Social Security and collecting a government pension
Points to know
- The windfall elimination provision (WEP) may reduce your benefits if you receive a pension from a government entity or another organization that didn't withhold Social Security taxes from your paychecks.
- If you worked in a job in which you didn't pay Social Security taxes and later claim on your spouse's or former spouse's earnings record, the government pension offset (GPO) may reduce your spousal benefits.
Did you work for an employer that didn't collect Social Security taxes?
You're entitled to Social Security retirement benefits if you paid Social Security taxes for 10 years. But not all employers withhold Social Security taxes.
Did you know?
When you check your paycheck deductions, you probably won't see a line for "Social Security taxes."
Instead, you may see a deduction for "OASDI," which is short for "Old Age, Survivors, and Disability Insurance." That's Social Security.
You may also see a separate deduction for Medicare. Social Security and Medicare together make up your FICA (Federal Insurance Contributions Act) deductions.
Some local and state government agencies, public schools, and companies located outside of the United States, for example, may not withhold Social Security taxes and may offer their employees a pension plan instead.
If you work or have worked for an employer that offers a pension plan instead of withholding Social Security taxes (called a noncovered pension), you should be aware of 2 provisions that could reduce Social Security payments.
Government and state employees (including employees of some school districts) are eligible for a noncovered pension for which Social Security taxes weren't withheld or paid on earnings.
An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.
Windfall elimination provision
If, in the course of your career, you worked for both (1) at least one employer that did withhold Social Security taxes and (2) at least one employer that didn't withhold Social Security taxes and that offers a pension, the windfall elimination provision (WEP) may come into play.
The WEP may apply if you receive both a pension and Social Security benefits. In that case, the WEP can reduce your Social Security payments by up to 50% of your pension amount. This reduction is known as the WEP PIA.
The Social Security Administration (SSA) publishes a chart that shows the maximum amount (in dollars, rather than percentages) that your Social Security benefits would be reduced based on the number of years you paid Social Security taxes.
The rules are complicated, so check with the SSA if you have questions.
Windfall elimination provision (WEP)
A provision that may reduce Social Security benefits based on your earning history if you're eligible to receive a pension based on pay from work not covered by Social Security.
The adjustment made to the primary insurance amount (PIA) because of the windfall elimination provision (WEP).
Government pension offset
The government pension offset (GPO) is like the WEP, but instead of reducing the worker's benefits, the GPO reduces the benefits for a spouse or former spouse who claims spousal benefits based on a spouse's or former spouse's earnings record.
That is, if you worked in jobs for which no Social Security taxes were withheld and then claim benefits on your spouse's or former spouse's record, you may receive reduced Social Security benefits—or none at all.
The SSA website offers a calculator to help you estimate a spouse's or former spouse's monthly benefits. As with the WEP, the formula for calculating GPO is complicated, so it's best to check with the SSA.
Government pension offset (GPO)
A provision that reduces and may eliminate the amount of spousal and survivors benefits paid to someone who's eligible for a pension from work not covered by Social Security taxes.
Benefits paid to the spouse of an eligible worker. You generally must be at least age 62 to claim spousal benefits.
The history of your earnings for the years you worked.
Exceptions to the WEP & GPO
The WEP and GPO may not apply in some cases, meaning that some workers who receive pensions can also receive their full Social Security benefits. The rules are complicated, and we'll provide a few general exceptions here, including how you may be able to avoid the GPO by paying Social Security taxes near the end of your career. Get in touch with the SSA or a financial advisor if you have questions.
30 years of paying Social Security taxes
The WEP won't reduce your Social Security benefits if you worked for 30 years in jobs in which you paid Social Security taxes.
Federal or railroad employment
The WEP doesn't apply if you were hired by the federal government after December 31, 1983, or if the only pension you receive is the result of working for a railroad.
Avoiding the GPO: The 60-month exception for government employees
If you're a retired government employee who receives Social Security retirement benefits as a spouse or former spouse, you can avoid the GPO reduction.
How? By working for at least the last 60 months of your career in a job in which you pay Social Security taxes.
Take the case of Julie. For most of her career, she worked as a public school teacher. Because the school district offered her a pension at retirement, Social Security taxes were never withheld from Julie's pay.
Her husband, Bruce, works in the private sector and has paid Social Security taxes for the duration of his career. When they retire, both will claim Social Security benefits on Bruce's earnings record.
To avoid the GPO reduction to her spousal benefits, Julie retires early from her teaching position and takes a job at a tutoring center. She works in that position for 5½ years, and Social Security taxes are regularly withheld from her pay.
The tutoring position is the last job Julie holds. Because she spent her last working 60 months paying Social Security taxes, the GPO won't reduce her spousal benefits.
Reservists or ministers
The WEP doesn't apply to military reservists who receive a reservist pension or to ministers who receive a pension for their ministry.
See how it works: Avoiding the GPO: The 60-month exception for government employees
A Vanguard advisor can help
If you're struggling with making your best Social Security decision, we can help. You'll also get a custom financial plan, ongoing portfolio management, investment coaching, and real-time goal tracking—all at a low cost.
All investing is subject to risk, including the possible loss of the money you invest.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.
The services provided to clients who elect to receive ongoing advice will vary based upon the amount of assets in a portfolio. Please review the Form CRS and Vanguard Personal Advisor Services Brochure for important details about the service, including its asset-based service levels and fee breakpoints.