Social Issues

Social Security is a topic I cover in every one of my retirement seminars, and I wrote about it in a column a couple of months ago (Getting Social, March 7). Everybody, it seems, is familiar with the program, but many government folks are unclear about exactly how it might play into their retirement plans. Here are answers to some questions I've received about how Social Security works.

Under the Federal Employees Retirement System, what needs to be provided to receive the Social Security supplement for those retiring before age 62?

The FERS supplement is designed to bridge the time between your retirement under FERS and the age that you qualify for Social Security retirement benefits (62 is the minimum). It provides a temporary income stream for those who wish to stop working before they turn 62. Even though the supplement is meant to mimic the Social Security benefit (based only on your FERS civilian service), it actually is paid as part of the FERS basic retirement benefit from the Office of Personnel Management. Receiving the FERS supplement does not affect the amount of your Social Security benefit at 62. But keep in mind if you stop working before 62, your actual Social Security benefit will be based on the years of earned income that you had during your working career.

If you are entitled to receive the supplement, there is nothing you need to do other than apply for FERS retirement benefits. Here is the application and the pamphlet that goes along with it.

I retired from the military after 27 years active duty and receive a military retirement pension. I also have been working for the past eight years as a civil service employee with the Defense Department. After 10 years as a civil service employee I will qualify for a FERS retirement. Will I be able to draw Social Security benefits as well as my military and FERS retirements?

During both your military service and your civilian federal service covered by FERS, you paid Social Security taxes. If you served in combat, your military pay was not subject to income taxes, but you did continue to pay into Social Security. Therefore, all your wages will be used to compute your future Social Security benefit. Here is a Social Security fact sheet on military service.

In another three years, I will be able to retire under the Civil Service Retirement System. I plan on leaving my husband a survivor's benefit. He works in the private sector and will be getting Social Security when he retires. If he passes before I do, will I be able to get a widow's Social Security benefit in addition to my CSRS benefits?

Most likely you will not receive the widow's benefit from your husband's Social Security, because it will be offset by two-thirds of your CSRS retirement benefit. This is what is known as the Government Pension Offset. It's similar to what would have happened even if you had spent your career working in the private sector and paying Social Security yourself. Under that scenario, you would have earned your own benefit. But if your husband died, you would not be entitled to the full amount of his benefit as well as your own. You'd get the higher of the two in a situation known as "dual entitlement." If your husband has a 401(k) or other retirement savings plan and a company pension, he can provide you survivor's benefits or name you as the beneficiary on both these accounts. Here's a previous column on the Government Pension Offset: Offsetting Penalty, June 9, 2006.

As the government considers changing Social Security benefits, I wonder what plans it has to prop up FERS for us young people. Right now, Social Security is supposed to provide up to a third of our retirement income. The pension benefit for FERS is hardly enough to account for a 30 percent loss in Social Security benefits, even with the Thrift Savings Plan factored in.

Politically, Social Security is a very sensitive issue since it affects virtually every American. Changes have been made to Social Security in the past, and it soon will be time to make changes for the future. Meanwhile, the thing to keep in mind is if you earn a salary that is above average, you can't count on Social Security to provide a third of your retirement income. Even under the existing system, the more you earn, the less you can expect in replacement of your wages from Social Security. The formula used to compute Social Security benefits has always provided a more generous replacement of income to those who have earned less throughout their lives. The theory is if you earn more, you should have money left over to save for your retirement.

If you can get in the habit of setting aside 5 percent to 10 percent of your earned income throughout your career, then you should be able to supplement Social Security with your investment income. If you are not entitled to a retirement benefit from your employer (like the FERS basic benefit), then you may need to increase your savings. Currently only 35 percent of retirees receive a company pension from their employer.

Future changes to Social Security may not necessarily mean a smaller benefit. They could involve change to tax rate, age requirements, or the amount of income subject to the tax. The benefit will be reduced only if something is not done to provide funding needed to pay these promised benefit levels.

I am in CSRS and will be 62 in August. I have 39 credits for Social Security and I am working (part time) now to receive my 40th, to qualify for benefits. Am I eligible to receive Social Security benefits once I turn 62 with 40 credits while I continue to work in the government?

Once you have earned 40 credits, you will be "fully insured," which simply means you are eligible to receive a Social Security retirement benefit. You become eligible for Social Security at 62. So if you have 40 credits and are at least 62, you should be able to receive a benefit, right? Well, there's one more thing. If you are still working, there is an earnings limit applied until you reach your full Social Security retirement age -- between 65 and 67, depending on the year of your birth. Here is a Social Security fact sheet on the earnings limit.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.