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How much smaller will my Social Security benefit be?

The small reduction in Social Security benefits is greatly outweighed by the much larger tax savings. In each case we tested, the increase in take-home pay far exceeded the minor loss in monthly Social Security benefits.

Here is a simple formula you can use to estimate the difference in your Social Security benefit:

1. Take the number of years you will participate in premium conversion (from now until your estimated retirement) and divide by 35.
3. Multiply the result of Step 2 by the marginal SSA rate (15% for most Federal employees)

The result is the annual loss of Social Security benefits.

(# of Years of Premium Conversion /35) X Annual FEHB Premium X marginal SSA rate = Annual Loss

Example

You participate in FERS. We assume that you've had a full career of FICA contributions, with an ending salary (today) of \$50,000 and projected retirement at age 66 in January 2016. Your estimated Social Security benefit equals \$1,414 per month.

You begin participating in premium conversion and reduce your taxable income by \$2,000, the amount of your FEHB premium. By changing your salary to \$48,000, your monthly Social Security benefit is now \$1,403, an \$11.00 per month difference in today's dollars.

15/35= .4286 X 2000 = 857 X .15 = 128/12 = 10.71 or 11

Compare that to the estimated \$67 increase in take home pay per month.

For more specific information on how the Social Security benefit is calculated, refer to www.ssa.gov.