If you plan to collect Social Security retirement benefits prior to your full retirement age, or you are a federal retiree who receives the FERS Special Retirement Supplement, it is extremely important to understand how the Retirement Earnings Test (RET) works. This test limits the wage earning potential of recipients, who may still be working part or full-time. The limit for 2020 is $18,240/annually, or $1,520/monthly.
The Earnings Test applies strictly to wages from a job, meaning pension payments or withdrawals from the TSP or an IRA are not included. If your earned income exceeds this limit set forth by SSA, you will forfeit $1 of benefit for every $2 above the limit. Your FERS Supplement or Social Security benefit will reduce accordingly for the following calendar year. Once the proper amount has been forfeited, your benefits will resume as normal.
Even though the FERS Retirement Supplement is paid out by OPM and not SSA, it is still subject to the same limitation on wage earnings. This fact is especially important for feds retiring with full eligibility prior to age 62, who may want or need to keep working outside the federal government. Again, any excess earnings during a calendar year are required to be reported, and will subsequently affect the following year’s benefit, the same as it would a Social Security retirement benefit.
During the calendar year that you reach Full Retirement Age, you are subject only to a more lenient limit: losing $1 in benefit for every $3 above $41,880. Once you reach your birthday month in that year, you are no longer bound to the Retirement Earnings Test¹.
It is also important to note that Social Security benefits withheld due to the RET prior to full retirement age are actually returned to recipients after full retirement age, with an increased benefit in those later years. SSA reports that most recipients do recoup most, if not all, of the benefits lost due to the RET in this way.
If your federal retirement plans include working part or full-time after you retire, it is crucial to strategize around the Earnings Test to avoid working for one benefit simply to lose out on part of another. Our retirement strategists can walk you through how to optimize your work hours around your personal situation, so please take advantage of our free resources.
For more information on how the Retirement Earnings Test works, visit https://www.ssa.gov/policy/docs/program-explainers/retirement-earnings-test.html.
¹Block, Sandra. “Silver Lining for the Social Security Earnings Test.”Kiplinger, The Kiplinger Washington Editors , Dec. 2015, www.kiplinger.com/article/retirement/T051-C000-S002-social-security-earnings-test.html.