A reader says the government is penalizing him for having a
pension. Is he right?
Russell Settle • January 26,
2020
Welcome to our “Social Security Q&A” series. You ask a
question about Social Security, and a guest expert answers it.
You can learn how to ask a question of your own below. And
if you would like a personalized report detailing your optimal Social Security
claiming strategy, click here.
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benefits over your lifetime!
Today’s question comes from Darren:
“I have a government pension, and I am also supposed to
receive Social Security. I have learned that I may not get all my benefits from
Social Security because I have a pension.
I’m wondering how I can get all the money plus interest that
I put into Social Security. I am very angry about the fact that I may not get
the money that I put into the system. How can I request that the money I put in
be given back to me with interest?”
Preventing a Social
Security ‘windfall’
Darren, you raise some interesting points. Let’s take up the
last point first.
Simply put, you cannot get your money back by requesting a
refund. Once it is paid into the Social Security system, the only way to
recover your contribution is by qualifying for Social Security benefits and
living long enough so that your lifetime benefits at least equal your
contributions to the system.
You want your money back from Social Security because you
have learned that your government pension may reduce your Social Security
benefits. Your concern may be unfounded. The government pension must come from
employment where no Social Security taxes were paid. Many governments provide a
pension and also pay into the Social Security system (along with their
employees). In this instance, your Social Security benefits would not be
reduced.
Let’s assume that your eligibility for Social Security
benefits arises from other employment where you did pay into Social Security
taxes. In this case, you are likely to be affected by the Windfall Elimination Provision (WEP).
The size of the WEP penalty depends on several factors, as indicated here.
See
Also:
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The maximum WEP penalty applies to those with 20 or fewer
years of employment covered by Social Security. Here is how the penalty works:
Your Social Security benefit is reduced by about 56%, up to a maximum reduction
of $463 a month in 2019. (2020 figures have not yet been posted.) An additional
proviso is that the penalty cannot reduce your government pension by more than
half.
To illustrate, suppose your government pension is $800 a
month. Your tentative Social Security benefit is $1,000 a month, based on fewer
than 20 years of covered employment. The 56% penalty would reduce your benefit
by $560. That amount would be reduced to $463, the penalty cap mentioned above.
Finally, the penalty would again be reduced, since one-half the government
pension is $400. So, the final penalty in this instance would be $400 a month.
Many people who are affected by the WEP feel that the
penalty is unfair. However, the WEP was designed to improve fairness in the
Social Security benefit structure. That structure is relatively more generous
to lower-benefit persons than to higher-income, higher-benefit persons.
Accordingly, without the WEP, a person with a handsome
government pension (from noncovered employment) and more than 40 quarters of
covered employment could mimic a true lower-benefit person and enjoy a
“windfall” gain from Social Security. WEP helps to correct for this potential
source of unfairness.
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About me
I hold a doctorate in economics from the University of
Wisconsin and taught economics at the University of Delaware for many years.
In 2009, I co-founded SocialSecurityChoices.com,
an internet company that provides advice on Social Security claiming decisions.
You can learn more about that by clicking here.
Disclaimer: We strive to provide accurate
information with regard to the subject matter covered. It is offered with the
understanding that we are not offering legal, accounting, investment or other
professional advice or services, and that the SSA alone makes all final
determinations on your eligibility for benefits and the benefit amounts. Our
advice on claiming strategies does not comprise a comprehensive financial plan.
You should consult with your financial adviser regarding your individual
situation.
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