Thanks to Social Security benefits, some teachers are in better shape for their retirement years than they would be otherwise. For teachers who receive the average Social Security benefit when they reach 65 – $1,503 a month in 2020 – it's another $200,000 toward retirement, writes Alan Sloan in the Washington Post.
But when you calculate your retirement nest egg, be sure to assess the Social Security benefit at its practical value. For instance, you must adjust the dollar value of the benefit to account for your receipt of a teacher's retirement benefit as well.
Social Security Versus TRS Benefits
If you worked in a job that's covered by Social Security, or the Federal Insurance Contributions Act (FICA), taxes were withheld from your paychecks by your employer and forwarded to the Social Security Administration (SSA). In contrast, your Teacher Retirement System (TRS) pension plan was maintained by the state or an agency acting on its behalf.
Social Security Benefit Value
The value of your Social Security benefit to your retirement nest egg is influenced by many factors. If the benefit is based on your work, the factors include the time you spent in the workforce, the dollars you earned, the age at which you retired and whether you've earned a TRS pension. These same factors influence any Social Security Disability or Survivor benefit you may receive except the latter relates to the work of a departed earner.
If you receive a TRS pension and a Social Security benefit, the amount of your pension may reduce your Social Security benefit if your circumstance is one governed by the Windfall Elimination Provision or the Government Pension Offset (GPO)
Windfall Elimination Provision
The Windfall Elimination Provision (WEP) determines in part the effect of your TRS pension on the Social Security benefit you may have earned. For instance, because your TRS pension is due to your work in a job for which no Social Security taxes were withheld from your paychecks, that pension can reduce the dollar value of Social Security payments that you receive due to a job for which Social Security taxes were withheld.
The Social Security Administration says the WEP goes into effect when your circumstance meets particular criteria:
- You reached 62 years of age after 1962.
- You became disabled after 1985.
- Your pension eligibility is due to work you performed after 1985 and for which you did not or do not pay a Social Security tax.
- You performed federal service under the Civil Service Retirement System (CSRS) after 1956.
If, however, your situation meets the following criteria, WEP does not go into effect:
- Your pension relates to federal work that the Federal Employees’ Retirement System (FERS) governs.
- You were hired as a federal worker after December 31, 1983.
- You were hired by a non-profit organization after December 31, 1983.
- Your only pension is a railroad employment pension.
- Social Security tax was not deducted from your paychecks for work you performed before 1957.
- You have 30 or more years of substantial earnings under Social Security.
To determine the exact effect of the WEP on your Social Security paychecks, visit the Social Security Administration office near you or phone 1-800-772-1213.
Government Pension Offset (GPO)
Usually, the Social Security benefit that a spouse or survivor receives is equal to the partner's full benefit, assuming the spouse applied for benefits at the full retirement age, which is determined by the retiree's birth year. That benefit is reduced if the spouse claimed the benefit sometime between 62 years of age and the person's full retirement age.
If you are a widow or widower who receives both a survivor's Social Security benefit and your own TRS pension, the Social Security payment you receive may be reduced by the Government Pension Offset, or GPO.
In the event that you held a job during your career for which Social Security tax was withheld from your paychecks, the GPO will not reduce your survivor Social Security benefit. Likewise, if your TRS pension is not based on your earnings, your survivor benefit won't be reduced.
What's more, the SSA says if your 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 aren't subject to the GPO:
- You filed for and were approved for spouse, widow or widower benefits before April 1, 2004.
- Your last day of employment 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.)
If you're affected by the GPO and want to calculate the Social Security benefit you'll receive, visit the Retirements Benefits 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
If you receive a TRS pension and a Social Security benefit, your pension may reduce your Social Security benefit. The effect of your pension on your Social Security paycheck is determined by many factors, such as whether the pension is the result of your work with the government.
- AARP: How Much Will I Get From Social Security?
- Washington Post: Thanks to Social Security, you are probably in better shape for retirement than you think
- Investopedia: Pension vs. Social Security Retirement Plans: What's the Difference?
- Social Security Administration: Your Government Pension May Affect Social Security Benefits
- National Education Association: How the little-known WEP provision hacks educators’ retirement benefits
- Social Security Intelligence.com: Teacher’s Retirement and Social Security (2021 Update)
- Social Security Administration: Windfall Elimination Provision
- Association of Texas Professional Educators: FAQs about Texas educators and 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.