[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]For many senior citizens, they primarily or heavily rely on Social Security benefits to fund their retirement. However, for those federal employees that receive a pension from the government, you can have your SS benefits lessened in some circumstances, which can end up having you rely more on your pension to cover you through your retirement years.
So, what are those circumstances that can have your SS benefits reduced? There are two main situations where this happens:
1.You are eligible to receive SS benefits due to the jobs you’ve had in the past. Still, you are also in line to receive a government retirement annuity from a position where you were not covered by Social Security.
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To know how and why this reduction process is necessary, you will first need to understand how your benefits are calculated.
A majority of times, for most job positions, you pay taxes to SS on your earnings up to a wage base limit that is determined by the Social Security Administration. As you pay SS taxes, you earn work credits which allow you to become eligible for retirement benefits once you have a minimum of 40 of these credits.
How much you receive in SS benefits is based on calculations that involve the average of your monthly earnings. The average is based on the earnings made during the highest period of 35 years worked. The earnings are adjusted to take inflation into account. The average earning in this calculation to determine your benefit amount is called your Average Indexed Monthly Earnings (AIME).
In the formula to calculate your benefits, you are given a primary insurance amount or a standard benefit that can be up to 90 percent of your AIME up to a set limit with an additional 32 percent of your AIME that is between a first and second dollar limit plus a 15 percent of your AIME above the second dollar cap.
You may wish to do additional research on this formula and your AIME.
The standard benefit or primary insurance amount is the amount you get when you begin to collect your benefits at your full retirement age (FRA). If you start collecting before your FRA, your primary insurance amount is reduced. For those that collect some time after your FRA, your benefits will be increased.
The full retirement age is determined based on what year you were born. Generally, your FRA will be somewhere between 65 and 67.
For those that federal employees that do not have enough years worked to be eligible for SS benefits or if their AIME is not very high due to not paying a lot of taxes to Social Security during their working career, you can claim a spousal or survivor benefit based on your partner’s working record, if applicable.
You can collect spousal benefits if your partner is living and has started receiving their SS payments. If your spouse passed away, you could claim survivor benefits. For those that are divorced but were married for a minimum of 10 years, you are still eligible to receive survivor or spousal benefits. For those that have been divorced for two years or longer, you can claim your spousal benefits based on their work history before they claim theirs.
For some federal employees, there are periods in your career where you do not pay SS taxes because a portion of your earnings is going into a government pension instead.
Those that have earned a lot during their government career might have earned quite a good amount within their retirement annuity. And if they also had income from a position that Social Security taxes were paid on, they may be eligible for Social Security benefits. They may also qualify for either of these benefits due to spousal or survivor entitlement.
For those of you that are eligible for SS benefits based on your work history, the history may look as though you have meager earnings if most of your career was spent working in a position where you did not pay Social Security taxes. The formula used to calculate your benefits is progressive, which means that you would get more money for having what appears to be a lower income. Because of this reason, the SSA will reduce your benefits under the Windfall Elimination Provision.
If you can receive spousal or survivor benefits along with your government retirement annuity where you did not pay Social Security taxes, this is also seen as having an advantage that is not fair. This is because the spousal and survivor benefits are meant to assist spouses that receive less in income by allowing them to receive benefits on their spouse that had a higher income during their career. However, this usually is the case if you receive a substantial income in your federal job along with your pension.
Those that fall into this scenario will also have their SS benefits reduced under the Government Pension Offset policy.
Let’s let us go a little more into detail how to how the Windfall Elimination Provision (WEP) functions. This provision can bring down the amount you will receive in benefits from Social Security if you get them based on your income record along with a government retirement annuity that you did not pay SS taxes on. However, there are only specific kinds of employees that are liable to this reduction.
The windfall elimination provision can reduce Social Security benefits if you claim them based on your own work history, and you also get a government pension from a job you didn’t pay Social Security tax on. Only certain workers are subject to it.
You are subject to WEP if you fall under one of these situations:
You become 62 years old or disabled after 1985.
You obtained eligibility for a monthly retirement annuity from work done after 1985, where SS tax was not paid on those earnings.
Those that are not liable to WEP are:
You were employed under the Federal Employees Retirement System (FERS) and paid Social Security taxes.
