The Federal Employees Retirement System has three parts; pension, Thrift Savings Plan, and Social Security. We all want to retire as early as possible, but do you know how possibly retiring early can affect the Social Security part of your pension or all of it?
You can elect to start receiving Social Security at age 62, however, the benefit will be permanently reduced. On the other hand, if you start your benefit at the Full Retirement Age (FRA), you’ll receive the full benefit. Your FRA depends on your year of birth. If you were born between 1943-1954, your FRA is 66. For every year after that, until 1960, your FRA increases by 2 months, with it being age 67 in 1960 and later.
There is also a third option. You can elect to delay the start of your benefit until after FRA, and you’ll receive Delayed Retirement Credits. Doing this can increase your benefit by 8 percent a year with a max at age 70.
Social Security is a lot like the TSP in the fact that the age at which you start receiving it can have a long-range impact on your retirement savings, good or bad. Below are some tips to help you understand the best time to start getting your benefit.
If I start taking Social Security at retirement, how much will I get?
- It starts with your age at retirement in years and months.
- If you retire UNDER the FRA, your year of birth determines your benefit amount.
- If retiring AFTER the FRA and you elect Social Security after your FRA, you’ll receive Delayed Retirement Credits. That means your Social Security benefit will increase by 8 percent for every year you delay taking Social Security after your FRA, up to age 70. The benefit is based on how many months/years since the month of your FRA.
What if I wait to elect Social Security?
- Waiting until age 70 will increase your monthly benefit for the rest of your life.
Is it worth it to wait?
- If you delay starting your Social Security until after retirement, you need to calculate any TSP/saving withdrawals you’ll need. If you retire at 62 and delay Social Security until age 70, that’s 8 years of possibly withdrawing from you TSP. Not to mention, if there are unexpected expenses or a loss in the stock market.
Are there any earnings restrictions on the Social Security benefit?
- There are special earnings restrictions that apply if you’re receiving Social Security before FRA. This can reduce or eliminate your benefit. However, there is no earnings restriction starting the month you reach your FRA.
- Only wage earnings count from your job, or net earnings if self-employed. This does include bonuses, commissions and vacation pay. It does not count FERS pensions, annuities, investment income, interest, or veterans or other government/military retirement benefits.
- The earning restriction has 2 sets of rules depending on how old you are. First, if you are under FRA for the entire year in 2017, Social Security deducts $1 from your benefit for every $2 you earn above the annual limit of $16,920. Second, if you reach FRA in 2017, Social Security will deduct $1 from your benefit for every $3 you earn above $44,880. They only count the earnings before the month of your FRA.
How does Social Security affect a spousal benefit?
- Electing Social Security under FRA will permanently decrease spousal benefits, however, if you elect this at FRA, spousal benefits aren’t affected.
There’s so much to consider when planning for retirement, or even picking when you are going to retire. Sometimes, opting into a benefit will decrease another one. The more you know, the better you can plan.