Many federal employees retire with every intention of continuing to work. Some want extra income, others simply aren’t ready to stop working altogether. But if you retire before age 62 and receive the FERS Special Retirement Supplement, taking a new job can have an unexpected effect on your retirement income.
The reason is the FERS Supplement earnings test.
Working More Doesn’t Always Mean Keeping More
The FERS Special Retirement Supplement is designed to bridge the gap between retirement and Social Security eligibility at age 62. However, unlike your FERS pension, the supplement is subject to an annual earnings limit.
For 2026, that limit is $24,480. Once your wages or self-employment income exceed that amount, your supplement is reduced by $1 for every $2 earned above the threshold.
Only earned income counts toward the limit. Your FERS pension, TSP withdrawals, investment income, rental income, and other retirement assets do not affect the supplement. Wages and net self-employment income are what matter.
The Impact Isn’t Immediate
One aspect of the earnings test that often surprises retirees is its timing.
If your earnings exceed the limit during 2026, OPM generally applies the reduction beginning in July 2027 after reviewing your prior year’s income. Because of that delay, some retirees don’t realize they’ve crossed the threshold until months later.
Depending on your earnings, the reduction can be significant. In some cases, the supplement may be reduced substantially or even eliminated altogether.
The Rule Doesn’t End at Age 62
Many retirees assume the earnings test disappears once the FERS Supplement ends. In reality, a similar rule applies if you begin collecting Social Security before reaching your Full Retirement Age.
Like the supplement, Social Security benefits claimed early are subject to an annual earnings limit, with benefits reduced for income above the threshold.
For retirees who expect to continue working into their early 60s, it’s important to recognize that this rule may affect retirement income before age 62 through the FERS Supplement and then continue to influence Social Security if benefits are claimed early.
Planning Ahead Can Make a Difference
The earnings test doesn’t necessarily mean working after retirement is a bad idea. For many federal retirees, continuing to work is still the right financial decision.
The key is understanding how additional wages may affect the timing and amount of your retirement income. In some cases, limiting earned income may preserve more of the supplement. In others, delaying Social Security until after Full Retirement Age may provide a larger lifetime benefit while avoiding the earnings test altogether.
Retirement income planning isn’t just about knowing what benefits you’re entitled to receive. It’s also about understanding how those benefits interact with one another.
A Federal Retirement Consultant (FRC®) can help you evaluate how the FERS Special Retirement Supplement, Social Security, your pension, and your TSP fit together as part of your overall retirement income strategy. Schedule your complimentary benefits review today.
