How To Avoid Getting Your FERS Pension Cut in HALF

imagine if you went into retirement one maybe two years later then all of a sudden your first pension got reduced and maybe cut into half what type of impact would that have on your lifestyle more importantly is there a way that you could avoid that [Applause] so today we have a question from doug and if you will there's a direct question that i'm going to answer but there's also an underlying question which sometimes gets missed by a lot of federal employees that i want to make sure we talk about and this one says i'm retiring on 12 31 at the age of 56 i'm going to assume that's doug's mra will my first supplement calculation include my current year's earnings after they get reported to social security i know the supplement is based on an estimated social security at 62 and it would make a difference given the inclusion of 2019 earnings but this will take time to show up in social security since there's an update earnings after report to the agency which can take 30 to 60 days thanks doug doug that is a great question so the short answer is let's talk about this special retirement supplement to make sure we're on the same page your benefits that you get as a fed were based on three things your retirement benefits right your first pension social security and tsp now your first pension you can retire early before social security starts which is a great news so that means they created a gap a gap filler between when you can retire in age 62 when social security starts and that's called the fers supplement or special retirement supplement now in order to qualify for this you have to retire with the eligibility of a full immediate pension so what that means is you got to be your mra minimum retirement age and have at least 30 years of federal service or you got to be age 60 and have at least 20 years of federal service if you retire under one of those categories not only do you get your first pension but you get this supplement as well up until the age of 62 and then it turns into a pumpkin and it stops so doug is retiring here his mra is going to be 56 and he's going to have over 30 years of federal service and he's going to get the supplement but doug as you bring out you have a lot of earnings that are going to come up this year but social security is two years behind in determining your social security benefit with your earnings so yes it will catch up yes opm is going to take that into calculation when they calculate your benefit your current earnings but it generally takes a year or so in order for that to be reflected in your first supplement so yes it should be there but it doesn't have a huge consequence unless you're having a really big jump in pay so i wouldn't expect a lot of change inside of there because it's based on what's called your amy your average index monthly earnings over time but it should be there there's a hidden question inside of here that i want to talk about that a lot of people miss and it's an earnings limitation which is going to be there so the way that this is designed the special retirement supplement is you're going to get this additional income that's going to come in but there's an earnings limit on it the way that earnings limit works this is just for your fers supplement your first special retirement supplement if you make more than eighteen thousand dollars and change i think it's eighteen thousand two hundred sixty let's just go round numbers if you make more than eighteen thousand dollars of earned income once you've retired for every two dollars you make above 18 000 they're gonna take one dollar of your of your first supplement benefit away this is really important so what's included in is earned income w-2 income so if you go get a part-time job a lot of people retire at 56 don't stay retired they go and do something else well that income could reduce your fers supplement that you're getting this could be self-employment income which is often filed on tax form a schedule c that's going to be there as well what does this not include this what doesn't include an earnings limitation is your federal pension interest earnings dividend earnings roth ira distributions tsp distributions while those must be taxable they're not subject to this income earnings of 18 000 the reason i bring it up is a bit of a catch is what happens is a lot of people retire they retire early you know 56 is still young to be retired a couple years later they want to help a friend out they want to do something else they go get a part-time job they start earning pretty quickly more than eighteen thousand dollars a year and then a year or two goes by and they didn't report anything to opm and then all of a sudden their pension gets cut in half all of a sudden their pension goes down because opm has now found out hey two years ago you earned more than 18 grand they start with holding money from your pension so i love the special retirement supplement it's a great tool but you got to be cognizant of how it works and if you're going to retire and go get any type of job we need to take a pause still we may go get the job it may make sense but you might need to notify opm in advance so they can start with holding or reducing your first supplement so it doesn't become a pension pickle it doesn't become a tight spot in your retirement planning in the future i hope this information has been helpful and if you have more questions like this or you have something you're stunned by you'd like us to answer then scroll down leave us the comment below and submit your question and you too might be featured in the fers federal fact check until next time happy planning you

Channel: Plan Your Federal Retirement

Views: 24,733

Keywords: Plan Your Federal Retirement, Micah Shilanski, Certified Financial Planner, Federal Employee Retirement Planning, Federal Financial Planner, Federal Employee, Federal Employee Retirement System, FERS, Federal Employee Health Benefits, FEHB, Federal Employee Group Life Insurance, FEGLI, Thrift Savings Plan, TSP, Roth TSP, Federal Employee Financial Independence, Federal Employee Early Retirement, MRA, Minimum Retirement Age, Military Service Buy Back, FERS Supplement

Id: pLUGjYxqUsY

Length: 5min 30sec (330 seconds)

Published: Fri Aug 06 2021