SS Windfall Elimination Provision for early retiree

[youbet]

Msa, I am losing 450/month which is the maximum you can lose. I think it’s fair if people work 30 years and don’t pay in because they will have a large pension and probably low earnings from SS probably working as a college student, etc. But for people like you and me that split their time between the 2 systems it’s not.

Yes. Folks often paint WEP with a broad brush while in fact WEP actually impacts people differently depending on their particular situation. I've noticed most of the WEP defenders are folks experiencing only a minor impact because they have many years of "significant SS earnings" or folks with no or very little SS earnings. You are correct, for folks in the middle, the formula can be painful.

For me, and the major SS participant of most married couples, the real pita is GPO. I never earned a penny not covered by SS yet I am prohibited from covering DW with spousal benefit or with survivor benefit because she has a teacher's pension. If DW had never worked at all, just sat at home watching soaps and eating bon-bons, I'd be allowed to cover her. But since she worked and paid 9% into the state pension fund (which seems to have gone missing in Illinois) I can't cover her with spousal or survivor benefits.

 

[Chuckanut]

My teacher’s pension didn’t really offset the loss in social security benefits. That being said, I still hear from students that I taught, which is a reward that I value.

I realize I may seem unsympathetic and a bit of a wise-guy here. But, I think in fairness people need to also take into account the money they kept (not paid into SS) and what it could have earned if invested in a reasonable retirement AA (say 60/40). That should be added to your total retirement benefit.

FWIW, I have read non SS states require pension contributions anywhere from 8-10%. I estimate my total pension/SS contributions to be in the area of 11-15% (it varied a bit from year to year). So people in non SS states were able to take home anywhere from 3% to 5% more every paycheck. That's a nice chunk of change over the years.

IMHO, everybody should pay into SS. At the very least people in jobs that do not pay into SS should get a yearly warning, that their SS check may be significantly impacted and they might want to put more dollars aside to compensate for that.

Tom Margenau has several excellent articles on WEP.

https://www.creators.com/read/your-...explaining-the-windfall-elimination-provision

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

The problem is that if you spend the bulk of your working life not paying into Social Security, you are automatically treated as a low-income person by the Social Security Administration's computers. That's because there are "zeros" on your Social Security earnings record for every year you spent in your non-Social Security job.

But if you are a teacher, police officer, firefighter, or other government employee, you generally can be classified as a person with an average income, so you should get the same Social Security replacement rate paid to all middle class workers. That's why a modified formula is used to refigure your benefits and give you the proper — and fair — replacement rate.

 

[Sunset]

The more I read about WEP the more I get confused, I even called SS and I think they told me incorrectly that I would not be subject to it. I have since found out, from the learned folk in this group that they are incorrect.

Here is the scenario.

I currently get a VERY small pension from Canada ($131 US a month).
I have not claimed SS yet. I have 25 substantial earning years in the USA
I am entitled to a larger pension from the UK. Not claimed yet.

As I currently understand, WEP will be applied when I take my US SS on the $131 from Canada. I do not plan on taking my UK pension till some time after that.

Will WEP then be recalculated on the Totals?

You may want to examine when to take the non-SS pensions.

My plan of action is to take the non SS as soon as I can, even if it is reduced. Delay SS to age 70

The reasoning is:
I will get X years of small pension with any subtraction.
At age 70 I'll get SS, and they will reduce it by 50% of my WEP'd pension (which will be a lower reduction as it's smaller)

I feel this hedges as best as I can:
If I die youngish (age 75 for example) I got lot of year of non-SS pension.
If I live long, I get SS with the smallest reduction possible.

I admit, if I live super long, then I end up with less this way as I took the non-SS pension early, but the amount of "missing" money is small, and the time frame is pushed out due to the WEP effect.
For example pretend my non-SS is reduced by 40% due to early claiming, had I waited instead to full retirement age, WEP would just take an extra 20% of what I had gained.

So WEP reduces the effect of early claiming reduction on non-SS pensions.

 

[Chuckanut]

Tom Margenau explains GPO

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

If you are impacted by GPO, what you probably don't realize is that this law simply treats you in the same way that all other working people have always been treated. For example, if a woman who worked at a job that was covered by Social Security gets a Social Security retirement pension, that pension has always offset any spousal benefits she might have been due. Before the GPO law went into effect, a similar woman who was getting a non Social Security pension could get that pension AND a Social Security dependent spouse's benefit. This simply didn't make sense. In effect, GPO simply treats a non-Social Security pension like a Social Security retirement pension.

