In last week's column, we looked at benefits changes in 2023 affecting current employees. This week, let's examine the changes that apply to those who are already retired.
Civil Service Retirement System
Cost of Living Adjustment: CSRS COLAs apply to all annuities, regardless of the age of the annuitant. CSRS annuitants who have been retired for at least one year started receiving the full 8.7% COLA on Jan. 2, 2023 (in the payment for December 2022). Annuitants will receive a prorated COLA during their first year on the annuity rolls. Prorated COLAS are payable on annuities with a start date between Dec. 1, 2021 and Nov. 30, 2022. The proration is based on the number of months between the start date and the effective date of the COLA. For example, if a CSRS employee had retired on Dec. 31, 2021, they would have received 11/12 of the 8.7% COLA, or a 7.97% increase, on Jan. 2, 2023.
Federal Employees Retirement System
Cost of Living Adjustment: The Dec. 1, 2022, FERS COLA of 7.7% is payable to eligible FERS annuitants with retirement dates no later than Nov. 30, 2022. COLA increases for FERS annuitants only apply to the retiree's basic annuity (not the annuity supplement). The COLA applies to both the basic survivor annuity and the supplementary annuity for survivor annuitants.
Prorated COLAS are payable on annuities having a start date from Dec. 1, 2021 to Nov. 30, 2022. The proration is based on the number of months between the annuity commencing date and the effective date of the COLA. For example, if a FERS employee who was at least age 62 retired on Dec. 31, 2021, they would have received 11/12 of the 7.7% COLA, or a 7.06% increase, on Jan. 2, 2023.
In general, FERS employees who retire before age 62 do not see a COLA in their retirement benefit until the year they turn 62. There is an exception for disability retirees, survivor annuitants and those who retire under special provisions, such as law enforcement officers and firefighters.
Supplement Earnings Limit: FERS retirees receiving an annuity supplement are subject to an earnings test. In May, OPM sends an annual survey to annuitants who receive the supplement, so they can report their earnings from the previous year. The annuity supplement will be reduced effective with the July 2024 FERS annuity payment (payable on Aug. 1) if the earnings were more than the limit established for the prior year by the Social Security Administration. The reduction is $1 for every $2 earned over the minimum level.
The Social Security earnings limit for 2023 is $21,240, up from $19,560 for 2022. The survey that will be mailed in May 2023 will be for reporting earnings from 2022 that were earned after retirement and before age 62 above the 2022 earnings limit.
Social Security
Earnings Limits: The earnings limit for workers who are younger than their full retirement age will increase to $21,240. For every $2 earned over this limit, Social Security will deduct $1 from benefits.
The earnings limit for people reaching their full retirement age in 2023 will increase to $56,520. For every $3 earned over this limit, Social Security will deduct $1 from benefits. There is no limit on earnings for workers who are full retirement age or older for the entire year. That means if you are employed in federal service and have reached your full retirement age, you can start receiving Social Security retirement benefits even though you haven't retired.
If you start getting benefits in 2023 at age 62 and you are the wage earner, the retirement benefit you will receive is reduced to 70% of the amount payable at your full retirement age. If you are the spouse of the wage earner, the retirement benefit is reduced to 32.5% of the wage earners' benefit payable at their full retirement age.
Cost of Living Adjustment: The 8.7% COLA began with benefits payable to more than 65 million Social Security beneficiaries in January 2023.
Medicare
Effective Date of Part B coverage: Medicare Part B covers physician services, outpatient hospital services and certain other expenses. The general enrollment period is between Jan. 1 and March 31 each year. Your coverage will start the month after you sign up. You might have to pay a monthly late enrollment penalty if you don't qualify for a special enrollment period.
The standard monthly premium for Medicare Part B enrollees will be $164.90 for 2023, a decrease of $5.20 from 2022.
You'll pay a higher premium for Part B if your modified adjusted gross income, as reported on your IRS tax return from two years ago, is:
- More than $91,000 for Part B premiums charged in 2022 ($97,000 in for Part B premiums charged in 2023), if you file an individual tax return or are married and file separately.
- More than $182,000 for Part B premiums charged in 2022 ($194,000 for Part B premiums charged in 2023) if you are married and file a joint tax return.
Thrift Savings Plan
Although you can no longer make new contributions to your TSP account once you have separated from federal employment, it is important to be aware of other important rules and requirements after you have retired. One is the deadline for making your first required minimum distributions, which will require you to begin paying taxes on your tax-deferred TSP contributions. You must begin receiving distributions from your account in the calendar year you turn 72 and are separated from federal service.
Although you may have a Roth TSP balance that is not taxable, your entire TSP account—both traditional and Roth—is subject to required minimum distributions.
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