Social Security Basics

Key Points:

• FERS (Federal Employees Retirement System) coordination with Social Security

• CSRS Offset (Civil Service Retirement System) & Social Security

• CSRS & Social Security

• WEP (Windfall Elimination Provision)

• GPO (Government Pension Offset)

As a federal employee, the impact of Social Security on your retirement income largely depends upon which retirement system covers you. FERS and CSRS-Offset are both coordinated with Social Security. But even those in the CSRS system may have earned enough credits outside of federal employment to be eligible for Social Security benefits.

To qualify for Social Security benefits, you earn “credits” through your work. Most people need 40 credits, earned over their working lifetime, to receive retirement benefits. For disability and survivor benefits, people need fewer credits to be eligible.

If you haven’t already done so, head on over to the Social Security site and create a secure, online account. You can view (and verify!) your earnings history, estimate retirement benefits, and much more…even retire online!

FERS & Social Security

We’re not telling you anything new that Social Security is one of three components of your retirement plan under FERS – the FERS basic retirement benefit and investments in the Thrift Savings Plan (TSP) comprising the other two elements. Your eligibility for Social Security is paid for through payroll taxes that both you and your agency pay each year. The Social Security Tax covers Old Age, Survivors, and Disability Insurance (OASDI) and Medicare Hospital Insurance Programs. While all wages are subject to the deduction for Medicare, the percentage you pay for OASDI coverage is a percentage of your earnings up to the maximum taxable wage base set each year.

So at what age do you become eligible for Social Security? And what portion of your retirement income can you anticipate will come from Social Security? Let’s explore these questions. For purposes of this article, we’ll focus strictly on benefits coverage for retirement. Social Security coverage for disability, eligible survivors, and the lump sum death benefit can be found at the Social Security site by clicking here.

You may start receiving Social Security benefits as early as age 62 but you should know that’s considered “early retirement” and not your Full Retirement Age (FRA) per Social Security. This results in your monthly benefits being reduced permanently (with a few exceptions). To learn what your FRA is based on your year of birth, visit sss.gov

Remember, you can retire and not begin to collect Social Security if your financial situation allows, and you can earn delayed retirement credits for doing so. Plus, it is possible to have Medicare premiums withheld from your annuity payments if you’re not yet receiving Social Security benefits.

FERS employees who retire after their Minimum Retirement Age (MRA) with 30 years of service, or at age 60 with 20 years of service, receive a Special Retirement Supplement that is paid as an annuity until you reach age 62 and become eligible for Social Security. The general purpose of the supplement is to provide a level of income prior to age 62 similar to what you will receive at age 62 as part of a Social Security benefit. Please note that the supplement may be reduced if you have excess outside income. For more information about the Special Retirement Supplement visit FERS Annuity Supplement.

While your actual Social Security benefit can’t be provided until you apply for benefits, it is possible to obtain an estimate based on your earnings record. As long as you have enough Social Security credits to qualify for benefits, you can use the online Retirement Estimator at the Social Security site. Personalized estimates of future benefits may be obtained via your my Social Security account at mysocialsecurity. Other benefits of establishing an account include reviewing your earnings history and viewing your latest statement. It’s a good idea to verify your earnings history throughout your work history – finding out there’s an error is best discovered sooner rather than later! It is possible to estimate your future Social Security benefits without establishing an account by visiting socialsecurity.gov/estimator. If you believe your Social Security will be affected by WEP, due to a CSRS component in your annuity, there is a special calculator available online at Online Calculator (WEP Version)

CSRS Offset & Social Security

In the legislation that created FERS, Congress also created CSRS Offset. Most people under CSRS Offset were once in CSRS but had a break in their federal service. While the particulars of this hybrid retirement system are addressed in a different Tangerine article, those employed under the CSRS Offset provisions are covered by both CSRS and Social Security and are eligible for retirement benefits under both systems.

When you retire, your annuity is calculated under the same rules that apply to CSRS retirees. And if you retire before age 62, you’ll receive a pure CSRS annuity. However, when you become eligible for Social Security benefits (usually at age 62), your annuity will be reduced (or offset) by the value of the Social Security benefit you earned during your CSRS Offset service. If you retire at or after age 62, and are eligible for Social Security benefits, the adjustment will be made when you retire. But even if you don’t apply for a Social Security benefit, the offset will be made automatically. That makes applying for Social Security at age 62 or immediately upon retiring something you want to seriously consider. But you should know that even if you don’t begin collecting Social Security benefits at age 62, you’re eligible for cost-of-living benefit increases starting with the year you become age 62.