 

[youbet]

At age 70 I'll get SS, and they will reduce it by 50% of my WEP'd pension

The WEP reduction formula does not include any input from your "WEP'd pension" amount. WEP simply uses a different (less generous) formula than the standard SS formula with an adjustment for how many years with "creditable SS earnings" you had.

You might want to go back and check your info and sources. It sounds more like you're talking about the GPO formula, something completely different. GPO reduces your spouse's spousal or survivor benefit by 50% of his/her non-SS pension amount.

 

[youbet]

Tom Margenau explains GPO

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

What Tom fails to address is the fact that SS contributors with spouses who never worked or SS contributors with spouses with pensions from a private employer are able to cover them with spousal or survivor benefits. But if your spouse's pension is from a non-SS employer, you aren't.

I'm familiar with Margenau. His explanations of WEP and GPO are OK, but his interpretations of "fairness" are controversial among a wide range of people. I generally agree with him on WEP. I strongly disagree with him on GPO. Others have their own opinions.

 

[Chuckanut]

But since she worked and paid 9% into the state pension fund (which seems to have gone missing in Illinois) I can't cover her with spousal or survivor benefits.

As Mr. Margenau points out, her pension offsets the survivor benefits. Just as SS benefits she might have earned, but didn't, would offset the survivor benefits.

If she stayed home she would get the full spousal benefits since there would be no offset. But, she would have lost her pension. My guess is that would not be a good deal.

As Mr. Margenau points out she is still slightly better off than people who paid SS taxes and get the full spousal benefit.

Actually, if you are impacted by GPO, you get a bit of a break. Social Security retirement pensions offset spousal benefits dollar for dollar. But a non-Social Security retirement pension causes only a three-for-two offset. In other words, for each $3 you get in a teacher's or other non-covered pension, you lose only $2 from Social Security spousal benefits.

I wish the Feds would require everybody to pay SS, or at least warn the non-payers every year that they can't count on the same SS benefits as those who have paid in for 35+ years.

 

[youbet]

As Mr. Margenau points out, her pension offsets the survivor benefits.

Again, Margenau's personal opinion of "fairness" is just that, his personal opinion. I've had to do substantial scrambling with our financial plans because I (as the SS paying spouse) cannot protect her financially with survivor benefits as the spouse of a non-working or private pension spouse can, so it hits home.

What Margenau is successful at pointing out is that non-SS state pensions are indeed just a substitute for SS. For example, Illinois teachers don't actually get a "pension." They get a "SS substitute." At MegaCorp, I earned both a pension and SS. Today, Illinois teachers for example, earn a "SS substitute" (although it costs them additional money over SS, 9% vs 6%). There is no pension, other than in nominal terms, just an SS substitute as Margenau points out.

I wish the Feds would require everybody to pay SS

I do too. Not likely to happen as local school district, municipal and state employers don't want to pay their half of SS and are fighting it like crazy.

 

[Chuckanut]

What Tom fails to address is the fact that SS contributors with spouses who never worked or SS contributors with spouses with pensions from a private employer are able to cover them with spousal or survivor benefits. But if your spouse's pension is from a non-SS employer, you aren't.

.

You forgot the offset provision in SS. It's tied into the payment calculation.

We must take into account the offset in the calculation. Without the offset, the non SS paying spouse would get a higher benefit overall than the spouse who paid SS and sees her benefits reduced by the offset.

We can't ignore the offset without being unfair to those who have paid into SS. Pay SS and your spousal benefit gets offset. Don't pay SS and there is no offset even though you have a nice pension and never paid a penny of SS taxes. Not really fair, is it?

 

[Sunset]

The WEP reduction formula does not include any input from your "WEP'd pension" amount. WEP simply uses a different (less generous) formula than the standard SS formula with an adjustment for how many years with "creditable SS earnings" you had.

You might want to go back and check your info and sources. It sounds more like you're talking about the GPO formula, something completely different. GPO reduces your spouse's spousal or survivor benefit by 50% of his/her non-SS pension amount.

