Windfall Elimination Provision for Pensions

If you worked both in the private sector and as a public servant, explore how the Windfall Elimination Provision may reduce your social security benefits so you may plan effectively for your retirement.

Presented by: Ben Murphy, CPA, PFS™, CPFA®

If you receive a pension from a job not covered by social security and you are eligible for social security benefits from another job, your social security payments may be reduced under the Windfall Elimination Provision. In order to plan effectively for retirement, it’s important to understand how this rule may affect your social security benefits.

Who does the Windfall Elimination Provision apply to?

You may be subject to the Windfall Elimination Provision (WEP) if, over the course of your career, you worked as a federal, state, or local government employee as well as in the private sector. The rule affects former police officers, firefighters, teachers, and certain nonprofit employees, as well as other types of government workers.

How does Windfall Elimination Provision work?

The formula is a bit complicated and depends on the number of years you made substantial earnings under social security, in addition to your eligibility year (i.e., the year you turn age 62 or became totally disabled, if earlier). The maximum reduction is limited to half the amount of your noncovered pension in the first month of entitlement. In general, based on the formula used to calculate the reduction, the WEP has a greater impact on lower-wage workers.

Example: If you turn 62 in 2020 and have 20 years of substantial earnings that were subject to social security withholding, the WEP could reduce your monthly social security benefit by up to $498. Your reduction might be lower if you take benefits before you reach your full retirement age (FRA). Note that the WEP reduction cannot take your social security benefit down to $0, and it doesn’t apply if you have 30 or more years of substantial earnings under social security.

What About Children and Spouses?

The WEP also affects social security benefits for children and spouses (but not survivors), as it reduces the worker’s benefit that provides the basis for the dependents’ benefits. When the worker dies, the windfall elimination period reduction is removed, and the surviving spouse’s benefit is refigured using the regular benefit formula.

WEP is often confused with another provision known as the Government Pension Offset (GPO). Although similar, the GPO affects only spousal and survivor benefits; the WEP offsets the earner’s own benefit as well as the dependent benefits derived from it.

Learn More About the Windfall Elimination Period

A helpful calculator for estimating your social security benefits is available on the Social Security Administration’s website at www.ssa.gov/planners/retire/anyPiaWepjs04.html.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Ben Murphy is a financial advisor located at Global Wealth Advisors 601 N. Marienfeld, Suite 322, Midland, TX 79701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA  / SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (325) 207-5772 or at info@gwadvisors.net.

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