What if you were employed by the government but did not contribute to Social Security while you were employed? In that case, the Social Security Administration would reduce your Social Security spousal, widow, or widower benefits by two-thirds of any government pension you get. This is known as the Government Pension Offset (GPO).
How does this work?
A spouse who receives an annuity from a job where he or she did not pay Social Security taxes, such as those receiving a CSRS annuity, has their Social Security payment reduced or eliminated by the GPO. If you fall under this category, your CSRS annuity will be decreased by $2 for every $3 you get in your Social Security spousal payment.
Your Social Security spousal benefit will be affected by your CSRS annuity to the full extent of its increase, up to and including its elimination.
For instance, you wouldn’t earn anything from Social Security if your monthly CSRS annuity was $1,500 and you were eligible for a $900 spousal benefit. That’s because $1,000 is equal to two-thirds of $1,500. If you deduct it from $900, you’re left with nothing.
Why would the government treat its workers this way?
The Social Security System was created to give those who did not work or had little income during their working lives a basic minimum level of financial security. In other words, spousal payments weren’t intended to supplement the Social Security benefits of working couples who were each eligible for one.
If one of them qualifies for both an earned Social Security benefit and a spousal benefit, they can only receive the benefit with the higher amount, not both.
CSRS beneficiaries who were married to Social Security beneficiaries were formerly entitled to both a full CSRS pension and a full Social Security spousal payment. However, Congress determined in 1982 that a worker who was enrolled in a retirement system for which they were not paying Social Security payments was benefiting unfairly. So, the statute was altered.
The Social Security Administration has created two clarifying examples that provide the best justification for the change:
Jude Fred receives a monthly Social Security income of $600. Ana, his wife, may be eligible for a wife’s benefit of up to $300, or 50% of Jude’s.
However, Ana also contributed to Social Security through her employment, making her eligible for a $400 retirement payout. Since her $400 retirement benefit effectively cancels out her $300 spousal benefit, she will not receive any spousal benefits.
Jude’s next-door neighbor, Robert, also receives a monthly Social Security income of $600. However, his wife, Mary, was employed by the federal government and received an $800 monthly civil service pension rather than a job requiring her to pay Social Security taxes.
Mary would have been qualified for both her $800 civil service pension and a $300 spousal benefit on Robert’s Social Security record had the government annuity offset rules not been in place.
With the offset clause in effect, Mary is treated the same as Ana because she is no longer eligible for Social Security benefits as a spouse.
The GPO affected about 11.5% of the 6.25 million spouse or widow(er) beneficiaries in 2020. The average non-covered pension for GPO beneficiaries in 2020 was $2,531, more than $1,000 above the typical Social Security retired worker payment of $1,544. The average non-covered pension for beneficiaries impacted by the GPO was $3,193 per month. Nearly three-quarters of beneficiaries had their entire spouse or widow(er) benefit deducted.
The way forward
It is frequently suggested that the GPO should be repealed since it was some accident or unexpected effect of a poorly thought-out amendment in the legislation during the Social Security reforms of 1980.
Congress consciously implemented the GPO to eliminate what it saw as an unfair advantage. Knowing that is little consolation to those experiencing its effects or who will retire in the future. But until and unless it is changed, it is the law.
It’s best not to hold your breath in hope, despite recent efforts in Congress to repeal or relax both the WEP and the GPO. Those proposals have been circulating since shortly after those provisions were passed nearly forty years ago.
Plan instead as if they will still be in place. Verify that your additional assets and investments, along with your CSRS and Social Security benefits, will be enough to cover your retirement expenses.
Contact Information:
Email: [email protected]
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Bio:
For over 20 years, Jeff Boettcher has helped his clients grow and protect their retirement savings. “each time I work with my clients, I’m building their future, and there are few things that are more important to a family than a stable financial foundation.”
Jeff is known for his ability to make the complex simple while helping navigate his clients through the challenges of making the right investment decisions. When asked what he is most passionate about professionally, his answer was true to character, “Helping my clients – I love being able to solve their problems. People are rightfully concerned about their retirement income, when they can retire, how to maximize their financial safety and future income.” Jeff started Bedrock Investment Advisors for clients who value a close working relationship with their advisors.
A Michigan native, Jeff grew up playing sports throughout high school and into college. While Jeff is still an ‘aging’ athlete, Jeff will take more swings on the golf course than miles running these days. He creates family time, often with weekly excursions to play golf, a hobby he shares with his three young children.
Disclosure:
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