SS and Pension Payments

[megacorp-firee]

Does anyone know if pensions count towards 'income' when it comes to Social Security 'take aways' (i.e. $1 deduct from SS payment for every $2 earned)? Or is it NOT earned income?

It would be a bummer if it is counted. It seems that they have a bunch of ways to [-]keep your grubby hands off of [/-] re-adjust their payments.
Thanks.

 

[RetireeRobert]

Does anyone know if pensions count towards 'income' when it comes to Social Security 'take aways' (i.e. $1 deduct from SS payment for every $2 earned)? Or is it NOT earned income?

It would be a bummer if it is counted. It seems that they have a bunch of ways to [-]keep your grubby hands off of [/-] re-adjust their payments.
Thanks.

It is only earned income which counts. Pensions do not count toward the SS earnings limits, which if exceeded, result in SS benefit reductions.

One thing about such reductions, if you ever incur them: such benefit cuts are eventually added back into your SS benefits at a later age (I think age 70, but not positive on that point). And the earnings you make do also get recalculated by SS into your benefit earnings history so that you eventually get higher SS benefits from those earnigns as well.

But pensions have nothing to do with any of this. They are not earned income to SS.

 

[megacorp-firee]

It is only earned income which counts. Pensions do not count toward the SS earnings limits, which if exceeded, result in SS benefit reductions.

One thing about such reductions, if you ever incur them: such benefit cuts are eventually added back into your SS benefits at a later age (I think age 70, but not positive on that point). And the earnings you make do also get recalculated by SS into your benefit earnings history so that you eventually get higher SS benefits from those earnigns as well.

But pensions have nothing to do with any of this. They are not earned income to SS.

Thanks RR. This FIRE gets better and better... especially when I end up on the heads side of the coin once in a while.

 

[TickTock]

RetireeRobert,

Am I correct in thinking, then, that interest and money from sale of shares from taxable accounts and IRAs/401(k)s/etc. are also not figured into this?

 

[RetireeRobert]

RetireeRobert,

Am I correct in thinking, then, that interest and money from sale of shares from taxable accounts and IRAs/401(k)s/etc. are also not figured into this?

That is correct. Wages and self-employment "earned income" from work count toward the SS limit. "Non-earned" income from sources other than work such as capital gains, interest, dividends, rentals, IRA withdrawals, pensions, or other such sources do not count toward the SS limit.

See SS detailed answer to this question at their site:

Answer

 

[Twinkle Toes]

I won't be eligible for SS for a couple of years but am trying to get all of my ducks in a row. I am eligible for a small pension from FIRF (a federal pension). I thought payments from FIRF would decrease SS pmts, so I am considering taking a lump sum distribution (roll into IRA) to avoid having a deduction from SS. I also will be eligible for an even smaller pension from PERA (CO state). I know these payments would decrease SS benefits. I plan to roll the PERA into an IRA shortly. So, I'm a little confused about which "pensions" decrease SS benefits and which ones dont!

 

[RetireeRobert]

I won't be eligible for SS for a couple of years but am trying to get all of my ducks in a row. I am eligible for a small pension from FIRF (a federal pension). I thought payments from FIRF would decrease SS pmts, so I am considering taking a lump sum distribution (roll into IRA) to avoid having a deduction from SS. I also will be eligible for an even smaller pension from PERA (CO state). I know these payments would decrease SS benefits. I plan to roll the PERA into an IRA shortly. So, I'm a little confused about which "pensions" decrease SS benefits and which ones dont!

1) OK. This thread initially questioned the SS "earnings limit". This involves cases where people have applied for and are receiving SS benefits, but then they return to, or keep, working at a job, and are age 65 or under. In these cases, SS says yes you can do that, but if you earn from the job more than $x (for 2007 I believe the limit is $12,750 or close) and you are under age 66, then for every dollar over the limit, SS benefits will be reduced 50 cents.

I guess the rationale for this reduction is something to the effect of--"if you were just going to keep working, why did you apply for SS benefits as if you were retired".

