Social Security WEP Reduction?

[DMGO]

I just got a call from my local SS office. They had some questions about my federal employment. Anyway, I got my final #. I took a 58% hit, off my SS statement projection. AND, the SS caseworker told me that if I worked my part-time job till FULL retirement age (66), instead of retiring now, I would only get about $30 a month more. And that's 4 more years, so I'm not doing that... I'm taking this SS annuity now.

[Alan]

Quote:

Originally Posted by DMGO I just got a call from my local SS office. They had some questions about my federal employment. Anyway, I got my final #. I took a 58% hit, off my SS statement projection. AND, the SS caseworker told me that if I worked my part-time job till FULL retirement age (66), instead of retiring now, I would only get about $30 a month more. And that's 4 more years, so I'm not doing that... I'm taking this SS annuity now.

I expect that was an easy decision you made

[nun]

Quote:

Originally Posted by DMGO I just got a call from my local SS office. They had some questions about my federal employment. Anyway, I got my final #. I took a 58% hit, off my SS statement projection. AND, the SS caseworker told me that if I worked my part-time job till FULL retirement age (66), instead of retiring now, I would only get about $30 a month more. And that's 4 more years, so I'm not doing that... I'm taking this SS annuity now.

Would you be willing to share the actual numbers. Today's max WEP should be $383/month or half of your non-SS wage pension. Does your reduction jibe with those numbers?

[DMGO]

Quote:

Originally Posted by nun Would you be willing to share the actual numbers. Today's max WEP should be $383/month or half of your non-SS wage pension. Does your reduction jibe with those numbers?

Here's the numbers: SS statement shows $420 at age 62. Final figure from the SS caseworker figuring WEP: $176. That's even less than the WEP calculator on the SS site shows. Granted, I have a [generous?] CSRS pension

[BLS53]

Quote:

Originally Posted by DMGO Here's the numbers: SS statement shows $420 at age 62. Final figure from the SS caseworker figuring WEP: $176. That's even less than the WEP calculator on the SS site shows. Granted, I have a [generous?] CSRS pension

An easy way to figure this manually, is to take what your benefit would be at age 66, and subtract $383. Then multiply by 75% for the age 62 penalty. The figure should be around $133. I think the case worker is calculating for age 66.

[DMGO]

Quote:

Originally Posted by BLS53 An easy way to figure this manually, is to take what your benefit would be at age 66, and subtract $383. Then multiply by 75% for the age 62 penalty. The figure should be around $133. I think the case worker is calculating for age 66.

The guy I spoke with sounded sharp as a tack. He spoke VERY clearly, and asked several questions to make sure everything was correct. We even spoke briefly about his being under FERS, and so he won't be subject to the WEP. He even verified my banking information.

[Rustward]

Quote:

Originally Posted by DMGO Here's the numbers: SS statement shows $420 at age 62. Final figure from the SS caseworker figuring WEP: $176. That's even less than the WEP calculator on the SS site shows. Granted, I have a [generous?] CSRS pension

So how will the total of your CSRS pension + the $176 SS compare to
1) the SS benefit if you had paid into SS your whole career, and
2) the CSRS pension had you been in that job your whole career?
You'll probably have to make a few assumptions...

[Retire Soon]

I have a state pension. I recently applied for social security online in order to begin receiving benefits at the age of 62. A SS worker called me a few days later. She wanted to know how much my pension was and if I had heard of the WEP (of course I had). It turns out that I will receive 50% of what my SS would have been had I not had a state pension. The WEP calculator that I had used online before applying for benefits, turned out to be extremely accurate.

Also, she reminded me that if my wife should predecease me, that I would not be able to collect social security under her name because of the GPO (Government Pension Offset). I had also used the GPO calculator online , and it also turned out to be very accurate. By the way, it seems that time has flown by since I retired at the age of 55.

Link for WEP Calculator: Calculators: Online Calculator

Link for GPO Calculator: Calculators: GPO Calculator

[jdw_fire]

Quote:

Originally Posted by obgyn65 Yes, but this would mean no FIRE for me then. So this is why I have been looking at the "government employee exemption" for those federal employees hired after 1983. See my question in my posts above : how long would I need to work in a government position not to be affected by the WEP ? I could find a couple of locum tenens positions in Indian reservations government-run clinics for example, providing medical care a few weeks a year, and not be impacted by the WEP when I reach 62 ?

working as a fed employee "hired after 1983" will not affect the how WEP affects your SS because you are WEPed due to other employment unless, by doing that fed work, your "substantial" earnings years are increased above 20 years total.

[Cincy]

I found this older thread and found it very interesting. My question is this for those of you who may be in similar situations: my wife has about 14 years of Ohio STRS (state teachers retirement) credit but is now working in a SS paying job (she will end up with more than 40 quarters by retirement). She is currently 50 and will be eligible for state pension at 65 or she can withdraw lump some now since she is no longer paying into STRS. If she withdraws the lump sum now and rolls to IRA, will she eliminate the effects of WEP by not receiving a STRS pension? The SS website does not seem to address this issue. Has anyone looked into this option? Would it make sense to at least consider this?

[youbet]

My DW is also impacted by WEP and just went through the calculations and bad news a few weeks ago when she started SS at 66. Her monthly payment? $87.10! Thanks WEP!

To your question...... At one time I did a LOT of reading about WEP and GPO. I recall that the SS folks do say that if you, at the time of retirement, have a choice of lump sum or annunity and you choose the lump sum, they will use a formula to estimate what that lump sum would have delivered as an annuity and use that amount to count against you for WEP and GPO.

