A big perk of being a federal government employee is you can take advantage of the many benefits offered. Plenty of federal government employees are able to retire well and even earlier than expected because of the robust retirement benefits the government provides. The Federal Employees Retirement System (FERS) has many great features, one of which is the Special Retirement Supplement (SRS), a less publicized but critical component to an employee’s retirement plan.
The Benefits of the Special Retirement Supplement
The SRS system is designed to allow federal employees to recapture the Social Security benefit they earned while being an employee. This is added to the total FERS annuity. You do need to first qualify for the FERS annuity plan, with either 30 total years of service, or 20 years of service by the time you reach the age of 60.
The supplement ends at age 62 because Social Security benefits start to kick in at this age. So federal retirees will be paid the SRS until they reach the age of 62, and will be paid Social Security after the age of 62. It is important to note that the SRS is subject to Social Security’s annual earnings limit, which for 2021 is $18,960 if you’re under full retirement age. (1) This means an employee’s SRS will be limited to $1 for every $2 they earn.
The SRS also has additional benefits you might not know about:
- The supplement doesn’t have an impact on your Social Security benefits. In most cases, the Social Security Administration isn’t aware that you’re even receiving benefits from your SRS.
- There’s no reduction in benefits until after the first calendar year you’ve received benefits. Even if you’re working for the entire first year, you won’t have to report your earnings to the IRS. (2)
- You should typically fill out and send back an earnings report sometime in May, usually on the 15th. If you received benefits, you should receive a supplement survey in the mail instructing you to report earnings greater than $18,240 (for 2020).
The Best Way to Estimate Your Annuity Payment
There are a couple of considerations for calculating your payment in retirement. The FERS system has its own payment method calculation for the annuity payment. It looks like this: A certain percentage (most employees are around 1%) multiplied by the length of eligible time an employee accrued during their tenure (differs from the number of years worked), multiplied again by the average annual rate of basic pay of the employee’s highest-paid consecutive 36 months.
The SRS has a different method for calculation. There are three specific steps to take to make the calculation: (3)
- Take your latest Social Security benefit estimate at 62.
- Multiply that figure by your total years of FERS service, rounded to the next highest year.
- Divide the product by 40.
Another way to get an accurate calculation of your annuity payment is by speaking with an independent advisor. A retirement plan counselor can help you review your situation and tailor a plan to your lifestyle needs.
The Bottom Line
What does all this information mean for federal employees? For starters, you have the ability to receive a benefit similar to Social Security before the age of 62 with the SRS. Many employees do not factor this extra benefit into their retirement planning. Additionally, the supplement doesn’t impact your Social Security benefits, which could potentially further maximize your retirement earnings.
Planning for retirement on your own can seem like a daunting task. That is why we at Bridgerland Financial are here to help. Our team specializes in helping clients bridge the gap between their working years and retirement. The FERS and SRS are just a few examples of what Bridgerland Financial can help you with. Schedule an appointment online or reach out to us at email@example.com or (435) 535-1630.
David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠ (CRPC®) credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn. You can also register for his recent webinar, What We Do & How We Help here.