Quirky laws could reduce your retirement benefits

Social Security is a question mark. 

Will it be there when you need and expect it? Maybe not.

And I’m not saying that in the context of the financial strength of the program. Instead, I’m thinking about a couple of key Social Security laws that could take a bite out of your benefits: the Windfall Elimination Provision and Government Pension Offset.

A couple of months ago I used this space to discuss Social Security earnings statements. The topic generated a lot more feedback than I expected. Most of the questions I received weren’t about the statement itself, but instead touched on those two rules. 

Let’s take a closer look:

• Windfall Elimination Provision This rule affects the Social Security retirement and disability benefits of people who receive pensions from work for which they didn’t pay Social Security taxes. Federal workers under the old Civil Service Retirement System and workers in some public school systems are prime examples. In these cases, the Social Security Administration could modify your benefit calculation, resulting in a smaller payout. You can read the details of how it’s done on the Social Security website, www.ssa.gov. On the positive side, if you have 30 years of what are called substantial earnings, the rule won’t affect your Social Security. If you’ve got at least 20, the impact is lessened.
• Government Pension Offset This rule also targets recipients of non-covered pensions, but it affects benefits you might receive based on your spouse’s earnings record. It reduces or eliminates the benefits you receive as a spouse, widow or widower – cutting them by two-thirds of the amount of your non-covered pension. For example, a $1,000 pension from a job in which you didn’t pay into Social Security would reduce any benefits you receive as a spouse by $667. This could be a game changer if your survivor income plan relies heavily on Social Security benefits that might not be available.

If you or your spouse might be affected by these quirky rules, it pays to know and plan for it. Visit www.ssa.gov for more information. 

After all, you don’t want a question mark hanging over your retirement plan. 

J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.