I don't recall any mention of pension plan withdrawals long before retirement age vs. taking a lump sum option at retirement. I'm guessing the answer may have to do with whether your DW is withdrawing her contributions vs is electing a lump sum pension payout - two different things.

You'll find that the impact of WEP on DW's SS payout will not be large in absolute dollars since she will just be the the 40 qtr range when she retires. (A bit less than not very much isn't very much!) But, you'll really cringe if her Ohio pension is very large, at how that eliminates her spousal and survivor benefits based on YOUR SS.

You have some interesting fact gathering and calculations in front of you. If DW removes her retirement contributions from the Ohio system and that is considered a withdrawal (as opposed to retiring and taking a lump sum option), there may be some significant financial implications as opposed to letting the contributions ride until she's 65 and "retires." OTOH, getting out of WEP and GPO would be a good thing, especially GPO.

I'd grab a big handful of sharp pencils before tackling this one!

[akck]

It's my understanding that it doesn't matter whether she takes the lump sum or gets the pension. From a WEP standpoint, the fact that she isn't pay in for those years will cause WEP to take effect, causing her to get 40% instead of 90% of lowest portion of her earnings (approx. First $800). If she has over 20 years of substantial SS earnings, the 40% is increased 5% per year until 30 years, where you get the full benefit.

She is also affected by GPO, in getting the spousal benefit based on your record. What will happen there, is 2/3 of her pension will be deducted from her spousal SS benefit, which means SS can go to $0. If you take the lump sum, you need to keep for your records, the amount her pension would have paid out. Otherwise, they'll base it on the lump sum she gets from their tables. My guess is that pension benefit will be less that what their tables produce.

Hopefully this answers your questions. I'm affected by WEP and my wife will be affected by GPO, so I've looked into it. I've heard that SS will work with you for valuing the pension if you take the lump sum. My wife's SS pension has a calculator, so when she retires, I'll be saving several printouts of the annuities they offer from her pension, as we plan on taking the lump sum.

[Texas Proud]

Just some info that was told to me by a friend...

Be careful about the amount that you can take out.... my friends sister took out her contributions and lost most of her pension... the 'lump sum' was a whole lot less than the pension calculation.... from what I think by hearing what he said, she does not get any of the payments made by the school district, but only HER contributions... also without any earnings....


Your state might be different, and my friend could be wrong, but I do remember seeing my sister's stmt and had thought that the lump sum was very small compared to the pension....

[Rustward]

Quote:

Originally Posted by Texas Proud Just some info that was told to me by a friend... Be careful about the amount that you can take out.... my friends sister took out her contributions and lost most of her pension... the 'lump sum' was a whole lot less than the pension calculation.... from what I think by hearing what he said, she does not get any of the payments made by the school district, but only HER contributions... also without any earnings....

Yes, that is exactly how it works with school districts, at least here in the second largest state.

The blanket advice to ALWAYS take the lump sum rather than the annuity is . . . is bad advice, at best. It is good for some pensions, but not necessarily good for all.

Every situation is different and each situation must be evaluated on its own.

[youbet]

Quote:

Originally Posted by Texas Proud Your state might be different, and my friend could be wrong, but I do remember seeing my sister's stmt and had thought that the lump sum was very small compared to the pension....

Most states do not offer a lump sum pension distribution. Most do allow you to withdraw from the system and receive a refund of your payments. But that is NOT a lump sum pension. It's just a refund of the dollars you contributed. A lump sum pension is more typically a one time payment roughly equal to the present value of the stream of future payments your annuitized pension would have payed (with acturial data figured in).

Confusing a lump sum pension with simply withdrawing your contributions is common.

To OP: I'm fairly certain that if your DW receives a lump sum pension (NOT a withdrawal), SS will use a formula to estimate what the stream of annuitized payments would have been and use that number to calculate the affects of WEP and GPO. If she simply backs out of the pension system by taking a withdrawal and receiving her own contributions back (if allowed in your state), this likely gets her out of WEP and GPO but at a high price. She loses the state's contribution and possibly investment returns (depending on the rules and procedures in your state).

Withdrawals are typically done by folks who worked in the system for only a short time early in life. Sometimes the retirement systems encourage this by using formulas that rely on earnings with no inflation correction. For example, if a young person taught school for 3 yrs at age 22 through 24 and then left the system, she'd likely withdraw her contributions. Since her pension would be based on earnings at those early years, the payout would be tiny 30 - 40 years later.

I don't know of any state systems that offer a true lump sum pension payout (NOT withdrawal). Illinois and Wis, two I'm familar with, don't. Perhaps there are some. A lump sum pension payout, as mentioned above, isn't just a withdrawal of your own contributions. It's a one time payment based on the present value of the annuitized stream of future payments with actuarial and other fudge factors built in.

[akck]

In Alaska, the State has two separate systems that employees contribute for retirement, PERS and SBS. SBS is in lieu of Social Security, which the employer matches like SS and the employee is 100% vested in both contributions plus earnings. In Alaska, you have a choice of annuity options or you can take a lump sum. I don't know how other state systems are set up, but if your pension system isn't similar, I'd really examine any lump sum they offer.

[Dreamer]

http://policy.ssa.gov/poms.nsf/lnx/0300605364TN 46 (10-11)This explains about withdrawals and lump sums for Wep purposes.

[BLS53]

My limited experience with teaching in Illinois, is that a lump sum is only issued if you terminate employment prior to pension eligibility. The other option after termination, was to leave the money in the system until age 65, and then receive a lump sum that includes both employee and employer contributions, plus appreciation. My contribution, as a substitute teacher, was less than $1k total, so I took the refund. The minimum service for a teacher pension in Illinois is 5 years, prior to that, you just get a refund for contributions.