2) Now, you mention a different scenario. It has nothing to do with earned income limits. Yours has to do with the "Pension Offset" which applies to those who worked a career and earned a pension from employment NOT COVERED by SS. In other words, neither you nor your employer paid SS taxes all those years. Now you get a pension from that employment. And SS feels somehow in order to keep things equal, there needs to be an offset against any SS you get. Because of those "non-SS taxed" jobs that give you pensions. I have never explored the rationale for this Pension Offset.

If you go to SS homepage, they have a note in upperleft of that page about "Pension Offset New Rules". Perhaps if you check that out, it will explain things better.

Or just Google, "Social Security Pension Offset". That is the subject you are interested in.

 

[RetireeRobert]

See this thread on Government Pension Offsets under the "Other" subforum here.

http://tinyurl.com/2l86d7

 

[youbet]

I won't be eligible for SS for a couple of years but am trying to get all of my ducks in a row. I am eligible for a small pension from FIRF (a federal pension). I thought payments from FIRF would decrease SS pmts, so I am considering taking a lump sum distribution (roll into IRA) to avoid having a deduction from SS. I also will be eligible for an even smaller pension from PERA (CO state). I know these payments would decrease SS benefits. I plan to roll the PERA into an IRA shortly. So, I'm a little confused about which "pensions" decrease SS benefits and which ones dont!

Read about the WEP at the SS web site. I don't think taking your gov pensions as a lump sum will help you.

If you're married to someone who worked under SS, also read about GPO.

 

[Twinkle Toes]

Retiree Robrert, I went back to check the top of the thread again to see if I had misread the topic. The question was whether pensions were treated as SS take aways...similar to earned income. I read the posts with interest because I have two really small pensions which I will be eligible for in a few years. After reading your reply, I pulled out my last SS statement and got my answer! Paid into SS during federal job, didn't for state job. So, I'll just need to roll the PERA funds into an IRA if I want to avoid SS take aways that a state pension (<$10/mo) would create.

Thanks, Twink

 

[Twinkle Toes]

Read about the WEP at the SS web site. I don't think taking your gov pensions as a lump sum will help you.

If you're married to someone who worked under SS, also read about GPO.

Right! Will leave the fed funds where they are. DH and I both qualify for SS.

Thanks, Twink

 

[EngineeringMyFinances]

TT:

So, I'll just need to roll the PERA funds into an IRA if I want to avoid SS take aways that a state pension (<$10/mo) would create.

If you have at least 30 years of "substantial earnings" under Social Security, then the WEP from your state pension won't reduce your SS benefits at all. Which could be the case given the small amount of the pension benefit. Look up Windfall Elimination Provision on Social Security Online.

 

[Twinkle Toes]

TT: If you have at least 30 years of "substantial earnings" under Social Security, then the WEP from your state pension won't reduce your SS benefits at all. Which could be the case given the small amount of the pension benefit. Look up Windfall Elimination Provision on Social Security Online.

Nope, just barely have required quarters for SS. Spent a lot of years working for a non-profit organization that did not participate in SS. So I'm pretty sure that PERA will reduce SS, but I'll check it out with SSA.

Thanks, Twink

 

[youbet]

TT,

FYI

From the SS site.


"If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work."

 

[EngineeringMyFinances]

Youbet:

From the SS site.

"If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work."

I had wondered if WEP could apply to me since I cashed out of a government pension. Point now moot since I now have 30 years of "substantial earnings" under SS meaning that WEP does not apply.

But I could only find that quote on the page that discussed GPO, and not on the page that explained WEP. Did you find it on a page indicating that cashing out of a government pension would not get you out of WEP?

Also, while I agree that pensions don't count as earned income causing giveback of SS for those under Normal Retirement Age, pensions do count as income when computing whether or not SS income is taxed.

