The SRS earnings test

The SRS earnings test reduces your supplement when you earn more than an annual limit. OPM cuts the Special Retirement Supplement by $1 for every $2 you earn above the limit. The test only applies before age 62, when the supplement ends anyway.

The limit is the same annual exempt amount the Social Security earnings test uses. It changes every year, so we do not list the figure here; see our assumptions for the current value. Earn at or below the limit and your supplement is untouched.

Picture a retiree named Marcus, already past his Minimum Retirement Age. Say he earns an example $10,000 over the limit in a year. OPM reduces his annual supplement by half of that overage, or $5,000. (Figures are illustrative; see our assumptions.)

One reassurance up front. The earnings test only touches the supplement, never your basic FERS pension. OPM applies the reduction to the supplement alone, so your monthly pension check stays the same no matter how much you earn.

Only earned income counts: wages from a job and net self-employment income. Money you do not work for, like your pension or TSP withdrawals, never counts. That distinction decides whether a post-retirement job affects your supplement.

OPM counts the same earned income the IRS taxes for employment. On the wage side that includes salary, overtime, bonuses, vacation pay, and severance. For the self-employed, it is your net profit after business expenses.

Passive income is the other half of the rule. Your FERS pension, the supplement itself, TSP and IRA withdrawals, rental income, and investment gains do not count. You can draw heavily on the TSP and still keep the full supplement, because none of that is earned income.

• Counts: wages, salary, overtime, bonuses, vacation pay, and severance.
• Counts: net self-employment income, meaning profit after business expenses.
• Does not count: your FERS pension and the supplement itself.
• Does not count: TSP and IRA withdrawals, rental income, and investment gains.

The reduction runs a year behind your earnings. You report last year's income, and OPM applies any cut the following summer. So a job this year does not change your supplement until next year.

Each year OPM mails the Annuity Supplement Earnings Report, form RI 92-22. It goes to non-disability retirees who are between their MRA and age 62. You report your earned income from the prior calendar year.

By law, any reduction takes effect on July 1 of the year after the earnings year. The reduced amount then runs for twelve months, until the next report resets it. If your earnings drop back under the limit, the supplement returns to full.

Your first year is treated gently. The earnings test only counts income you earn after you retire and after you reach your MRA. The large federal salary you earned before retiring does not reduce your supplement.

The test applies only to post-retirement, post-MRA earnings. So in the calendar year you retire, your pre-retirement pay is ignored for this purpose. A high final salary does not trigger a reduction.

Timing protects the first year further. Because any reduction does not begin until July 1 of the following year, your supplement is paid in full through your entire retirement year. The earliest a cut can appear is the summer after your first year of post-retirement earnings.

Special-provision retirees get an even longer grace period, covered next. For everyone else, the takeaway is simple. Earnings before you retire never count, and the first possible reduction is more than a year away.

Special-provision retirees are exempt from the earnings test until they reach their MRA. Law enforcement officers, firefighters, and air traffic controllers retire early, so they can work freely for years before the test begins.

These employees face mandatory early retirement, often in their early fifties. Their earnings test does not apply until they reach their Minimum Retirement Age. Until then, they can earn any amount and keep the full supplement.

Take a firefighter who retires at 52. The supplement starts right away, and the earnings test stays off until her MRA. From her MRA to 62, the standard $1-for-$2 reduction applies like anyone else.

Military reserve technicians share this exemption. Standard FERS retirees under MRA+30 or age 60 with 20 years get no early exemption, because they are already at or past their MRA when they retire. For them the test can apply from their first full year out.

The earnings test rewards knowing the limit. Part-time work under the limit costs you nothing. Earnings well above it can shrink or erase the supplement, but only until 62, when the supplement ends and your Social Security decision takes over.

Many retirees keep a part-time job under the limit on purpose. Because only earned income counts, you can also draw from the TSP without any reduction. The lever you control is wages, not your overall income.

High earnings are a different calculation. Enough wages can reduce the supplement to zero for a year, though your pension keeps coming. Some retirees who plan to work full time treat the supplement as temporary and lean on it less.

The supplement is one moving part in a larger plan. To see how it fits with your pension, your TSP, and Social Security, run your free readiness score. It models the bridge years so you can test a return-to-work plan before you commit.