We specialize in retirement planning and one of the most important benefits that you may have are your Social Security and/or other pensions. However, if you or your spouse are participants in certain “non-covered” pensions then your Social Security benefits may be reduced. It is important to understand these rules, how the apply to you, and how you may minimize their impact on your retirement plan.
Below you will find introductory information that you should consider if you are looking to understand your Social Security benefits better, planning for an upcoming retirement and/or looking to hire a financial planner to help you with your retirement planning.
Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)
Key Retirement Planning Issue:
Understanding and Planning for the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO):
Social Security was created in 1935 to provide a safety net of protection against the financial risks of old age, poverty, and parent-less children. It was subsequently strengthened gradually from 1952-72 to become the robust system we know today that many Americans have come to rely on as a major source of retirement income. Social Security was designed, and still very much remains, a progressive system that provides more robust benefits to lower income workers in proportion to actual contributions to the system.
The Windfall Elimination Provision (WEP)
The WEP is designed to maintain SS’s progressive nature by reducing benefits to those that are receiving pensions (in which they did not contribute to Social Security – also called “non-covered” pensions) because they would receive higher payouts than their income should otherwise merit had they participated in Social Security for their entire working career.
Many find this rule “unfair” however, we must realize that we do not generally pay enough into the system for the benefits promised and the system is designed to be a safety net to protect those on the lower end of the income scale. Thus the WEP tries to maintain this status quo for systems that exercise their right to be excluded from the Social Security system (generally, state pensions). So whether you agree with the WEP or not, if you are a participant in a “non-covered” pension, you should plan to reduce its effects and/or prepare adequately for a reduced SS payout.
Will You be Effected by The WEP?
Generally, if you have less than 30 years worth (120 credits) in the Social Security system and you are going to receive income from a “non-covered” pension then you are going to be subject to the WEP. You may accumulate up to 4 credits in a given year based on how much your substantial earnings were in a particular year – Please reference the chart below for the applicable earnings needed to receive all 4 credits for a given year:
How Much Can The WEP Reduce my Social Security
The WEP can reduce your SS payment by upto $408/mo. in 2014. Please reference the chart below to see your potential liability:
Estimating benefits with WEP:
Estimating benefits with WEP:
It can be a difficult undertaking to get your exact benefit amount but you have three main options:
- Schedule an appointment to speak with a Social Security counselor and they will be able to provide you with an estimate (generally, they only like to run estimates for you once you are close to retirement age because they don’t like to guess future earnings).
- You can hire a financial advisor/planner that has invested in software that can make these calculations for you and potentially run various permutations to help you maximize your benefits. We have this capability and can help you.