How will Social Security impact my Federal Pension (CSRS Offset)
CSRS-offset has got to be one of the more obscure, challenging areas of federal retirement.
CSRS-offset retirees have a retirement benefit which combines CSRS and Social Security. The CSRS portion, however, will be reduced by the amount of Social Security earned while employed in CSRS-offset.
The result of this offset has its downside, but it also has a tremendous upside:
- The downside – The offset applies when eligible for Social Security, even if you do not take Social Security. This means, there may be a time when you are not taking Social Security, but your CSRS pension is still being offset. As such, during that time, your income will be lower than a regular CSRS annuitants.
- The upside – When you receive Social Security, the offset amount will not be equal to the Social Security benefit, but rather less. This means, the combined result of the offset CSRS pension + the full Social Security benefit will yield a higher income than a regular CSRS annuitant.
The downside period may only be a few years. The upside period will be the remainder of your life. To make matters sweeter, once the offset amount is calculated, it stays fixed and doesn’t increase, while both your SS and CSRS pensions increase with COLAs!
Below is an expanded Q&A email correspondence that captures many of the unknown rules of CSRS-offset. Enjoy!
And if you know someone who is as confused as the questioner below (and every other CSRS offset person I ever met), then please pass this along.
“Hello Stephen, I am a CSRS Offset employee. I have about 20 years of CSRS Offset, and a total of 30 years of federal service. I understand that I am initially eligible to collect Social Security at 62. My questions focus on how this interacts with my CSRS Offset pension.
Q: If I retire before reaching the minimum Social Security age (62), will my pension be offset then?
A: No. The earliest the offset will kick in is age 62.
Q: If I do not apply for Social Security at age 62, will my CSRS pension be offset.
A: Yes. The offset kicks in at 62, even if you are not receiving SS benefits then.
Q: If the answer to the above question is yes, is there any way I can avoid having my CSRS Offset pension reduced at 62?
A: Only if you don’t retire. If you’re not retired yet from CSRS offset at 62, there’s no offset calculation that takes place at 62. OPM will only request your benefit info from Social Security once. That request will never happen before age 62. It will happen either at 62, or later when you retire from CSRS offset. For example, if you retire from CSRS offset at 65, your CSRS pension will be offset by your age 65 SS benefit. If you retire from CSRS offset at 68, your CSRS pension will be offset by your age 68 benefit.
Q: My Social Security benefits will be higher at 66 than at 62. If I retire and my pension gets offset at 62 even if I don’t apply for Social Security then, will the offset amount increase when I do apply for my full Social Security benefit at 66?
A: No. The offset kicks in at age 62 based on the age 62 benefit. Once the age 62 benefit is calculated and the offset amount is figured, it stays fixed (I’ll need to confirm if the age 62 offset amount has a COLA. I was told it doesn’t but that sounds too good to be true).
Q: Whenever my offset amount is calculated based on my Social Security benefit, will the offset amount change as my Social Security benefit increases with COLAs?
A: Good question. I believe the answer is no, because once the age 62 benefit is calculated and the offset amount is figured, it stays fixed (I know this sounds too good to be true).
Q: Let’s say I retire from CSRS-offset, but I want to – or need to – keep working beyond 62. Let’s also assume I am receiving my CSRS (Offset) pension at 62. Are there any caps on what I can earn (in the private sector) and still receive Social Security?
A: Yes there certainly are. There’s an earnings test and it’s quite possible you’ll earn too much and not receive any SS benefit.
Q: In the above case, if I am working and earning too much, and thus have my Social Security benefit reduced, will that reduction cause a decrease in my CSRS-offset calculation?
A: No. The offset calculation is based on what you are eligible to receive, not what you actually receive.
Q: For survivor benefits, will the survivor amount (& cost) be calculated on my CSRS pension before the offset is applied or after the offset is applied?
A: Both the survivor amount and cost will be based on the full CSRS pension before the offset is applied. However, even the survivor benefit will be offset, should the survivor become eligible for a Social Security survivor benefit. If they are eligible, even if they don’t opt to receive it, the survivor benefit will be reduced/offset by the Social Security survivor benefit. The offset amount is calculated using a similar method that was applied to the employee.
Windfall Elimination Provision (WEP)
Q: I understand that I am eligible for Social Security payments in addition to my CSRS Offset pension. However, the amount of Social Security benefits I will get will be reduced if I haven’t contributed to Social Security for at least 30 years when I was earning “substantial earnings.” The reduction is based on the table shown on the Social Security Administration Web site. Is this correct?
A: Correct. This is the WEP.
Q: Do my Social Security contributions during my years in CSRS offset count towards my 30 years of Social security “substantial earnings?”
Q: If my Social Security benefit is reduced because of the WEP, will that reduced benefit be factored in to my CSRS offset calculations?
A: Yes. If, at the time OPM requests your SS benefit info from Social Security you are subject to the WEP, Social Security will report the reduced, after-WEP benefit. OPM, in turn, will use this lower amount to calculate your offset.
Q: If the answer to the above question is YES, what would happen if I worked after retirement and was no longer subject to the WEP? Would my offset amount be recalculated now that I am receiving a higher SS benefit?
A: No. Social Security only furnishes OPM with a benefit amount once. Once the SS benefit is calculated and the offset amount is figured, it stays fixed, regardless of how your future actions affect/increase your SS benefits.