Working in retirement: the three earnings tests

1. The three tests at a glance

The differences in the last two rows are what people get wrong. Supplement withholding is a permanent loss. Social Security withholding is not a loss at all — it is a deferral, credited back through a higher benefit at full retirement age. And IRMAA is not withholding at all, it is a surcharge on a bill you pay two years later.

2. The annuity has no test

Start with the reassurance. Your FERS or CSRS annuity is not subject to any earnings test. Take a job at $150,000, start a consulting business, sell real estate — the annuity arrives unchanged. There is no limit, no reporting requirement, and no reduction.

The single exception is returning to federal employment, covered in section 8. Everything else you might do for money in retirement leaves the annuity alone. Any advice that suggests otherwise is confusing the annuity with the supplement.

3. Test one: the FERS supplement

The FERS Special Retirement Supplement is subject to the Social Security earnings test by statute, once you reach your minimum retirement age. Retire at 57 under MRA+30 and the test applies from day one; retire under DSR or VERA at 52 and the supplement is not payable until MRA, at which point the test starts with it.

The mechanics matter as much as the math. OPM mails Form RI 92-22, the annual earnings survey, in the spring to supplement recipients who have reached MRA. You report the prior year’s earned income. Any reduction takes effect with the July payment and runs for twelve months. So 2027 earnings are reported in early 2028 and reduce the supplement from July 2028 — potentially after the supplement has already ended at 62, in which case OPM may seek repayment.

Two more things. The reduction is permanent; unlike Social Security, nothing is credited back later. And the supplement ends entirely at 62 regardless of earnings, so the test only ever applies for the years between MRA and 62.

4. Test two: the Social Security earnings test

If you have claimed Social Security before full retirement age and you keep working, the same $24,480 limit and $1-for-$2 ratio apply to your benefit. In the calendar year you reach FRA, a higher limit applies — $65,160 in 2026 — with $1 withheld for every $3 above it, and only earnings before the month you reach FRA count. From the month you reach FRA, the test disappears entirely and you can earn any amount.

The critical difference from the supplement: withheld benefits are not lost. At full retirement age, SSA recomputes your benefit upward to account for the months in which benefits were withheld. Over a normal life expectancy you recover most or all of it. The earnings test is a cash-flow event, not a penalty.

And if you have not claimed, the test does not exist for you. A retiree bridging to 70 with TSP withdrawals can earn any amount at any age without affecting the benefit that will eventually start. That is one more argument in the delay column. The full mechanics, including the special monthly rule in the first year of retirement, are in the earnings-test trap. The 2027 limits arrive with the October 14 announcement.

5. Test three: the IRMAA cliff

The third test is the one nobody warns part-time workers about, because it is not an earnings test at all. IRMAA looks at your entire modified adjusted gross income — annuity, Social Security, TSP withdrawals, wages, capital gains, tax-exempt interest — and adds a surcharge to your Medicare Part B and Part D premiums if you cross a threshold. It uses a two-year lookback, so income in the year you turn 63 sets your premium at 65.

Two features make it different in kind. It counts all income, not just earned income, so the consulting income that pushes you over is stacked on top of your annuity, your Social Security, and your RMDs. And it is a cliff: at $109,000 of MAGI you pay nothing extra; at $109,001 you pay $1,148 for the year, per person. A $2,000 consulting engagement can cost $1,148 — or $2,296 for a couple both on Medicare.

For a working retiree, the practical rule is to know your MAGI before December 31 and, if you are within a few thousand dollars of a threshold, either decline the last engagement of the year or defer the invoice to January. That is a rare case where a small amount of income is genuinely not worth taking.

6. What counts as income in each

Read the Roth row twice. It is the only line that is “no” in all three columns, which is why the Roth side of the TSP is disproportionately useful to a retiree who works, and why conversions done before the IRMAA lookback window are worth planning.

7. Three worked cases

Case A: 58, part-time at $40,000

Retired at 57 under MRA+30 with a $38,000 annuity and an $18,000 supplement. Takes a $40,000 job. The annuity is untouched. The supplement is reduced by ($40,000 − $24,480) ÷ 2 = $7,760, applied from July of the following year. Net effect: earns $40,000, loses $7,760 of supplement, keeps $32,240 — an effective marginal rate of about 19% on top of income tax. No Social Security test (has not claimed), no IRMAA (not yet 63). Worth doing, but the supplement loss is real and permanent.

Case B: 64, claimed at 62, consulting at $50,000

Supplement long gone. Social Security of $20,160 a year, claimed early. Consulting income of $50,000 triggers the earnings test: ($50,000 − $24,480) ÷ 2 = $12,760 withheld from benefits — but credited back through a higher benefit at 67. MAGI is $38,000 annuity + $17,136 taxable Social Security + $50,000 = about $105,000, just under the single threshold. One more engagement pushes her over and adds $1,148 to her Medicare cost at 66. The IRMAA cliff, not the earnings test, is her binding constraint.

Case C: 60, bridging to 70, teaching at $30,000

Retired at 57, has not claimed Social Security, drawing $20,000 a year from the TSP to bridge. Teaching income of $30,000 reduces the supplement by $2,760. No Social Security test, because nothing has been claimed. MAGI of roughly $88,000 keeps him under IRMAA. He is the best-positioned of the three: the only test that touches him is the smallest one, and it ends at 62 anyway.

8. Going back to federal service

Reemployment as a federal reemployed annuitant is the one case where the annuity itself is affected. The general rule is that your federal salary is offset by the amount of your annuity, so you receive the salary minus what OPM pays you — you do not get both in full. Agencies can obtain dual-compensation waivers for hard-to-fill positions, in which case you keep both, and certain categories are exempt by statute.

Two consequences worth knowing. Federal wages count as earned income for the supplement test like any other wages. And if you work long enough as a reemployed annuitant — one year full-time equivalent for a supplemental annuity, five for a redetermined one — you may earn additional retirement credit. Get the offset rules in writing from the hiring agency before accepting; they vary by appointment type and are not intuitive.

9. Frequently asked questions