You could wait until your Normal Retirment Age (probably 66 for you) to start your SS benefit and avoid any give back. And if you decide to take a part time job and add to your SS earnings history, your payment will increase. Since your SS benefit is so small, you shouldn't miss it much right now.

 

[Twinkle Toes]

TT,

FYI

From the SS site.


"If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work."

Hmmmm...damn ducks just won't stay put. Guess I still have some more homework to do. Thanks to all for the info. Twink

 

[RetireeRobert]

Also, while I agree that pensions don't count as earned income causing giveback of SS for those under Normal Retirement Age, pensions do count as income when computing whether or not SS income is taxed.

You could wait until your Normal Retirment Age (probably 66 for you) to start your SS benefit and avoid any give back.

Waiting to normal age 66 for SS would avoid give back under the "earnings limit" scenario if one is also working while getting SS benefits.

But it would not avoid anything under the taxation of SS benefits point you made, where pension is counted as income in figuring portion of SS which is taxable. There would still be give back there in the form of income taxes on bigger share of the SS received.

 

[Twinkle Toes]

Youbet:I had wondered if WEP could apply to me since I cashed out of a government pension. Point now moot since I now have 30 years of "substantial earnings" under SS meaning that WEP does not apply.

But I could only find that quote on the page that discussed GPO, and not on the page that explained WEP. Did you find it on a page indicating that cashing out of a government pension would not get you out of WEP?

Also, while I agree that pensions don't count as earned income causing giveback of SS for those under Normal Retirement Age, pensions do count as income when computing whether or not SS income is taxed.

You could wait until your Normal Retirment Age (probably 66 for you) to start your SS benefit and avoid any give back. And if you decide to take a part time job and add to your SS earnings history, your payment will increase. Since your SS benefit is so small, you shouldn't miss it much right now.

I didn't find anything under WEP about a fed pension lump sum distrib being added back into the calculation for SS benefits; however, I did see it in GPO details. I won't be collecting anything under DH's SS in that my SS is more than half of his.

WEP info does contain a provision stating that if the govt pension is minimal, as in my case where it's less than $10/mo, the SS take back is limited to one-half of the amount of the pension. Never thought a summer time job would cause so much trouble! Anyway, it looks like my benefits would only be reduced by $5/mo.

Can't see myself going back to work...bailed in 96...can't even think about putting up with all that BS again.

 

[EngineeringMyFinances]

RR:

But it would not avoid anything under the taxation of SS benefits point you made

I disagree. If you delay starting SS benefits until age 66, the benefits will be larger. Before starting benefits, you withdraw more from tax-deferred retirement savings and pay taxes at your normal marginal tax rates. After starting benefits, you withdraw from your tax-deferred savings at a lower rate. At that time, you've exchanged a certain amount of tax-deferred income for the same amount of SS income.

Depending on where you are in terms of taxable income and SS benefit, exchanging $1 of tax-deferred income for $1 of SS benefit can reduce your Adjusted Gross Income by $1.25 or $1.425. Same income, but less of it is taxed. So waiting could result in taxing a smaller portion of SS benefit, not more.

 

[Getting short]

Looks like there's been some recent talk about modifying the WEP and GOP in the Senate. But, that's happened before so I'm not holding my breath:

http://www.govexec.com/story_page.cfm?articleid=38497&dcn=e_gvet

 

[youbet]

Looks like there's been some recent talk about modifying the WEP and GOP in the Senate. But, that's happened before so I'm not holding my breath:

Senators urged to overturn Social Security provisions affecting federal retirees (11/7/07) -- www.GovernmentExecutive.com

Despite the fact that repeal of the GPO and WEP would result in a pay raise of about $9k a year at our house, I actually think those provisions are fair and can't support any attempts to repeal them. Note that the petitions being sent in supporting repeal are primarily signed by public sector folks who would benefit financially from SS despite not being participants or significant participants.

I think the fair way to handle SS and public sector employees is for our government to mandate that ALL wage earners, including ALL public sector employees, contribute to SS. Then, no need for WEP and GPO.