I was (as far as I know) following the WEP info.
WEP has to account for how much non-SS pension a person gets as some are very low and others are very high.
When dealing with substantial earning of 20 yrs or less.
There does seem to be 2 methods of calculating the numbers, but with less than 20 years the 50% rule seems to me to be the applicable one.
This link seems easier to read than gov't ones.

https://en.wikipedia.org/wiki/Windfall_Elimination_Provision

"
3. Calculate the PIA based on this, rounding down to the nearest dime.
4. Calculate the PIA normally and reduce by 50% of the amount of the non-covered pension's monthly payment.
5. Select the higher value given by steps 3 and 4."

Here are some fake example numbers as I think it's simpler than being abstract.
I get external pension of $600 at full retirement age, but I take it years early and get $300.
I have 12 yrs of SS earnings and will get $1,500 at full retirement age without considering WEP.
Without doing the math, just assume my SS at 70 is $2,000.

So I take SS at 70, instead of getting $2,000, I would get: ($2,000 - 50% of $300) = $1,850
If I took SS at full retirement age I would get with WEP $1,500 - 50% of $300 = $1,350

Plus I collect the $300 non-SS pension for many years previous and onward.

 

[Niuatoputapu]

I agree generally with the folks who note that people who split their careers between the SS and the non-SS systems are hurt most by WEP. But not so much for us. Here is our situation.

Me: 44 years paying into SS, the higher wage earner
DW: 21 years paying into SS, 15 years and counting CalSTRS (California teachers)

WEP means DW will have her SS cut in half, approximately $900/mo becomes $450/mo

DW is entitled to $2200/mo (and still growing) CalSTRS pension

The sum of the two (her SS and her CalSTRS) is greater than a SS-alone at her wage levels would have been. That's good. No complaint.

Some more financial advantage - I am a 100% pension survivor while she continues to work, and will be a 50% pensioner if she passes after retirement. I would not be subject to WEP. A definite perk compared to losing the lower earning spouse's SS upon their death.

A financial disadvantage - GPO will negate the survivor benefits of my SS. If I started SS benefits at 62 (which I did not) GPO would reduce her survivor benefits to zero.

Followed by financial advantage, I think (more research to be done) - if I wait until age 70 to collect SS - because my SS benefits will grow 6-8% annually plus COL while her pension will grow by just COL, GPO has less impact, and there will be survivor benefits available to her. At my age 70 SS, her GPO adjusted survivor benefits based on my SS plus her pension will be greater than just survivor benefits that would have been available if we both had just worked under SS.

 

[youbet]

You forgot the offset provision in SS.

No, not really. I don't think of state pensions as a "SS substitute" (at least not until you suggested it - maybe now I will). Generally, pensions do not offset SS spousal or survivor benefits.

To use your view, I guess we should refer to my DW's state teachers pension as her "State SS Substitute."

Not really fair, is it?

What isn't fair in the WEP/GPO world are the loophole provisions such as "years of substantial earnings" and those type of things.

 

[Chuckanut]

Today, Illinois teachers for example, earn a "SS substitute" (although it costs them additional money over SS, 9% vs 6%). There is no pension, other than in nominal terms, just an SS substitute as Margenau points out.

Yes, it is a SS substitute. More than a substitute since it pays bigger benefits than SS. Plus Illinois teacher gets to take home an extra 3% compared to people like me who paid into SS and made pension contributions. All of this makes comparison hard.

It's all very complicated and I can see why people get confused. But, if we run two middle class earners with identical lives except one paid into SS and one did not we can see that the person who did not pay into SS comes out ahead if there was no WEP or GPO. Of course, that assumes that states like Illinois, Kentucky and others can fix their pension issues. I feel your pain on that one. It has to cause a lot of worrying an anxiety.

I suppose we could discuss this until the cows come home. For now we can just agree to disagree.

 

[Chuckanut]

No, not really. I don't think of state pensions as a "SS substitute" (at least not until you suggested it - maybe now I will). Generally, pensions do not offset SS spousal or survivor benefits.

To use your view, I guess we should refer to my DW's state teachers pension as her "State SS Substitute."
.

My pension does not offset SS benefits because I also paid into SS. Any offset would come out of the SS payment.

As one person pointed out his state technically has a SS substitute plan for retirement, not a pension. Perhaps all states should all start calling it the SS Substitute Retirement Benefit.

It would be a lot easier of everybody paid into SS and we didn't need these confusing laws. I can't help but think that WEP and GPO seem unfair to those in states whose pension plan funding is weak.

