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Federal Employees Benefits Q &A

Do you have questions about your federal employee CSRS or FERS pension/annuity or federal employee retirement planning? Concerns about your Thrift Savings Plan (TSP) account or what about federal employee pay and leave issues?

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The Q&A forum is moderated by Ed Zurndorfer -- an expert on federal employee benefits -- and a Certified Financial Planner, chartered life underwriter and chartered financial consultant in Maryland.

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wyre  
#1 Posted : Tuesday, June 14, 2016 8:20:41 AM(UTC)
wyre

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As a CSRS employee who just became eligible for a small social security check, I'm deliberating whether or not to take SS now, while I am still working, and then SUSPEND benefits as soon as I retire, thus allowing the amount to grow at 8% a year from the time I retire until I reach 70. By my calculations, I would lose about 9 months to a year of "growth" by taking it while still working, but I would get the full amount of the social security during that time, since I have already reached full retirement age. As I understand it, while working this amount would be un-reduced by WEP, which means I would get approx $575 a month now, vs $125-150 a month (after WEP kicks in, when I start getting my pension.)

I know the rules for File and Suspend have recently changed and this largely affects married couples. I am single, and I believe we are still eligible to suspend payments at any time after taking the first payments without losing the potential to let the payout grow. (We just cant get a lump sum payout any longer, should we change our minds) Is that correct?

IF WEP legislation in the future modifies the total reduction, I'm estimating it might lower the cut for current CSRS employees to a 50% vs a 75%-80% reduction in SS that I'm anticipating -- this should more than make up for the 'lost' 8% growth for the year or so when I took the cash in hand while working.

So, Ed, so you have any advice on the advisability of waiting and letting it grow (so it can then be cut), or taking it un-reduced now, for as long as I continue working, and then turning off the payments at the time I retire (to let the benefit rate increase until age 70).

I realize it might increase my tax burden now, but the money would still be taxable later, anyway, and my total income would not be significantly less after age 70, since I would soon be forced to take the minimum distributions from my TSP and IRAs. As long as the extra income won't make me ineligible for a ROTH in 2016, which I believe is capped at an adjusted income of $117,000 for this year's contribution, I think it makes sense to take the extra cash now, while it's un-reduced by WEP.

Is there something wrong with this logic, or would you still advocate not taking SS at age 66 and letting it 'grow' until age 70? 30% increase sounds good, but if WEP is taking 75% of the total, it's almost a moot point.

Also, if I do take it now, will it be retroactive back to the month I reached full retirement age? I believe there's a 6 month buffer to file for initial payments. Can you confirm?

Thanks!


Ed Zurndorfer  
#2 Posted : Tuesday, June 14, 2016 2:05:52 PM(UTC)
Ed Zurndorfer

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First, your WEP penalty is too high. The current penalty is about 40 to 50 percent. Second, you should drawing your full Social Security at this time for two reasons. The first reason is that now you have reached full retirement age you can receive all of your Social Security benefits, work, and not lose any of your benefits (no "earnings" test). The second reason is that while you work for the Federal government the WEP does not apply. That being said, you should start receiving your Social Security benefits and assuming you do not need the monthly benefit, you should contribute the monthly payment to the CSRS Voluntary Contribution Program. If you take Social Security now, yes you can request a lump sum payment back to the month you became full retirement age (six months ago).
wyre  
#3 Posted : Friday, June 17, 2016 4:45:06 AM(UTC)
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That's encouraging to hear. I thought I had read that the new legislation, if passed, might lower the WEP to 50% , implying that it currently was much higher. I was using the maximum reduction allowed figure from social security in my calculations, which as I recall was about $425. How do they determine the WEP percentage applied?

