Q: I read with interest the question about annuity reduction, and found your response confusing. The question was: “I am a retired federal employee and I was receiving a monthly annuity of $4,200, but when I recently turned 62, OPM reduced my annuity to $3,550,and told me it was because I was eligible to collect Social Security benefits, even though I am not collecting Social Security benefits and do not plan to do so until I am at least 65. I did have two years of active military service, which I paid for while I was working, so that those two years would be figured into my annuity calculation. It appears to me that the federal government is almost forcing me to take my Social Security benefits at the younger age of 62, otherwise, I lose the $600 and some dollars that they have deducted from my annuity. I read information at “catch-62,” and how your annuity can be recalculated downward if you did not pay toward your military service time prior to retirement. But catch-62 makes no mention of a reduction at age 62, based on the sole fact that I became eligible for Social Security benefits, yet did not elect to collect those benefits. I am very confused by all this, and I am not getting much cooperation out of OPM. I worked at the Defense Supply Center Philadelphia, which is part of the Defense Logistics Agency.”
Your answer: “Apparently, you were a CSRS Offset employee, with deductions for CSRS and Social Security taken from your pay. When you became eligible for a Social Security benefit at age 62, the law required that your CSRS annuity be offset by the amount of Social Security benefit you earned while covered by CSRS Offset. That reduction was automatic and is not connected to when, or if, you apply for a Social Security benefit.”
I am also a CSRS Offset employee and will be subject to the same kind of reduction when I turn 62. The automatic reduction at age 62 by OPM does send a signal to the annuitant that he should consider starting to collect his Social Security benefit if he doesn’t want to suffer a loss of “$600 and some dollars” per month. Otherwise, he will have to accept the loss of $7,200+ per year for four years if he chooses to defer collecting his full Social Security benefit until age 66. Ignoring the potential for COLAs, the loss of $7,200+ per year for four years (approximately $29,000) is significant. So my question is whether at age 66, he will receive “more than” his previous monthly annuity of $4,200 since it will now be a combination of his CSRS plus his full Social Security benefit? Will the loss he suffered ever be recovered and, if so, how many years past age 66 will it take for him to recover that loss?
A: My answer was clear. You want the answer to questions that the writer didn’t ask. If you apply for a Social Security benefit when you reach age 62, the combination of that Social Security benefit and your reduced CSRS annuity will be the same as it was before the reduction occurred. The payments will just come from two different places, OPM and the Social Security Administration. If, for some reason, a retiree decided not to apply for a Social Security benefit until he reached full Social Security benefit age, then the amount of his Social Security benefit would be greater than it would have been if he applied for it at 62. That’s both because the earlier he applies for a benefit, the greater the reduction will be, and the fact that, in most cases, cost-of-living adjustments will have increased its amount. Whether following that strategy would eventually make up for the earlier loss in income would require a statistical analysis (and a prediction of the age at which the retiree would die), that falls outside the scope of this forum.