If you have fewer than 30 years of "substantial earnings" under Social Security, your benefit will be subject to WEP. Social Security offers an online WEP version calculator to estimate your retirement benefits at Online Calculator (WEP Version) It’s important to use the WEP version of the calculator if you are subject to the Windfall Elimination Provision because Social Security estimates do not include any reduction for such (or the GPO). Why? Social Security doesn’t know that you’re subject to these reductions until your retirement claim is finalized at OPM.

CSRS & Social Security

The Civil Service Retirement System (CSRS) was created in 1920 and was the only retirement plan for most federal civilian employees until 1984. CSRS is a defined benefit plan that provides retirement, disability and survivor benefits and, as such, CSRS employees do not pay Social Security taxes (nor do their agencies). That means that your work earnings under CSRS are not shown on your Social Security record because it’s “non-covered” employment. While not covered by Social Security, CSRS employees are covered by Medicare because you pay Medicare taxes on your federal earnings. You are eligible for Medicare Part A (hospital insurance) once you have earned 40 Medicare quarters of coverage.

It is possible, however, for a CSRS employee to accumulate enough credits to qualify for Social Security from covered earnings before, during, or after federal service that total 40 credits (10 years) in the private sector. That’s the good news. The “bad” news is that CSRS employees are often affected by WEP for Social Security benefits earned through their own work record AND likely impacted by GPO if they intend to take a spousal benefit based on their spouse’s work record. Keep reading for more information.

Windfall Elimination Provision (WEP)

In 1983, WEP was one element of the many legislative changes resulting from the Social Security Amendments. In a nutshell, WEP is a formula used to adjust Social Security worker benefits for those who receive a pension from a job in which they did not pay Social Security, i.e. CSRS employees as one example, and have less than 30 years of “substantial earnings” under Social Security. WEP was created to eliminate the “windfall” that could result if you were to receive a CSRS annuity based on many years of employment not covered by Social Security and also receive a full Social Security benefit because you had a few years of employment covered by Social Security. The thinking goes that while you could look like a “low earner” in the Social Security records due to your limited years of paying into Social Security, you are entitled to your annuity and not a “low earner” - or someone who has earned low wages in covered employment throughout his/her work life.

Whether or not you believe receiving a CSRS annuity and full Social Security benefits is a “windfall,” you should know that WEP never totally eliminates the Social Security benefit you have earned for yourself under your own Social Security account. And for each year in which you do have “substantial earnings,” you can reduce part of your WEP reduction. You can find out what Social Security considers “substantial earnings” in their publication Windfall Elimination Provision.

One more thing…while WEP does impact spousal benefits claimed on your work record if you’re subject to such, WEP is not applied to Social Security survivor benefits.

Government Pension Offset (GPO)…Attention CSRS Annuitants

Another of the factors that can affect Social Security benefits for federal employees is the GPO, or Government Pension Offset. Bottom line, the GPO reduces spousal or survivor Social Security benefits if the receiver collects a pension from a “non-covered” government job, i.e. a job in which you did not have Social Security taxes withheld from your pay…think CSRS.

With certain exceptions (of course!), the GPO reduces your Social Security spousal or survivor benefits by two-thirds of your government pension. For example, if you receive a monthly civil service pension of $2400, two-thirds of that, or $1600, will be used to offset your Social Security benefit. So if you’re eligible for a $1700 spouse’s benefit, $1600 will be deducted and you’ll receive a $100 monthly benefit.

In cases where your offset is larger than your Social Security benefit, you won’t get one penny. Here’s how that works using the amount above. With a CSRS monthly pension of $2400 and an offset of $1600 (2/3 of $2400), unless the monthly spousal/survivor benefit would greater than $1600, your benefit will be reduced to zero. Due to the fact that Social Security spousal/survivor annuity benefits are often much less than CSRS annuities, the GPO typically eliminates the Social Security benefit. While that fact may not be easy to swallow, the law has always required that a person’s benefit as a spouse, widow, or widower (dependent benefits) be offset by the amount of his/her own retirement benefit.

For details on GPO exceptions and more information, visit GPO Calculator

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The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.

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