Do you still advocate suspending benefits upon retirement to "let it grow" by the remaining 8% x # of years to age 70? If so, how early do you have to notify them to stop payment? It's my understanding that the check you receive is for the prior month, so presumably you would have to suspend the month you are retiring. Does it automatically re-start at age 70, or do you have to notify them to resume? I would assume the latter, but (again) I read that it's automatic. Lots of mis-information out there! best to check with Ed!

good idea about the VC contribution! Thanks!
Ed Zurndorfer  
#4 Posted : Friday, June 17, 2016 5:33:11 AM(UTC)
Ed Zurndorfer

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First, for purposes of the WEP, it is a dollar reduction (not a percentage) that the Social Security Administration (SSA) uses to reduce an affected Social Security recipient's monthly benefit. The amount of the dollar reduction depends on the number of a recipient's years of "substantial" Social Security earnings. Information about the WEP and how it is computed is presented on the SSA Web site at www.socialsecurity.gov. Suspending benefits at retirement makes sense only if: (1) The individual is in relatively good health; and (2) The individual does not need the Social Security income. One should contact the SSA at least one to two months before he or she wants to suspend benefits. Finally, to resume benefits at any age, one has to formally contact the SSA. Nothing is done automatically.
wyre  
#5 Posted : Wednesday, June 29, 2016 6:58:48 AM(UTC)
wyre

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The social security website says it resumes automatically, but I'm not planning on taking any chances! Thanks again.

Here's their citation:


You do not have to sign your request to suspend benefit payments. You may ask us orally or in writing.

If your benefit payments are suspended, they will start automatically the month you reach age 70.

If you change your mind and want the payments to start before age 70, just tell us when you want your benefits reinstated (orally or in writing). Your request may include benefits for any months when your payments were suspended
Ed Zurndorfer  
#6 Posted : Wednesday, June 29, 2016 8:44:45 AM(UTC)
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Your approach is correct; namely, "do not take any chances".
wyre  
#7 Posted : Friday, March 2, 2018 5:18:27 AM(UTC)
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Update on this - after nearly 2 yrs of receiving a small, unreduced SS check while still working (CSRS) -- I just got a letter from social security asking me if I have retired, if not, what date will I be retiring, and what is the earliest date I could have received a pension had I stopped working and made application. ( I assume "first eligible" means after 30 yrs, but not sure.)

They're even implying that the WEP may apply even if I have not yet retired from CSRS. This is the first time I've heard that! I've always been told WEP kicks in when you take your pension.

To quote: the windfall elimination provision can apply if (bullet 3) you first became eligible for a monthly pension based on work where you didn't pay SS taxes after 1985. THIS RULE APPLIES EVEN IF YOU ARE STILL WORKING.

So, are they going to ask for the money back? I started taking SS at full "retirement" age, following advice above -- if I have to repay, do I also need to amend income tax for the past two yrs? This is crazy! If WEP applies while still working ( I'm still not sure that's the case) ... then I would have waited til 70 to allow the amount to increase ... if they're planing to retroactively apply the WEP, could I repay all SS payments and re-file at 70 (+8% a year for 4 yrs) This is confusing and upsetting - the prospect of having to give back 1/2 the money they've sent for almost two yrs is daunting. Can they do this?

Ed Zurndorfer  
#8 Posted : Friday, March 2, 2018 6:14:09 AM(UTC)
Ed Zurndorfer

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The law is that if a CSRS or CSRS/Offset employee continues to work in Federal service and has reached his or her full retirement age (FRA) (age 65-67, depending on which year the employee was born) (and in reaching full retirement age the employee can receive Social Security payments in full without being subject to the "earnings" test), then the employee can receive full Social Security benefits without being subject to the Windfall Elimination Provision (WEP). Once the employee retires and starts receiving the CSRS annuity, the WEP becomes effective. If you or someone else heard something different from a Social Security Administration (SSA) representative, then ask for an SSA supervisor.
thanks 1 user thanked Ed Zurndorfer for this useful post.
wyre on 3/2/2018(UTC)
wyre  
#9 Posted : Saturday, September 21, 2019 10:40:01 AM(UTC)
wyre

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Update: my WEP notice just arrived and since I had no “substantial” earnings during the entire time I’ve been paying in to social security, I expected a hefty penalty. Turned out it was even higher than I’d anticipated... they are cutting 55.6% of my benefit, which is in line with a ballpark calculation I saw elsewhere online. Disappointing! I’m glad I took SS while working, so I could collect the full amount for at least a few years!
Ed Zurndorfer  
#10 Posted : Saturday, September 21, 2019 5:09:48 PM(UTC)
Ed Zurndorfer

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Thank you for sharing your experience with the WEP and its effect on your Social Security.
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