I feel for those in states like Kentucky and Illinois. The uncertainty can't be good for the health of anybody involved - financially or physically.

 

[youbet]

Yes, it is a SS substitute.

So you're getting double SS? Wow! Very sweet. You get Fed SS + state SS substitute. Nice! My only objection is that you should be subject to WEP (reducing your fed SS) since you get state SS substitute. Kinda makes you one of those infamous double-dippers.

(More than a substitute since it pays bigger benefits than SS. Or am I wrong?

You're wrong. Here in Illinois, changes made about seven years ago reduced teacher's pensions to be approximately the equivalent of SS. An apples to oranges comparison since some aspects are better, some worse, but most rank them about equivalent in overall value. The Illinois SS substitute (as you put it) just cost the members more than if they had fed SS.

I suppose we could argue this until the cows come home. For now we can just agree to disagree.

Yes, please let's stop the "fairness" discussion. Since you're able to double-dip gov't pensions while avoiding WEP and GPO, you're the clear financial winner and knew how to play your cards. So, a tip of the hat to you and I'm outta here........

 

[Mulligan]

As a former teacher I've always been embarrassed by teachers who claimed WEP was unfair to them.

If I was a public employee I would not make a long-term career working for any government agency that did not participate in SS.

I think certain scenarios there is a legitimate case though. There are about a dozen or so states where public teachers do not pay into SS. If a spouse say taught 10-15 years in a SS/pension hybrid state and then had to relocate to a state where no SS contributions occurred, they would be dinged unfairly in my opinion.
As in this case, two halves wont make a whole. The other 15 year non SS covered pension would force a reduction in the SS part of the other vested system in which person originally worked at.
The fact my SS is getting max whacked is insignificant to me as I have a bunch of Mickey Mouse years strung through the decades in PT jobs unrelated to career. So its no skin off my back. I will cheerfully cash my $177 WEP severely whacked SS check every month when I turn 62.

 

[Chuckanut]

So you're getting double SS? Wow! Very sweet. You get Fed SS + state SS substitute. Nice! My only objection is that you should be subject to WEP (reducing your fed SS) since you get state SS substitute.

Umm... Perhaps I wasn't clear. I meant that states that offer 'pensions' and don't collect SS are in effect offering a SS substitute. In my state I fully contributed to SS like the vast majority of us. My apologies if my reply was confusing.

 

[DelMarGirl]

I was (as far as I know) following the WEP info.
WEP has to account for how much non-SS pension a person gets as some are very low and others are very high.
When dealing with substantial earning of 20 yrs or less.
There does seem to be 2 methods of calculating the numbers, but with less than 20 years the 50% rule seems to me to be the applicable one.
This link seems easier to read than gov't ones.

https://en.wikipedia.org/wiki/Windfall_Elimination_Provision

"
3. Calculate the PIA based on this, rounding down to the nearest dime.
4. Calculate the PIA normally and reduce by 50% of the amount of the non-covered pension's monthly payment.
5. Select the higher value given by steps 3 and 4."

Here are some fake example numbers as I think it's simpler than being abstract.
I get external pension of $600 at full retirement age, but I take it years early and get $300.
I have 12 yrs of SS earnings and will get $1,500 at full retirement age without considering WEP.
Without doing the math, just assume my SS at 70 is $2,000.

So I take SS at 70, instead of getting $2,000, I would get: ($2,000 - 50% of $300) = $1,850
If I took SS at full retirement age I would get with WEP $1,500 - 50% of $300 = $1,350

Plus I collect the $300 non-SS pension for many years previous and onward.

Here's a detailed calculator one can download and test different scenarios. Under Forms - Supplemental Worker Information you add non-covered pension.

https://www.ssa.gov/OACT/anypia/anypia.html

 

[Sunset]

Here's a detailed calculator one can download and test different scenarios. Under Forms - Supplemental Worker Information you add non-covered pension.

https://www.ssa.gov/OACT/anypia/anypia.html

Thanks, I might just download that to my windows machine.
I did use the online WEP version to try parameters:
https://www.ssa.gov/planners/retire/anyPiaWepjs04.html

 

[ShokWaveRider]

I downloaded it a few months ago, it works well once you have all your data in it. Your substantial earnings data can also be found, once you log into SSA.gov.