Social Security Benefits in Federal Retirement

Social Security coverage is a basic element of the retirement package for FERS employees and for CSRS Offset employees. Regular CSRS employees may be eligible for certain Social Security benefits through Social Security-covered work before or after (and potentially during, for part-time outside work) their CSRS employment years, or through spouses covered by the system.

Employees covered by Social Security pay the standard 6.2 percent deduction toward the Social Security trust fund up to an annual maximum, $127,200 in 2017. All federal employees also contribute 1.45 percent of salary toward Medicare, which has no maximum; the Medicare deduction sometimes is presented as part of the “Social Security” salary deduction, even though the money goes to two separate programs.

Qualifying for Federal Social Security Benefits Under FERS and CSRS Offset

To become eligible for old-age, survivors and disability insurance benefits, an employee must have credit for a required amount of work that is covered by Social Security. Social Security work credits are measured in quarters of coverage. If you were born in 1929 or later, you need 40 credits.

An additional insured status test must be met by employees in order to qualify for disability insurance benefits. Employees who become disabled after age 31 must have worked under Social Security at least five of the last 10 years preceding the onset of disability. Employees between ages 24 and 31 must have worked at least half of the quarters from age 21 and before disablement, and employees under age 24 may qualify for benefits with a minimum of 18 months of work in the three years prior to becoming disabled.

Fully insured employees are eligible for benefits as early as age 62, but benefits are permanently reduced for each month of entitlement prior to the full-benefit retirement age (see table below). The full retirement age is being increased in gradual steps until it reaches age 67 over a 21-year period beginning with individuals reaching age 62 in the year 2000. (The age of eligibility for Medicare is not affected by these changes.)

The benefit reduction for beginning to draw benefits at age 62 is increasing as the full retirement age goes up. For those born in 1960 and later, the reduction will be about 30 percent if they retire at age 62.

Employees who are fully insured and who become disabled are eligible for unreduced benefits, regardless of age. Under the Social Security law, a person is considered disabled if he or she is unable to engage in any substantial gainful activity due to a physical or mental impairment that lasts for at least 12 months or is expected to result in death. The term “substantial gainful activity” refers to the performance of significant productive physical or mental duties, generally for pay or profit. This standard is higher than the one for disability retirement under CSRS/CSRS Offset and FERS.

Employees who receive an annuity based on CSRS service (including those who transfer to FERS from CSRS) usually will have a modified benefit formula in computing the Social Security retirement or disability benefit.

Age to Receive Full Social Security Benefits
(Year of birth | Full retirement age)

1937 or earlier: 65
1938: 65 and 2 months
1939: 65 and 4 months
1940: 65 and 6 months
1941: 65 and 8 months
1942: 65 and 10 months
1943–1954: 66
1955: 66 and 2 months
1956: 66 and 4 months
1957: 66 and 6 months
1958: 66 and 8 months
1959: 66 and 10 months
1960 and later: 67

How your social security benefit is calculated under FERS and CSRS Offset

Your Social Security benefit is based on your earnings averaged over most of your working career as well as by the age at which you start receiving retirement benefits. If you start receiving them at the earliest possible retirement age, you benefits will be lower than if you waited until your “full retirement” age.

On the other hand, if you do decide to begin receiving benefits at age 62, you will be receiving those benefits for a longer period of time. Also note that if you delay receiving Social Security benefits beyond your full retirement age, your benefit amount will increase by up to 8 percent per year you delay, up to age 70. The exact increase varies according to the year of your birth.

Social Security first determines your Primary Insurance Amount (PIA). That’s the amount you would receive if you worked until your “full retirement” age. Their first step is to determine your Average Indexed Monthly Earnings (AIME). They do that by:

  • listing all your Social Security covered earning from 1951 to the present;
  • adjusting those earnings to account for inflation, not to exceed the maximum taxable amount in any year;
  • selecting the 35 highest years of indexed earnings, dropping in a zero for each year in which there were no covered earnings;
  • dividing the number of months included into the total of the indexed earnings.

The product of this exercise is your AIME. A formula is then applied to produce the PIA (note that the Social Security formula is weighted in favor of those with lower lifetime earnings). The formula is:

90% of the first $885 of the AIME

plus

32% of the next $4,451 of the AIME ($5,336 – $885)

plus

15% of the AIME over $5,336

Example: Retiree with 30 or more years of substantial earnings

AIME:   $6,000

.90 x $885               =              $796.50

.32 x $4,451            =              $1,424.32

.15 x $664               =              $99.60

PIA:                                        $2,320.42 (39 percent of the AIME)

Family Benefits

Family benefits payable on an employee’s Social Security record are limited to a maximum set by law. The maximum family benefit is generally related to the employee’s PIA.

The maximum monthly benefit that can be paid to a family (including the employee) ranges from 150 percent to 188 percent of the employee’s PIA in retirement and survivor cases. In disability cases, it ranges from 100 percent of the PIA to 150 percent of the PIA. Generally, the maximum family benefit amount applies whenever there is more than one auxiliary or survivor beneficiary entitled on the employee’s record.

Dual-Entitlement

Under the “dual-entitlement” provision, a person who qualifies for benefits based on the earnings of more than one employee (for example, a benefit as an employee and a benefit as a spouse of another employee) cannot receive both benefits in full. The amount of the spouse’s or surviving spouse’s benefit is offset dollar for dollar against the person’s own benefit so that the spouse receives the larger of the two benefits.

Social Security benefits are increased automatically each year whenever the cost of living, as measured by the Consumer Price Index rises.

If you would like an estimate of your potential Social Security benefit at retirement, call (800) 772-1213, or go to www.ssa.gov/myaccount. SSA no longer sends them to everyone automatically every year; however, it does so every five years starting at age 25 for those who are not receiving benefits and who do not have online accounts. The estimates do not take into account any impact of the Windfall Elimination Provision, the Earnings Test or the Government Pension Offset.

Applying for Social Security Benefits

You can apply for benefits by telephone at (800) 772-1213, online at www.ssa.gov, or by visiting any Social Security office. In general, all you’ll need to complete the process is your Social Security number and your birth certificate. However, it’s a good idea to have on hand your W-2 forms for the preceding year and your military discharge papers, if you had military service, just in case they are needed. You’ll also want to have your spouse’s and children’s birth certificates and Social Security numbers if they are applying for benefits.

Government transfers of financial benefits, such as Social Security payments, generally must be made directly to a financial institution. Thus, you also should bring the name of your financial institution and your checking or savings account number.

After Social Security completes the processing of your application, it will put you on the Social Security retirement roll and begin paying benefits. Benefits begin accruing in the first full month after you become eligible and are paid in the following month. So, for example, if you were born in October, your benefits would begin accruing in November, and your first payment would arrive in December.

Traditionally, payments were made on the third day of each month. However, now anyone who begins receiving benefits will be paid on the second, third or fourth Wednesday of the month, depending on their birth date. Anyone born in the first ten days of the month will be paid on the second Wednesday, the 11th through 20th on the third Wednesday, and the remainder of the month on the fourth Wednesday. This change does not affect the accrual method described in the preceding paragraph.

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