There are two aspects of retirement: preparing for it – by working and earning Social Security benefits and/or a pension and investing for your retirement – and living it. Neither are particularly easy.
In regards to your Social Security benefits, its primary determinants are the length of time you spend in the workforce, the amount you earn during that time, the point in your lifetime at which you retire and whether you've also earned a pension.
Many employees pay Social Security tax, which is withheld from paychecks by employers and forwarded to the Social Security Administration. In contrast, a pension plan is maintained by your employer, whether it operates in the public or private sector.
You may receive both a pension and Social Security benefits, in which case your pension might reduce your Social Security benefits. Whether it does so is determined by a number of factors, such as if the pension is the result of your work with a government or another employer that deducts Social Security taxes from your paycheck.
Private Pension Impact
If your work is limited to jobs for which Social Security taxes were deducted from your pay, your Social Security benefits are unaffected by your pension payments. You will receive both your Social Security and pension benefits in full.
Government Pension Impact
If, however, you receive a government pension, the Windfall Elimination Provision or the Government Pension Offset may affect your Social Security benefits:
Windfall Elimination Provision
The Windfall Elimination Provision, or WEP, is one determinant of how your retirement and disability benefits are calculated. For instance, if the source of your pension is a job for which no Social Security taxes were withheld from your paychecks, that pension can reduce any Social Security retirement or disability benefit that you receive from a job for which Social Security taxes were withheld.
According to the Social Security Administration, the WPE goes into effect if your situation meets certain criteria:
- You reached 62 years of age after 1962.
- You became disabled after 1985.
- Your eligibility for a pension is due to work that occurred after 1985 and for which you did not or do not pay Social Security taxes.
- You performed federal service under the Civil Service Retirement System (CSRS) after 1956.
WEP does not go into effect if your situation meets particular criteria:
- Your pension relates to federal work that was governed by the Federal Employees’ Retirement System (FERS.)
- As a federal worker, you were hired after Dec. 31, 1983.
- You were hired by a non-profit organization after Dec. 31, 1983.
- Your only pension is for railroad employment.
- The work you performed for which you didn’t pay Social Security taxes was before 1957.
- You have 30 or more years of substantial earnings under Social Security.
To determine the exact effect of the WEP on the Social Security benefit that you'll receive, visit the Social Security Administration office near you or phone 1-800-772-1213.
Government Pension Offset
In most circumstances, the Social Security benefits a spouse or survivor receives – benefits based on a partner's work history – is equal to the partner's full benefit, assuming the partner applied for benefits at the full retirement age, which varies according to the retiree's birth year. That benefit is less, however, if the partner claimed the benefit sometime between age 62 and the full retirement age.
If you are a spouse, widow or widower who receives both a spouse's or survivor's Social Security benefit and your own federal, state or local government job pension, the Social Security payment you receive may be reduced by the Government Pension Offset, or GPO.
Government Pension Offset Exemptions:
If you held a job at some point in your career for which Social Security taxes were withheld from your paychecks, your spousal or survivor Social Security benefit will not be reduced due to the GPO.
Likewise, if your government pension is not based on your earnings, your spousal or survivor benefit won't be reduced.
Also, the SSA says if your federal, civil service, state or local government pension relates to a job where Social Security taxes were deducted from your paychecks and one of the following items is true, your Social Security spousal or survivor benefits are exempt from GPO:
- You filed for and were entitled to spouse, widow or widower benefits before April 1, 2004.
- Your last day of employment at the job was before July 1, 2004.
- You paid Social Security taxes on your earnings during the last 60 months of government service. (Under certain conditions, fewer than 60 months may be required for people whose last day of employment falls after June 30, 2004, and before March 2, 2009.)
To calculate the spousal or survivor benefit you will receive if you're affected by the GPO, visit the Retirements Benefit page on the Social Security Administration website and scroll to the "Information You Need to Calculate Your Benefits If You Are Affected by the GOP" section.
Read More: Social Security Benefits Statement
An employee may receive a pension and Social Security benefits. In this case, the pension might reduce the person’s Social Security benefits. The effect of your pension on your Social Security paycheck is determined by a number of factors, such as whether the pension is the result of your work with a government or another employer that deducts Social Security taxes from your paycheck.
- Social Security Administration: Benefits Planner Retirement Benefits
- Social Security Administration: Windfall Elimination Provision
- AARP: Does a Pension Reduce My Social Security Benefits?
- AARP. "Do 401(k) and IRA distributions count toward the Social Security earnings limit?" Accessed March 28, 2020.
- Social Security Administration. "Retirement Benefits," Pages 12-13. Accessed March 28, 2020.
- Social Security Administration. "Your Retirement Benefit: How It’s Figured," Page 1. Accessed March 28, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed March 28, 2020.
- Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs." Accessed March 28, 2020.
- Social Security Administration. "Income Taxes And Your Social Security Benefit." Accessed March 28, 2020.
- Social Security Administration. "Government Pension Offset (GPO)." Accessed March 28, 2020.
- Social Security Administration. "Windfall Elimination Provision," Pages 1-2. Accessed March 28, 2020.
- Social Security Administration. "Workers With Maximum-Taxable Earnings." Accessed March 28, 2020.
- Social Security Administration. "When to Start Receiving Retirement Benefits," Page 1. Accessed March 28, 2020.
- Social Security Administration. "Retirement Benefits," Page 5. Accessed March 28, 2020.
- Social Security Administration. "Workers With Maximum-Taxable Earnings." Accessed Oct. 15, 2020.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.