Most retired federal employees participate in Social Security now as part of FERS. Here are some things you should know.
Federal employees under the FERS (Federal Employees Retirement System), which replaced the CSRS (Civil Service Retirement System) in 1986, all participate in Social Security.
In fact, FERS is a retirement plan that provides benefits from three different sources:
1) a Basic Benefit Plan,
2) Social Security and
3) the Thrift Savings Plan (TSP).
The first two, the Basic Benefit and Social Security parts of FERS, require you to pay your share each pay period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay as payroll deductions. (Your agency pays its part too.)
After you retire your Basic Benefit Plan allows you to receive annuity payments each month for the rest of your life (also called a pension).
The Social Security portion of your benefits means you can also file for and collect Social Security and receive monthly checks for the rest of your life.
Thirdly, instead of the 401(k) plans available to private sector workers, federal employees have the TSP (Thrift Savings Plan) as part of their benefit package. Your TSP account is automatically set up for you by your agency. Each pay period your agency deposits into your account amount equal to 1% of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will also make a matching contribution. Participation in the TSP is automatic although you can opt out or opt to contribute more. It is similar to a private sector 401(k) plan.
Here are five facts about Social Security that you should know as a federal employee:
- CSRS (Civil Service Retirement System) employees, or federal employees who began working for the federal government in 1986 or earlier do not contribute to or nor can they collect Social Security.
CSRS employees do, however, contribute to Medicare, so they qualify for Medicare at age 65.
- FERS (Federal Employees Retirement System) employees, or those who began working for the federal government after 1986, do contribute to and can collect Social Security.
NOTE: Often the amount of Social Security that federal employees can collect is not enough to provide a comfortable retirement, even when added to the FERS Basic Benefit pension. TSP (Thrift Savings Plan) contributions may need to be higher early in your career to ensure you have enough money to retire securely when you are ready.
- The date you can file for Social Security benefits is different than the age you can take withdrawals from your TSP account without penalty.
Whether you are a private sector worker or federal employee, waiting to file for Social Security can add to your lifetime benefit amount. You can file for Social Security as early as age 62, but your benefits are permanently reduced if you decide to claim Social Security before your full retirement age.
For those born between 1943 and 1954, the full Social Security retirement age is 66. It then increases two months for every year of birth from 1955 to 1960 until the retirement age reaches 67. If you were born after 1960, your retirement age is 67.
If you wait even longer to file, your benefits increase by 8% per year from full retirement age up to age 70.
Just as with private sector traditional 401(k) accounts, you can begin withdrawing funds from your traditional TSP account without penalty beginning at age 59-1/2, but you will owe income taxes on the amounts withdrawn. (Roth accounts are generally not taxable except for the matched portion.)
- Projections show Social Security will run into shortfalls in 2034.
By the year 2034, analyses show the current reserves will be depleted. Without Congressional changes to Social Security—such as reducing benefits, raising the Social Security age, increasing Social Security withholding, or raising the cap for high-earners—it’s expected that the government will only be able to pay 78% of expected benefits by then. With workers already aware that it’s nearly impossible to live off Social Security payments alone, it’s important for the federal employee to plan to have other sources of retirement income in place.
- Social Security payments are often not enough to completely support you in retirement.
In 2018, the NHP Foundation reported that 62% of baby boomers think Social Security will fund at least half of their retirement. In reality, that’s not the case. There is typically a gap between the amount retirees need to spend and want to spend versus the amount they receive in Social Security. Pensions, TSP accounts and other retirement strategies can be a great way to supplement that income—but you must plan early to have enough by the time you are ready to retire.