hired after 1984. It was established to replace the older Civil Service Retirement System (CSRS) and is designed to offer a more balanced approach to retirement income. FERS provides federal employees with three main income streams:

1. Basic Benefit Plan – This is the pension portion of FERS, which is funded through payroll deductions and federal contributions.
2. Thrift Savings Plan (TSP) – Similar to a 401(k), the TSP allows employees to contribute part of their salary, and it includes government matching contributions.
3. Social Security Benefits – As federal employees under FERS, you are also covered by Social Security, which adds another layer of retirement income.

The integration of Social Security with FERS is unique compared to many private-sector retirement systems, as federal employees are eligible for both a government pension and Social Security benefits. Understanding how these two systems interact is critical for effective retirement planning.

Social Security Eligibility for Federal Employees

Federal employees covered under FERS contribute to Social Security just like private-sector workers. This means that when you reach the age of eligibility, you can claim Social Security benefits based on your work history and contributions. Here’s how Social Security works for federal employees:

1. Social Security Contributions: As a FERS-covered employee, you pay 6.2% of your wages up to the Social Security wage cap ($168,600 in 2024).
2. Eligibility for Benefits: To qualify for Social Security, you must have worked for at least 10 years, earning the required 40 credits (with each year of work earning four credits).
3. Retirement Age: You can start receiving Social Security benefits as early as age 62, but claiming early will reduce your monthly benefit. Full retirement age (FRA) varies depending on your birth year, but for most federal employees, it is between 66 and 67.

While the FERS pension provides a steady stream of income, understanding when to claim Social Security is a key decision that affects your total retirement income.

Claiming Both: Timing is Everything

When it comes to maximizing retirement income, the timing of your FERS pension and Social Security benefits can make a big difference. Claiming benefits at the right time allows you to maximize income and minimize tax liabilities. Here’s a closer look at the considerations:

When to Claim FERS Benefits

Federal employees are eligible to retire and claim their FERS pension based on their age and years of service. For most employees, the Minimum Retirement Age (MRA) ranges from 55 to 57, depending on the year of birth. To be eligible for a full pension, you must meet one of the following criteria:

• Age 62 with at least 5 years of service.
• Age 60 with at least 20 years of service.
• MRA with at least 30 years of service.

Choosing when to retire and start receiving your FERS pension depends on several factors, such as your health, financial situation, and lifestyle goals. While some employees opt for early retirement at their MRA, delaying retirement can lead to a higher pension benefit and more time to save in your Thrift Savings Plan.

When to Claim Social Security

For federal employees under FERS, the decision of when to claim Social Security can be just as important as the timing of FERS pension benefits. Social Security allows you to start receiving benefits as early as age 62, but if you claim before your full retirement age, your monthly benefit will be reduced. Conversely, delaying Social Security benefits beyond full retirement age increases your monthly payments. For each year you delay claiming Social Security beyond your FRA, up to age 70, your benefit increases by approximately 8%.

Many financial planners recommend waiting until full retirement age or later to claim Social Security, especially if you expect to live a long life or if you have other sources of income that can cover your expenses in the meantime.

Can You Work While Receiving FERS and Social Security?

Many federal employees wonder if they can continue working after retirement while receiving FERS and Social Security benefits. The answer is yes, but there are some important caveats.

Working and Social Security

If you claim Social Security before your full retirement age and continue to work, your benefits may be reduced if your earnings exceed certain limits. In 2024, the earnings limit is $22,320 for individuals younger than FRA. If you earn more than this amount, $1 is deducted from your Social Security benefits for every $2 earned above the limit. Once you reach full retirement age, this limit no longer applies, and you can earn as much as you like without affecting your Social Security benefits.

Working and FERS Pension

For FERS retirees, the rules are different. If you return to work for the federal government after retiring, your FERS pension may be reduced or suspended depending on your employment status and the nature of your work. However, if you work in the private sector or a non-federal job, your FERS pension is not affected, and you can receive both your pension and your salary.

How to Avoid the Windfall Elimination Provision (WEP)

The Windfall Elimination Provision (WEP) is a Social Security rule that affects retirees who receive a pension from work not covered by Social Security, such as those under the CSRS system. While FERS employees are typically not subject to the WEP, if you had service under CSRS or another non-covered system, your Social Security benefits could be reduced. Understanding the WEP is crucial if your career involved both CSRS and FERS, as it may impact your overall retirement income.

The best way to avoid WEP reductions is to ensure you have at least 30 years of “substantial earnings” covered by Social Security. If you fall short of 30 years, your Social Security benefit will be reduced according to a sliding scale.

Coordinating Benefits for Maximum Retirement Income

To get the most out of your FERS pension and Social Security benefits, careful coordination is essential. Here are some strategies to consider:

1. Delaying Social Security: If you can afford to delay claiming Social Security until age 70, you can maximize your monthly benefit. Your FERS pension and TSP withdrawals can cover your expenses in the meantime.
2. TSP Withdrawals: Use your Thrift Savings Plan as a bridge between your FERS pension and Social Security. This allows you to delay Social Security benefits while still maintaining a steady stream of income.
3. Spousal Benefits: If you’re married, consider coordinating Social Security claims with your spouse. Claiming benefits based on your spouse’s work record or delaying one spouse’s benefits can optimize overall household income.

Steps Federal Employees Can Take for Retirement Success

As you approach retirement, there are a few steps you can take to ensure that you maximize your FERS and Social Security benefits:

• Review Your FERS Pension Estimates: Ensure you understand how much you can expect from your FERS pension by reviewing your annual statements and speaking with a retirement counselor.
• Check Your Social Security Earnings Record: Make sure your Social Security earnings are accurate by regularly reviewing your Social Security statement, which you can access online.
• Consult a Financial Planner: For more personalized advice, consider consulting a financial planner who specializes in federal retirement benefits. They can help you navigate the complexities of FERS and Social Security to ensure you make the most of both programs.

Maximizing Your FERS and Social Security Benefits

Claiming both FERS and Social Security is a complex decision with long-term financial consequences. By understanding how the two systems interact and making informed choices about when to claim each benefit, federal employees can enjoy a secure and comfortable retirement.