- Filing Retroactively - Read More → . . . . .
- If Social Security Projects a Reduced Payout in 2035, Should I Claim Early? - Read More → . . . . .
- Should I Appeal a Skipped Benefit Check? - Read More → . . . . .
- Claiming Spousal Benefits - Read More → . . . . .
- Child-in-Care Spousal Benefits - Read More → . . . . .
- Can You Minimize the Impact of GPO? - Read More → . . . . .
- Transitioning from Disability to Full Retirement Age - Read More → . . . . .
- Should I File Retroactively? - Read More → . . . . .
- How Remarrying Affects Survivor Benefits - Read More → . . . . .
- Filing a Restricted Application - Read More → . . . . .
I recently received an interesting question regarding how WEP effects Benefits:
“Twelve years ago, at age 50, I became a State of Ohio employee and have not paid into Social Security since then. Before that, I had 27 years of substantial earnings through 2007. Since I turn 62 in 2019, if I went back into employment covered by Social Security, could I pick up three more years of ‘substantial earnings’ to lower the effect of the WEP on my Social Security benefit? Your recent podcast on the PIA calculation led me to believe the answer to the question is ‘no’.”
Some WEP Basics
For context, certain employers (mostly government) can opt out of the Social Security system as long as they replace it with an approved alternative retirement plan as a non-Social Security pension. However, those same employees can also accumulate Social Security retirement benefits by participating in another job where they pay into Social Security.
Having retirement benefits coming from the two systems can trigger the Windfall Elimination Provision (WEP). Here’s why: when Social Security calculates retirement benefits, the formula is weighted to help lower wage earners more than higher wage earners. Someone who did not work their entire career within the Social Security system will benefit by appearing to have been a lower wage earner but will be receiving another pension from elsewhere.
WEP is a reduction designed to keep you from receiving benefits higher than you deserve. In 2019, the WEP reduction is $463 per month, even if you work just one day in a non-Social Security job. However, if your Social Security benefits are low, you are somewhat protected by the promise not to reduce those benefits by more than half of the pension you are receiving from your non-Social Security job.
‘Credits’ for Social Security Earnings
How WEP effects benefits is The WEP offset can also be reduced through credits for the number of years of ‘substantial earnings’ you have in the Social Security system. (In 2019, substantial earnings are defined as $24,675, a number that adjusts with inflation.)
If you have less than 20 years of credits, you will be fully impacted by WEP’s $463 per month in 2019. However, WEP phases out by equal amounts per year between 20 and 30 years. And at 30 or more years of credits, WEP goes away completely, even if you do have one of the non-covered pensions.
Fortunately, Social Security does not ignore your earnings after it defines the basis for your benefits at age 62, or your PIA. It reassesses the situation each January to make any appropriate adjustments. So, if you do not have 30 years of such credits at 62, but you work and earn substantial earnings in a Social Security environment, you can still bring yourself to 30 years, where WEP is entirely eliminated.
How This Applies to Benefits
Besides your State of Ohio employment, you also accumulated Social Security retirement benefits by participating in another job where you paid into Social Security for 27 years. Those years put you well on your way to avoiding WEP. In fact, the remaining monthly WEP offset is just $138.90.
Depending on your other circumstances, $138.90 per month may be important to you. If so, and if you can find a job that pays the substantial earnings minimum ($24,675 or more in 2019, with future increases for inflation), yes, you can still get to that magical 30-year mark. Then you will not be affected by WEP in any way, despite the Ohio State pension.
Just be sure to check how much time you are going to spend, if it is a job you want to do and if it is really going to make that much of a difference.
The other podcast (on PIA calculation) may have led you to believe your situation was determined permanently at age 62, with no chance to change the WEP offset. Now you know the calculation is adjusted annually to reflect additional earnings, and you can completely eliminate the WEP offset.
- Benefit Calculation (17)
- Family Benefits (6)
- Featured Posts (251)
- Retirement Benefits (32)
- Special Rules (18)
- Spousal Benefits (45)
- Strategies (19)
- Survivor Benefits (13)
- Uncategorized (5)
If you enjoy our blog, you’ll love our radio show! The Retirement and IRA Show, hosted by Jim Saulnier and Chris Stein, is an informative, educational and entertaining radio program focused on retirement topics. Listen live every Saturday morning at 8am on 1310 KFKA in Greeley Colorado; or listen at your leisure to our past shows by clicking the radio show icon! You can also find The Retirement and IRA Show on iTunes.
Jim Saulnier and Associates are Northern Colorado’s Retirement Planning Guides. We help blaze the trail to the retirement you’ve worked for and are here to help you with your Social Security and retirement planning needs.
Jim Saulnier and Associates | 970-530-0556 | 506 East Mulberry Street, Fort Collins, Colorado 80524
© 2018 Jim Saulnier, LLC. All rights reserved.
Ed Slott Advisor recognition requires an advisor to be well versed on the rules and regulations regarding IRAs.
The advisor must attend two live training sessions and pass two written exams annually to remain in the program.
Jim Saulnier, Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC to residents of: CO, IA, IN, MA, NY, TN, TX, WI and WY. No offers may be made to or accepted from any resident outside the specific states mentioned. Jim Saulnier, Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Financial Planning services offered through Jim Saulnier and Associates, LLC., a Registered Investment Advisor. Cambridge and Jim Saulnier & Associates, LLC are not affiliated.