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Social Security and the Windfall Elimination Provision

How are your Social Security retirement benefits affected when you also have a pension?

Q. My wife is a schoolteacher but previously worked in industry. As a schoolteacher, she will get a pension when she retires. Can she claim Social Security on either her earnings or my earnings when she is 62, depending on which is more, while still working as a teacher without being subject to the Windfall Elimination Provision?

The Windfall Elimination Provision reduces your Social Security benefits when you haven’t paid into Social Security during your working years. This typically occurs because you contributed to a pension program instead. The law prevents people from getting full benefits from both pensions and Social Security when they’ve only paid into one of them.

The WEP affects teachers in only 15 states. If you live in one of them, your wife’s Social Security benefit will be reduced by the WEP. Note: The reduction won’t be more than $498 per month in 2021, and it’s never more than 50% of the government pension amount received. The reduction decreases if you have 20 years or more of “substantial covered earnings,” meaning you paid Social Security taxes on enough earnings to qualify for the exemption (for example, in 2021 that’s $26,550 of earnings).1

Once you reach 30 years of substantial covered earnings, the WEP no longer applies and is phased out. So, your wife’s WEP reduction will depend on how long she worked in the private sector prior to or while teaching. It’s worth noting that Social Security statements don’t reflect a reduction in benefits because of the WEP. As a result, many workers don’t realize they’ll be subject to the reduction until after they file for Social Security benefits! And, no, she doesn’t get to choose whether to claim Social Security on her earnings vs. yours when she turns 62. Instead, she will get the higher of the two – assuming she indeed is eligible for a spousal benefit. (You’d had to have filed for your benefit first. If you haven’t, she’ll be eligible for only her benefit.)

Also, be aware that if she starts to receive benefits while still working, there are “givebacks” to consider. Prior to Full Retirement Age, typically age 66 or thereabouts, she’ll be subject to Social Security’s “earnings test.” In 2021, if she has not reached her FRA, Social Security will take back $1 for every $2 she gets in benefits that exceed $18,240.2 Are you sure it’s best for her to start receiving Social Security prior to her FRA? As you can see, this is quite complicated and confusing. That’s why you should consider working with a professional financial advisor to help with your retirement planning – including pensions and Social Security!

1Iekel, J. (2021, February 3). Windfall Elimination Provision and Government Pension Offset Updated for 2021. American Society of Pension Professionals & Actuaries. Retrieved March 2, 2021, from https://www.asppa.org/news/windfall-elimination-provision-and-government-pension-offset-updated-2021#:~:text=In%202021%2C%20the%20amount%20of,minus%2040%25%20of%20%24996

2Social Security Administration. (2021, January). Update 2021. Retrieved March 2, 2021, from https://www.ssa.gov/pubs/EN-05-10003.pdf

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