Social Security WEP Reduction?

[martyb]

Thanks for all the feedback!

[BLS53]

Quote:

Originally Posted by Mulligan I have to believe they are counting for something, Marty, just not as much as if it had been substantial. I mirrored your type of of income, except for only about 12 years and only 2 substantial years. In today's dollars with WEP mine will be $125. So they had to count for something, or I would be getting nothing. I used to think I was getting ripped off, then learning through this forum, I learned about the "bend points" and the emphasis of the program being directed at "lower income" workers getting a higher percentage of their pay vs. "higher income". So, I "get it", so it doesn't bother me now at all. But it doesn't explain how a person without a pension such as a spouse can do what we did, and not be subject to WEP, even though they deliberately worked part time. But then again, I would gladly give up all my social security to get rid of this part of SS. Older clients' young children a Social Security windfall - InvestmentNews I an old geezer over 66 can marry a young wife (as young as he wants, or as young as the women is willing, I guess) and start a new family and SHE gets benefits AND the child does too. What in the world is that all about. A reward for old age virility? Why have your children young, wait until your old and have the government pick up the tab! This has been called the "Viagra College Fund". So a 66 year old man can marry a 40 year old woman, and she get SS benefits until the child is 16 and the child gets the benefits until 18. Somebody tell me this is not right, as it is the craziest thing I ever heard of!

+1 The problem with the spousal and dependent payments, is the laws were written in the era of the full time housewife, who had never been in the workforce, and having dependent children after age 60 was rare. Yet, now with dual income marriages, and people having children late in life, the law remains status quo. I've never seen these nuances of SS discussed in any of the reform plans.

There's numerous ways to manipulate these laws to an individual or couple's benefit. Just look at the threads on this forum from time to time. Yet, if a food stamp recipient is sited with an iPhone, all hell has broken loose.

[Mulligan]

Quote:

Originally Posted by BLS53 +1 The problem with the spousal and dependent payments, is the laws were written in the era of the full time housewife, who had never been in the workforce, and having dependent children after age 60 was rare. Yet, now with dual income marriages, and people having children late in life, the law remains status quo. I've never seen these nuances of SS discussed in any of the reform plans. There's numerous ways to manipulate these laws to an individual or couple's benefit. Just look at the threads on this forum from time to time. Yet, if a food stamp recipient is sited with an iPhone, all hell has broken loose.

Thanks for the historical prospective as it brings sense to its original intent. I am sure this flaw in the system is not the reason the SS system finances are in danger. Yet, one would think this should be addressed. If you were 66, had one 8 year old child with a 45 year old wife, and you filed and suspend on say $2400 monthly benes of SS, the child would get around $1200 a month for 10 years, and the wife would get about $1200 too for 8 years. That is about $250,000 in "free bee" benefits just because you have children late in life. If they are going to means test health insurance subsidies, you would think means testing would be a good idea for this.

[obgyn65]

Thank you Alan -

However, regarding your point below, someone who would be a federal worker in the US first hired after December 31, 1983 and who earned a pension in another country would reverse that or not ? If not, what is meant by this sentence as one of the exceptions for WEP :

"You are a federal worker first hired after December 31, 1983; "

Quote:

Originally Posted by Alan I would think that if you have worked and earned a pension in another country then working for the federal government as you suggest would not reverse that.

[obgyn65]

but if I become a federal worker in the US, as explained in my previous post above, I would pay into SS, correct ?

This WEP thing is unfair to those of us who have worked abroad.

Quote:

Originally Posted by rothlev That is referring to federal hires after 12/31/1983 who PAY into social security verus the prior employees under CSRS who did not pay in. You will be subject to WEP if you have a pension from earnings where you did not pay into social security.

[obgyn65]

Regarding timing, since the UK state pension begins at 66 or 67, and if I begin my US SS at 62, I will have about 5 years without WEP then, correct ?

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Originally Posted by Alan The WEP is applied one time only - when you first apply for SS. So, timing is all important.

