Unearned Income & Social Security

If you plan to retire and consider Social Security retirement income as a major factor in your retirement portfolio, you should examine what influence other income sources will have on your benefit check. Generally, the Social Security Administration only counts earned income when figuring any reduction in benefits. Reductions based on wages earned occur if you access your benefits and continue working or return to work before full retirement age.


The SSA considers pensions as unearned income. As such, if you draw a pension from work where you paid Social Security taxes, the agency will not reduce your benefit amount. If you draw a pension from a government source where you did not contribute to Social Security, the SSA deems this pension income as a noncovered-employment pension, which may adversely affect your Social Security benefit amount.

Windfall Elimination Provision

Under the Windfall Elimination Provision, Social Security recipients who receive a pension from employment where no Social Security taxes were withheld, generally government-based employment, receive a reduced benefit amount based on a modified benefit formula. WEP also affects members of your family if the family members also receive a pension based on their own earnings from noncovered employment. The formula updates periodically based on new benefit amounts and benefit increases. With the WEP formula, Social Security benefits are never totally eliminated.

Government Pension Offset

The Government Pension Offset affects a spouse or surviving spouse’s Social Security benefits based on the amount paid in retirement that stemmed from a government pension from noncovered employment. The SSA reduces benefits by two-thirds of the pension amount. Therefore, a substantial government pension can erase any Social Security benefit.

Other Sources of Income

The SSA does not count IRA withdrawals, annuities or investment income against your retirement benefit. In addition, income from investments, interest earned or income received as a result of a capital gain does not reduce your Social Security retirement check. Your benefit check will not reduce if you receive government benefits other than those received from noncovered employment.