Government Pension Offset-Social Security

[horrnsfan]

Here is my situation. I am 60 and my wife is 63. She is currently working for a school district and does not contribute to SS. Previously she had earned enough credits to qualify for SS and in a normal situation would receive approximately $400 per month. She will retire from the school district at age 65 with a $1,000 per month pension.

I will begin taking my SS at 66.5 with a projected payment of $2400 per month. Because of the Government Pension Offset provision, the SS my wife is eligible from her prior earnings would be completed eliminated. Thus my thoughts are for her to begin taking half of my SS when I turn 66.5 which would be approximately $1200 per month.

My understanding of the Government Offset Provision is SS takes 66% of your school district pension, which in her case would be $666 per month and reduces her SS spousal benefit by the same amount resulting in an adjusted SS spousal benefit of $534 per month.

Am I interpreting the provision correctly and are my numbers correct?

[youbet]

Your last paragraph is correct. Her spousal benefit will be reduced by 66% of her pension and she'll receive $534/mo based on your SS.

Your second paragraph is completely wrong. GPO does not impact her SS (based on her own prior earnings) in any way. Her SS is impacted by WEP (Windfall Elimination Provision).

GPO and WEP are not difficult to understand and have fairly straight forward rules. But I'd have to sit here type a few paragraphs to paraphrase the SS web site and explain it to you. Rather than that, I'll just refer you to the SS site where it's all laid out. You'll need a half hour or so to read the info and work a few examples.

The bottom line is know and understand WEP and GPO and not confuse the two.

[Sue J]

WEP is applied to the pension receiver's own SS payment. It has a maximum amount and you should run a WEP calculator to see if she would have anything left after her WEP reduction.
https://www.ssa.gov/planners/retire/anyPiaWepjs04.html

GPO applies to the pension receiver with respect to her collecting on her spouses SS record. That's the one that is reduced by 66% of her pension.
https://www.ssa.gov/pubs/EN-05-10007.pdf

[Mulligan]

Quote:

Originally Posted by youbet Your last paragraph is correct. Her spousal benefit will be reduced by 66% of her pension and she'll receive $534/mo based on your SS. Your second paragraph is completely wrong. GPO does not impact her SS (based on her own prior earnings) in any way. Her SS is impacted by WEP (Windfall Elimination Provision). GPO and WEP are not difficult to understand and have fairly straight forward rules. But I'd have to sit here type a few paragraphs to paraphrase the SS web site and explain it to you. Rather than that, I'll just refer you to the SS site where it's all laid out. You'll need a half hour or so to read the info and work a few examples. The bottom line is know and understand WEP and GPO and not confuse the two.

Very true! But to simpletons like me they do get confusing... I have a public pension without SS, but accumulated enough SS credits over the years to be eligible for about $400 of SS at full retirement. The WEP whacks it down to about $100 at age 62. I then thought well I can marry my long time GF and draw half of her full social security as a spouse and make out like a bandit..
Well the ol GPO cut that plan off...Whacked at the knees...I would net not a penny with GPO in effect... Im thinking there will never be any reason to hear wedding bells now.

[Teacher Terry]

WE both have pensions from places that did not pay into SS but also worked in places that did. WE are ging to not draw our SS until we are 70 in order to get the biggest benefit possible. These laws are so unfair.

[Mulligan]

Quote:

Originally Posted by Teacher Terry WE both have pensions from places that did not pay into SS but also worked in places that did. WE are ging to not draw our SS until we are 70 in order to get the biggest benefit possible. These laws are so unfair.

As an educator here also, I see the impact on my own numbers. But after reading the details of it, I dont personally consider it "unfair" when based on its own merits. But in comparison to a spouse getting half for not working, then yes I will call unfair!
SS bend points in payouts were specifically designed to benefit "low wage earners". In my situation, my SS payment would be significantly exploiting that loophole. I was not a low wage earner and my pension is way better than SS. So considering the fact I was not a low wage earner, drawing a pension, and my SS "working years" consisted of 8 years PT work in H.S. and college and infrequent yearly summer smatterings of work, I doubt this work deserved a full $400 SS benefit.
On the other hand I guess, a bum too lazy to work living off of panhandling and only working the amount I did would get the full benefit, which may be considered unfair. Probably the main reason I am not bothered by WEP, is I really dont need the money. If I did I am sure my tune may be different.

[Chuckanut]

WEP and such are there to keep the system fair. Otherwise those who did not contribute much to SS while earring their pension
would get a better deal than those who did contribute a lot over their lifetime. A side by side comparison taking all factors into account shows this.