[DMGO]

Quote:

Originally Posted by obgyn65 Regarding timing, since the UK state pension begins at 66 or 67, and if I begin my US SS at 62, I will have about 5 years withtout WEP then, correct ?

This is a VERY interesting question... How would SS even KNOW about a foreign pension that starts several years AFTER you begin SS payments? I would think you would NEVER get hit with WEP.

[nun]

Quote:

Originally Posted by DMGO This is a VERY interesting question... How would SS even KNOW about a foreign pension that starts several years AFTER you begin SS payments? I would think you would NEVER get hit with WEP.

It's your responsibility to tell the SSA about foreign non-SS wage pensions. To not do so is breaking the law.

Also I don't see how WEP is any more unfair to those that worked abroad than it is to say State workers. WEP is still adjusting your SS payments so that your low lifetime SS earnings is not interpreted as low average wages.

[nun]

Quote:

Originally Posted by obgyn65 Regarding timing, since the UK state pension begins at 66 or 67, and if I begin my US SS at 62, I will have about 5 years without WEP then, correct ?

Yes. In fact you can defer your UK state pension indefinitely. For every 5 weeks that you defer you get an extra 1%. So if you defer for 4 years and the standard pension level at that time is say 100 GBP a week you'd get an extra
100*(4*52)/(5*100) GBP = 41.60 GBP

[Nodak]

I had my 40 quarters in SS before I went to work for the government in June 1983. WEP reduced my SS by almost 40% from $800 to $500 per month.

[obgyn65]

I would not try to cheat the system, and will follow the law. I want to make sure I optimize my cash flows during retirement but will not take shortcuts.

Quote:

Originally Posted by DMGO . How would SS even KNOW about a foreign pension that starts several years AFTER you begin SS payments? I would think you would NEVER get hit with WEP.

[Alan]

Quote:

Originally Posted by obgyn65 but if I become a federal worker in the US, as explained in my previous post above, I would pay into SS, correct ? This WEP thing is unfair to those of us who have worked abroad.

As to your first question then you would need to ask someone more knowledgeable than me. Maybe sscritic at Bogleheads.

I don't think the WEP is unfair to foreign workers even though I am affected myself. Plenty here disagree but I believe SS is designed to keep lower income workers out of poverty when they retire and the 'bend' points that provide % of salary replaced favor the lower earners.

That is why WEP exists and I think that it is right for WEP to be at its maximum for workers who have earned less than 20 years of credit but have other pensions from earned income where they did not pay into SS. The USA taxes on worldwide income so non-SS earned income pensions abroad should be treated the same as non-SS earned income pensions in the USA.

Quote:

Originally Posted by obgyn65 Regarding timing, since the UK state pension begins at 66 or 67, and if I begin my US SS at 62, I will have about 5 years without WEP then, correct ?

Yes, I believe that would be true, but then again I am far from being an expert here.

[Alan]

Quote:

Originally Posted by DMGO This is a VERY interesting question... How would SS even KNOW about a foreign pension that starts several years AFTER you begin SS payments? I would think you would NEVER get hit with WEP.

Once you start receiving a foreign pension you report it to the IRS on your tax return using a replacement 1099-R since foreign companies don't send you a 1099-R. I doubt that the IRS reports this to the SSA but I don't know for sure.

If FATCA gets fully implemented then I believe foreign companies have to report all pensions paid to US citizens. Again, I don't know if the SSA will get informed and follow through.

[martyb]

[QUOTE=obgyn65;1252660]but if I become a federal worker in the US, as explained in my previous post above, I would pay into SS, correct ? [QUOTE]


Yes, that is a correct statement. You would come on board with the fed as a FERS (Federal Employees Retirement System) employee, and as such you would indeed be paying into Social Security, the same as any other person working for a non-governmental agency in the United States...with a few exceptions of course. There are ALWAYS a few exceptions...lol. But yes, you would be paying into, and therefore covered under Social Security.

As for the question about your non-US earnings...I don't know the answer to that one.

