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If you have worked for city, state or federal governments, or in some cases, public school systems — you may be affected by rules that can reduce or even eliminate your Social Security benefits. That might be the case if you worked in jobs where you didn’t pay Social Security taxes, and you receive a pension from non-covered work.
A rule known as the Windfall Elimination Provision affects how retirement or disability benefits are calculated when workers receive a pension from work where Social Security taxes were not taken out of their pay. The Windfall Elimination Provision applies only to a worker’s retirement benefits, not to Social Security spousal or survivor benefits. A separate rule, called the Government Pension Offset rule, affects those benefits (see below). The Windfall Elimination Provision can merely reduce the size of a worker’s retirement benefit, not eliminate it. For 2017, the maximum reduction under the provision is $413 per month. However, it could be less. The Windfall Elimination Provision reduction is limited to no more than one-half of the amount of the pension from employment that is not covered by Social Security. For example, if your government pension is $800 per month, the reduction could not exceed $400 per month. However, public-sector employees, who also worked in the private sector and paid Social Security taxes on 30 years or more of “substantial earnings,” are not affected by the Windfall Elimination Provision rules.
The Government Pension Offset provision applies to spousal or survivor benefits that a person may be eligible for. The reduction for spousal or survivor benefits can be up to two-thirds of your public pension amount. So Spouse A who has always worked in the public sector and never paid into Social Security is not eligible to collect retirement benefits, but they may be eligible to receive reduced spousal or survivor benefits.
You should set up a personalized online account at ssa.gov/myaccount. If there are multiple years where your Social Security and Medicare earnings show a zero, that’s the first hint that you may be affected by offset rules. The sooner you know the real impact of these reductions, the better you will be able to adjust your retirement income plan, even if it means you may have to work a bit longer or trim your spending in retirement.
At Carr Wealth Management, LLC, we specialize in identifying the optimal claiming strategy tailored to each client’s needs. Please contact us to schedule a no-charge consultation or if you simply have a question about Social Security Benefits or other financially related planning areas.
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