[Teacher Terry]

People that work for 30 years in jobs that don't pay in definitely do better than SS. However, for people that come into these jobs later in life and have small pensions it is not really better. I used to warn any new employees that were age 50 & up about the hit it would take with their SS if they vested and many of them left to go back to jobs that paid into SS.

[meierlde]

Quote:

Originally Posted by Mulligan As an educator here also, I see the impact on my own numbers. But after reading the details of it, I dont personally consider it "unfair" when based on its own merits. But in comparison to a spouse getting half for not working, then yes I will call unfair! SS bend points in payouts were specifically designed to benefit "low wage earners". In my situation, my SS payment would be significantly exploiting that loophole. I was not a low wage earner and my pension is way better than SS. So considering the fact I was not a low wage earner, drawing a pension, and my SS "working years" consisted of 8 years PT work in H.S. and college and infrequent yearly summer smatterings of work, I doubt this work deserved a full $400 SS benefit. On the other hand I guess, a bum too lazy to work living off of panhandling and only working the amount I did would get the full benefit, which may be considered unfair. Probably the main reason I am not bothered by WEP, is I really dont need the money. If I did I am sure my tune may be different.

As pointed out Social Securities formula favors lower paid folks. Since the formula is based on the top 35 years of earnings assuming you just had 10 years (the minimum to qualify) of Ss then you would likley end up with an average income below the first bend point (about $856 for folks turning 62 this year, and below an average monthly wage of $856 90% of income is replaced)

[Mulligan]

Quote:

Originally Posted by Teacher Terry People that work for 30 years in jobs that don't pay in definitely do better than SS. However, for people that come into these jobs later in life and have small pensions it is not really better. I used to warn any new employees that were age 50 & up about the hit it would take with their SS if they vested and many of them left to go back to jobs that paid into SS.

There is another nasty scenario for educators who move and continue teaching out of state. If they move from a system that is a combo pension/ss to strictly pension only or vice versa, they get hammered when time to draw both pensions... May never know this until its too late also.

[RE2Boys]

And remember that WEP never eliminates your social security benefit. The WEP reduction can not drop your PIA more than (for 2016) $428 per month

[Sunset]

Quote:

Originally Posted by Chuckanut WEP and such are there to keep the system fair. Otherwise those who did not contribute much to SS while earring their pension would get a better deal than those who did contribute a lot over their lifetime. A side by side comparison taking all factors into account shows this.

That is one way to look at it, I see it another way as unfair.:

1) work 20 yrs for SS, lay on beach.

2) work 20 yrs for SS, work 20 yrs other non-SS job, Have SS subtract 10 yrs of the non-SS job that the person earned.

Just because I ended up working 2x the first guy does not mean SS should "steal" part of my pension.

Another example is:
3) work 30 yrs for SS , work 20 yrs other non-SS job, SS will not subtract anything.

So I feel WEP rules are not fair, but Social Security is not designed to be fair, its more like a social equalization system and the issue is this is not publicly and constantly pronounced so folks forget and get surprised.

[RE2Boys]

Quote:

Originally Posted by Sunset So I feel WEP rules are not fair, but Social Security is not designed to be fair, its more like a social equalization system and the issue is this is not publicly and constantly pronounced so folks forget and get surprised.

That's new??

Maybe, most look at SS as a retirement account, it is not and never has been. It's a safety net/welfare system to provide income for the elderly that may or may not be at fault for their situation. With a few morsels thrown out to the more affluent to get/keep their buy-in.


To even think of it as a retirement system is flawed logic IMHO.

And I fully support the concept, WEP and all.

[Tadpole]

WEP is based on wage-cohorts. Someone without a job for 20 years is not a wage-cohort of someone making $100,000 but putting the SS employer and employee share (12+%% of salary) into an alternate pension fund, savings, or spending (a bigger house). Really folks, it's all about the bend points. If it wasn't for the reduction of benefits (as a percent of increased income) that is imposed on SS payees, the WEP reduction would not be needed.