[DMGO]

Ok, this morning I did the whole retirement application on the SS website. Took about 20 minutes, with double-checking everything, to make sure there were no mistakes. Got a confirmation number, and an e-mail saying to check back in 5 business days. Same as my spouse got when she did hers a few months back. But, she got her temporary password in the mail just 3 days after doing her on-line application. Of course, there was no WEP involved in her retirement, though. I hope mine comes through quickly, as well. Just a matter of waiting, now. It's not like it's going to be a lot of $$. Happy Holidays, everyone.

[nun]

Quote:

Originally Posted by Alan Once you start receiving a foreign pension you report it to the IRS on your tax return using a replacement 1099-R since foreign companies don't send you a 1099-R. I doubt that the IRS reports this to the SSA but I don't know for sure. If FATCA gets fully implemented then I believe foreign companies have to report all pensions paid to US citizens. Again, I don't know if the SSA will get informed and follow through.

It's still not clear whether foreign pension funds will have to comply with FATCA. There was some agreement that potentially exempted UK pension companies from FATCA.

I'm not convinced that the 1099-R is the right place for a foreign pension they do not comply with the US regulations regarding pensions etc. Foreign pensions and SS are dealt with by treaty and I'd enter them on line 21 of the 1040 and file any necessary 8833.

I do completely agree with you about the fairness of WEP when applied to foreign pensions.....and indeed about the good reasons for it being appropriate when people have general non SS wage pensions.

[Alan]

Quote:

Originally Posted by nun I'm not convinced that the 1099-R is the right place for a foreign pension they do not comply with the US regulations regarding pensions etc. Foreign pensions and SS are dealt with by treaty and I'd enter them on line 21 of the 1040 and file any necessary 8833.

I've not had a problem filing the 1099-R substitute form (4852) as I clearly indicate in the reasons that it is a foreign pension, and how I calculate the exchange rate etc. It is 100% taxable in the US so I'm not claiming any exemption.

I think form 8833 would be used if I was paying UK taxes on the pension and I didn't want to pay taxes twice. When I first starting receiving my UK pension I had to get a certificate from the US IRS, and then file that with the UK Inland Revenue to prove I was a US resident tax payer, and they informed the pension company to not withhold UK taxes.

Quote:

A taxpayer takes a treaty-based return position by maintaining that a treaty of the United States overrules or modifies a provision of the Internal Revenue Code and thereby causes (or potentially causes) a reduction of tax on the taxpayer’s tax return

.

[nun]

Quote:

Originally Posted by Alan I've not had a problem filing the 1099-R substitute form (4852) as I clearly indicate in the reasons that it is a foreign pension, and how I calculate the exchange rate etc. It is 100% taxable in the US so I'm not claiming any exemption. I think form 8833 would be used if I was paying UK taxes on the pension and I didn't want to pay taxes twice. When I first starting receiving my UK pension I had to get a certificate from the US IRS, and then file that with the UK Inland Revenue to prove I was a US resident tax payer, and they informed the pension company to not withhold UK taxes. .

Yes sorry I was wrong about reporting foreign pensions on line 21.....they go on line 16a or 16b. Do you do the same for UK SS and do you file a separate 4852 for that?

The US-Individual-2002 is the form you file with HMRC to stop UK tax withholding, its the equivalent of the W-8BEN, but without the citizenship issues.

[Alan]

Quote:

Originally Posted by nun Yes sorry I was wrong about reporting foreign pensions on line 21.....they go on line 16a or 16b. UK SS does have to go on line 21 though. The US-Individual-2002 is the form you file with HMRC to stop UK tax withholding, its the equivalent of the W-8BEN, but without the citizenship issues.

US-Individual-2002 is the form I filed, back in 2007 - didn't remember that it was that long ago. I'm getting old

I do report it on line 16.

I'll try and remember to report the UK SS on line 21 when I get it but that is still 10 years away.

[nun]

Quote:

Originally Posted by Alan US-Individual-2002 is the form I filed, back in 2007 - didn't remember that it was that long ago. I'm getting old I do report it on line 16. I'll try and remember to report the UK SS on line 21 when I get it but that is still 10 years away.

Sorry looks like I'm wrong again..... I think UK SS is also taxed as an annuity.