You only have a railroad pension.
You first worked for a non-profit after the 31st of December in 1983.
You first became a federal employee after the 31st of December in 1983.
You can only be subject to a Windfall Elimination Provision if you have not paid Social Security for a minimum of 30 years on what is called substantial earnings.
These substantial earnings change every year. Check out the following figures to see how much you need to make in the last ten years to have substantial annual earnings.
Year 2009, 2010, and 2011: $19,800
Year 2012: $20,475
Year 2013: $21,075
Year 2014: $21,750
Year 2015 and 2016: $22,050
Year 2017: $23,625
Year 2018: $23,850
Year 2019: $24,675
For those that have paid SS taxes on the minimum 30 years required, WEP cannot be applied to your benefits.
Those that do fall under WEP will have their benefits reduced by the number of years that did not have substantial earnings reached.
The reduction is calculated, altering the formula that is utilized to get your benefit amount. Just a quick refresher from before, the amount you can receive at your FRA is calculated by a formula that gives you the amount equivalent to 90 percent of you AIME up to a specified cap; 32 percent of your AIME between a first and second limit; 15 percent of your AIME over the second cap.
If you fall under WEP, you are not able to receive benefits that are equivalent to 90 percent of your AIME. You will receive a lower percentage of AIME up to the first income limit.
The following figures will provide the percentage of AIME utilized to calculate your benefits depending on the amount of substantial earning years you have.
30 years or more = 90 percent
29 = 85 percent
28 = 80 percent
27 = 75 percent
26 = 70 percent
25 = 65 percent
24 = 60 percent
23 = 55 percent
22 = 50 percent
21 = 45 percent
20 or below = 40 percent
Depending on how many years of substantial earnings you have in your work history will determine how much WEP can lessen the amount of your benefits. The good news is that there are some rules in place to make sure that your benefits are not reduced to an unfair amount.
Such rules are:
Your SS benefits cannot be lessened over half the retirement annuity amount you get from the position where no SS tax was paid.
There is also a maximum reduction cap no matter how much your pension may be, and it is based on how many substantial earning years you have. The maximum is less than half of your federal pension. To know the exact maximum figures, you can visit the Social Security Administration page to take a look at their table.
Now, what are the rules and procedures of the Government Pension Offset
This policy also reduces the amount of SS benefits, but solely for spousal or survivor benefits.
Those that are subject to the offset is if they receive a federal retirement or disability pension or the same from a state or local level. Another reason is if you did not pay SS taxes on earnings from the position where you are receiving a pension from. And lastly, you are liable to GOP if you are receiving spousal or survivor benefits from Social Security.
You will not be affected by this offset if the federal pension you are getting is not based on your earned income. It will also not affect those that is a federal employee getting an annuity from a job that you paid SS taxes on. Those that worked their final day at the job that offers the pension before the 1st of July in 2004 will not have to worry about the offset as well.
Those that sent in a claim for a survivor or spousal benefits and could get them before the 1st of April in 2004 also are exempt from GOP, as well as employees that have paid SS taxes on their earning the last five years they have been working for the U.S. government.
Federal workers that went from CSRS to FERS after the 31st of December in 1987 also are exempt from the offset.
To learn about other exemption situations regarding the Government Pension Offset, be sure to take a look at the SSA’s guide.
If you are subject to the Government Pension Offset, your SS benefits will be reduced by two-thirds of what you get from your government pension. In a situation where two-thirds of your pension is more than what you get in SS benefits, you may not receive anything from Social Security.
So that is how a pension from the government can lessen the amount of your Social Security benefits.
Those that have paid SS tax on all of their earnings will not be subject to having a reduction in their Social Security. It is only when employees who receive a government pension that does not have to pay SS tax that will face a reduction in benefits.
But there are other events that can lessen the benefits that you get like if you were to claim your benefits earlier than your full retirement age or you end up remarrying that it changes your status fo eligibility for spousal or survivor benefits.
To be able to maximize how much you can get from your Social Security benefits, it is advised to research how the program works. For those that do not have the time or the desire to do so, it may be in your best interest to work with an adviser that already has this knowledge to assist you with making the right decisions.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”36142″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