This is from the findings and recommendations of the 1983 Greenspan Commission on Social Security Reform which, to me, says that non-covered employment creates a math mistake that needs correction. With todays computers many would argue that we now have the ability to do the math on an individual basis and no longer need generic correction.:

Quote:

(6) The National Commission is concerned about the relatively large OASDI benefits that can accrue to individuals who spend most of their working careers in noncovered employment from which they derive pension rights, but who also become eligible for OASDI benefits as a result of relatively short periods in covered employment with other employers. Accordingly, the National Commission recommends that the method of computing benefits should be revised for persons who first become eligible for pensions from non-covered employment, after 1983, so as to eliminate "windfall" benefits. The result of such a work history is to produce OASDI benefits that contain "windfall" elements -- the benefits payable are relatively high compared to the proportion of time spent and the OASDI taxes paid during covered employment. This results from the weighted benefit formula, which treats these individuals in the same manner as if they were long-service, low-earnings workers. Specifically, the National Commission believes that these individuals should receive benefits which are more nearly of a proportionate basis than the heavily-weighted benefits now provided. There are various methods of eliminating the "windfall" portion of benefits (while still providing equitable, proportional benefits). One method would be to modify the benefit formula for determining the Primary Insurance Amount by making the second percentage factor (32%) be applicable to the lowest band of Average Indexed Monthly Earnings (instead of the 90% factor), but the reduction in benefits would not be larger than the pension from non-covered employment. Another method would be to apply the present benefit formula to an earnings record which combines both covered earnings and also non-covered earnings in the future for the purpose of determining a replacement rate (i.e., the ratio of the benefit initially payable to previous earnings); then, that replacement rate would be applied to the average earnings based solely on covered employment. The short-range cost effect of these proposals -- applied only prospectively for new eligibles -- would be relatively small. The long-range cost effect would depend on the procedure used and on whether the recommended extension of coverage is adopted.

https://www.ssa.gov/history/reports/gspan5.html

[Chuckanut]

The thing to remember is that it is Social Security, and it is not an investment product that doesn't care about what else went on in your life. SS has always been designed to give a relatively greater benefit to low-income people than higher income people. That seems to be viewed as a overall benefit to society by most Americans. Nobody wants grandma eating dog food. It could be changed, but most likely won't be anytime soon.

The problem is that if one spends most of their career not contributing to SS they appear to the SS system to be a low income person who should get a relatively higher benefit. But, they aren't since they have been earning a lot of money which they did not pay SS on. (Which also raises the question of what was done with that extra money not paid to SS??)

The offsets take this into account. While some may consider this unfair, the offset rules prevent a much greater unfairness - people who did not contribute much to SS getting benefits relatively higher than those with a similar income who did pay into SS.

The real fix, IMHO, is to simply make SS mandatory for everybody. (Along with other reforms to strengthen it, of course.) I suspect many Detroit pensioners would agree with me.

[Mulligan]

Quote:

Originally Posted by Chuckanut The thing to remember is that it is Social Security, and it is not an investment product that doesn't care about what else went on in your life. SS has always been designed to give a relatively greater benefit to low-income people than higher income people. That seems to be viewed as a overall benefit to society by most Americans. Nobody wants grandma eating dog food. It could be changed, but most likely won't be anytime soon. The problem is that if one spends most of their career not contributing to SS they appear to the SS system to be a low income person who should get a relatively higher benefit. But, they aren't since they have been earning a lot of money which they did not pay SS on. (Which also raises the question of what was done with that extra money not paid to SS??) The offsets take this into account. While some may consider this unfair, the offset rules prevent a much greater unfairness - people who did not contribute much to SS getting benefits relatively higher than those with a similar income who did pay into SS. The real fix, IMHO, is to simply make SS mandatory for everybody. (Along with other reforms to strengthen it, of course.) I suspect many Detroit pensioners would agree with me.

The history behind the decisions to opt in or out of SS would be interesting to know as I do not. The only thing I know was our state teachers were allowed a vote shortly after WW2 time to decide the issue. The teachers voted not to be in SS, and it has not been mentioned or addressed since. Looking back with no understanding of the process, it seems very odd such a broad encompassing law as SS would be passed, only to allow certain organizations abstain, while others had no choice.

[txtig]

US Representative Kevin Brady (R-TX) has introduced a bill (HR-711) that would mitigate some of the impacts of WEP. This has been tried in the past and has not gotten very far. I'm guessing this will have the same fate.
http://www.yourhoustonnews.com/couri....html?mode=jqm


Sent from my iPad using Early Retirement Forum

[RE2Boys]

Since half the SS contributions are paid by the employer, I suspect the fed didn't want impose a tax on state/local governments so they were given a choice, along with religious organizations. I know most Amish are exempt from SS, there may be others.

[SumDay]

Quote:

Im thinking there will never be any reason to hear wedding bells now.

In the words of Glenn Frey: "Hopeless romantics, here we go again..."