I work for the government and have a pension plan that I will be vested in after five years. Currently, I am almost at 3 years of service. The idea of receiving a pension for many years in retirement is an exciting one, and I almost see it as banking some of the extra income I would be making right now if I worked in private industry. But while researching for the article on Social Security Benefits, something caught my eye on my Social Security Estimated Benefits Statement: Government Pension Offset (GPO) and Windfall Elimination Provision (WEP). Red flag!
It turns out that if you receive a pension from a government job, you might have your social security benefits reduced. It all hinges on whether or not social security taxes were paid on the pension money that you will be receiving. I know that we pay social security taxes on our income at our agency, but I am was not sure whether or not the money that goes into the pension is taxed for social security.
The Windfall Elimination Provision uses a modified calculation to calculate your Social Security Benefit if you receive a pension from work where Social Security taxes were not taken out of your pay. This could include work for federal, state, or local government, as well as non-profits and employers in other countries. For federal employment, this affects you when any part of a person’s federal service after 1956 is covered under the Civil Service Retirement System (CSRS), but not those who are covered under the Federal Employees’ Retirement System (social security taxes are withheld).
The Government Pension Offset (GPO) affects spouses and widows/widowers of people who qualify for a pension and social security benefits through their spouse who worked for a place that did not withhold social security taxes. In this case, the SSA states that “your Social Security benefits will be reduced by two-thirds of your government pension.” This is the same if you choose a monthly payment or a lump sum payment.
How this Affects Me
As stated in my article earlier this week, I am not banking on Social Security Income (SSI) to fund my retirement. Still, I wanted to find out whether or not any SSI I received would be reduced because of the pension I will receive (if/when I become vested, which occurs at 5 years). After completing research, it turns out that our pension funds come from money that has been taxed for Social Security, so any Social Security benefits that I will receive in 2045 will not be affected by my pension received, and vice versa.