SS Windfall Elimination Provision for early retiree

[Vacation4us]

Quote:

Originally Posted by beowulf "Now he had a close coworker that came on late paid into SS,was forced out at 60 based on his age alone who got divorced and lost half his pension, pays alimony too and will never see SS. That guys not a fan of WEP." If he never sees SS, how does WEP affect him? The government is not going to reduce a payment that's zero to begin with. If he paid his 40 quarters, he will get some amount from SS, though that could be offset by WEP. If not, then he simply won't qualify. I know ex feds who worked in private industry when they were very young, but only got up to 20 or so quarters. They didn't qualify for SS. That was their choice.

I miss stated. He will get a reduced SS. A smaller pension due to divorce and years of service, and alimony. I am sure he regrets some of his financial decisions.

People make choices not always to their own benefit. Like spending less and saving more.

[2177V]

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Originally Posted by tizlo I turned 62 earlier this year and have been contemplating whether I will start Social Security. Recently for the first time I heard of the Windfall Elimination Provision. For years I have looked at my annual SS statement or logged on to the ssa.gov to see what my benefit would be for 62, FRA, and 70. I have no pension -- just my savings, investments, and an IRA. I have never worked at a job that did not pay FICA. But, I have just 29 years of paying FICA. Of those 29 years I have 24 years of working full time. I have read information about the Windfall Elimination Provision in several places, including on ssa.gov, but it is still confusing. Everywhere it says it is meant to reduce the SS benefit for people who have another pension for a job where they did not pay FICA. That does not apply to me, but then when I look at other information it seems to actually reduce the benefit for anyone who has paid FICA for less than 30 years. Can someone please explain this to me. Will my SS benefit be reduced to less than what is shown on my SS benefit report?

I was affected because I had 7 years of military service and I later worked as a government civilian employee. The purpose of the WEP is to eliminate a double benefit for people who only contributed to one system.

In my case, I had 7 years of military but in order for me to get 7 years of credit for my military service on my government civilian employee pension, I had to contribute funds (7%) on my military pay.

I believe WEP for SS works similarly. If you did not contribute to SS during a portion of your career, you may not get SS credit for those years because you did not contribute into the SS system.

I suggest going to a local SS office and talk to a live person working in the SS office who can give you the correct information on how you may be affected by the WEP. When you do discuss your situation, make sure you provide all the correct earning information so you can get the correct response.

[beowulf]

If you didn’t contribute to SS in some years, you just don’t get credit for those years. Period. It’s not the same as WEP - no windfall is being eliminated. Calling lack of SS contributions for not working is not WEP. Calling it that just confuses those who have not worked for an entity that does not withhold for SS.

[ShokWaveRider]

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?

[Alan]

Quote:

Originally Posted by ShokWaveRider 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?

I believe that you are asked to list existing and future pensions, of which your UK pension would come into effect. (I have just been asking questions about this).

For the UK equivalent of SS you are able to make voluntary contributions for years where you were not working a job that paid into it, such as working overseas. When doing the WEP calculations those years of voluntary contributions are exempted from the WEP calculation since they were funded with after tax dollars just like you would do while funding a regular annuity.

[msanniee]

Ah the wonderful WEP.

I worked in the private sector for 24 creditable years and was a public school teacher for 18 years.

I will loose about $300 a month from my social security payment because I 1) failed to have 30 creditable years of paying social security; 2) taught in a state in which teachers did not pay into social security.

This provision affects many teachers who decide to take a drastic cut in pay to become a teacher after working in the private sector.

Yes I get a pension as a teacher calculated on service credit and salary. If I got social security based upon the same formula non- teachers use, I would not be shorted approximately $3600 a year.

This is a sore point for teachers, such as myself, who worked in school districts that paid lower wages due to serving families who were at the lower end of the socioeconomic scale.

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.

[youbet]

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Originally Posted by NoiseBoy FWIW I hope to have 27 years of substantial earnings when I retire.

Since you won't be impacted by WEP, naturally you think WEP is OK. The problem with WEP is that loophole you'll be taking advantage of. IMHO, the "years of substantial earnings" work-around should not exist.

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I also feel that step #1 in fixing my state's pension woes is to have all workers pay into Soc Sec.

Yes. And, generally, state employees who are not covered by SS would like to join and pay in. It's the local employers, such as school districts, who are fighting it since they would have to pay their 50% too significantly increasing their costs.

[Teacher Terry]

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.

[youbet]

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Originally Posted by Chuckanut One question is I have is "what what happened to all the money people did not pay into SS?" Granted, most of it most likely went into the pension plan but rarely all of it. There is usually a few percent that the employer and employee get to keep. Where did it go?

Hmmmm....... don't think you have that right. At least not for Illinois, the "infamous pension state."

Here, non-SS state pension participants pay MORE into their pension plan that they would pay into SS (9.x%). For folks hired within the past seven years, the state pension benefits (well, speaking for teachers) are approximately the same as SS. It's an apples to oranges comparison with some aspects being more generous, some less generous, but roughly equivalent overall. Yet, participants pay about 3% more.

The real question, rather than "what what happened to all the money people did not pay into SS?" is "what happened to the money the state employees paid into the pension fund?"

[msanniee]

Quote:

Originally Posted by Teacher Terry 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.

Agree. It penalized people who decide to make a contribution through teaching.

[youbet]

Quote:

Originally Posted by Teacher Terry 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]

Quote:

Originally Posted by msanniee 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-s...tion-provision

https://www.creators.com/read/your-s...curity-offsets

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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.

Quote:

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]

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Originally Posted by ShokWaveRider 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-s...curity-offsets

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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]

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Originally Posted by Sunset 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]

Quote:

Originally Posted by Chuckanut Tom Margenau explains GPO https://www.creators.com/read/your-s...curity-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]

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Originally Posted by youbet 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.

Quote:

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]

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Originally Posted by Chuckanut 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.

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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]

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Originally Posted by youbet 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]

Quote:

Originally Posted by youbet 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/Windfa...tion_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.