How a Government Pension Might Reduce Your Social Security Benefits
I was a teacher for 20 years and I receive a pension from a school system that did not withhold Social Security taxes from my pay. Now I work for a small company where I do pay Social Security taxes. I am approaching age 65 and would like to retire and apply for my Social Security benefits. I have been told that my pension may cause me to lose some of my Social Security benefits. Is that true?
Yes, it is true. It is very likely that your Social Security retirement benefits may be reduced under the terms of a government rule called the Windfall Elimination Provision (WEP).
The WEP affects individuals who receive pensions from jobs that did not require them to pay Social Security taxes, such as police officers, firefighters, teachers and state and local government workers whose employers were not part of the national Social Security system. People who worked for nonprofit or religious organizations before 1984 may also be outside the system.
Many of these individuals may be eligible for Social Security retirement or disability benefits if they paid Social Security taxes while working for a different employer.
Because of your pension, Social Security will use a special formula to calculate the reduction of your Social Security retirement benefits.
How much your benefits will be reduced depends on your work history. Generally, your Social Security benefits cannot be reduced by more than 50% of your pension amount. It is also important to know that the WEP does not apply to survivor benefits. If you are married and pass away before your spouse, your dependents can receive a full Social Security payment, unless your spouse has earned a government pension for which he or she did not pay Social Security taxes. If that is the case, Social Security has another rule known as the Government Pension Offset (GPO) that affects spouses' or widows'/widowers' benefits.
Under the GPO, spousal and survivor benefits may be reduced by up to two-thirds of the amount of the surviving spouse's pension. If the pension is large enough, their Social Security spousal or survivor benefits could be zero. Note that there are a few exceptions to these rules, and most of the exceptions relate to when you entered the Social Security workforce.
Why Do These Rules Exist?
According to the Social Security Administration, the reason Congress created the WEP (in 1983) and GPO (in 1977) was to create a more equitable system. People who get both a pension from non-Social Security work and benefits from Social Security-covered work get an unfair windfall due to how benefit amounts are calculated.
These rules ensure that government employees who do not pay Social Security taxes will end up with roughly the same income as employees who work in the private sector and do pay Social Security taxes.
For more information on the WEP visit SSA.gov/planners/retire/wep.html. This website will provide a link to an online WEP calculator to help you determine how much your Social Security benefits may be reduced. For more information on GPO, including a GPO calculator, see SSA.gov/planners/retire/gpo.html.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.