Approaching retirement? If so, you’re likely finalizing important decisions about when exactly you’ll retire, how you’ll fund your retirement and what you’ll do with all your newfound free time. You also may be looking at your FERS or CSRS annuity and determining how to maximize the value.
While your annuity is important, it’s just one of three legs on the retirement stool. Your Thrift Savings Plan (TSP) is also an important component. The third leg is Social Security, which is a valuable resource for nearly all retirees. Almost 90 percent of America’s seniors receive retirement income from Social Security.1
Of course, most of those individuals who receive Social Security aren’t former government employees and don’t receive FERS or CSRS annuities. You may be wondering how your annuity will affect your Social Security benefit, if at all.
The answer depends on whether you fall under FERS or CSRS. Below is information on both systems and how they could impact your Social Security eligibility:
Federal Employee Retirement System (FERS)
If you’re in the FERS system, determining your eligibility for Social Security is simple—you’re eligible! FERS consists of three components: your FERS annuity, your TSP and Social Security. You are eligible to file for full Social Security benefits just like any private sector worker.
You can file for Social Security as early as age 62. If you file before your full retirement age (FRA), however, your benefit could be permanently reduced as much as 30 percent. Most people have an FRA between their 66th and 67th birthdays.2
You can also delay your filing past your FRA. If you do, Social Security will credit 8 percent to your benefit amount for every year you wait. The credits stop at age 70. However, if your FRA is 66 and you delay to age 70, you could increase your benefit amount by up to 32 percent.3
Social Security will likely be a large piece of your retirement income puzzle. It’s wise to plan your filing and your strategy carefully. For some it may make sense to file early. For others it may be better to delay filing. Look at your retirement budget and expected income, and then develop a plan that aligns with your unique needs and goals.
Civil Service Retirement System (CSRS)
CSRS is the retirement system for federal employees that was in place until 1984, when most federal employees were transitioned into FERS. If you were hired after that date, you are likely in the FERS system. However, there are some federal employees who are still covered under CSRS.
The relationship between the annuity and Social Security is more complex for CSRS employees. Social Security is funded through payroll taxes, and the annuity is funded in part through payroll deductions. In CSRS, you don’t pay payroll taxes for Social Security. You pay only for your annuity.
Of course, this also means you aren’t eligible for full Social Security benefits and a full annuity benefit, since you didn’t pay for both of them. When you reach age 62, your CSRS annuity is reduced for what’s called the CSRS Offset. That means your annuity is reduced by the amount you’re eligible to receive from Social Security. Keep in mind that this usually happens at age 62, even if you don’t file for Social Security at 62.
The formula for calculating your offset is complex. Many employees have some service under CSRS and under FERS, which makes the calculation even more complicated. A financial professional and your benefits office can help you understand how your offset might impact your retirement.
Ready to plan your retirement income strategy? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
The information is not intended to be investment, legal or tax advice. The agent can provide information, but not advice related to social security benefits. The agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. For more information, contact the Social Security Administration office, or visit www.ssa.gov.
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