If you work for an employer who doesn’t withhold Social Security taxes from your salary, such as a government agency; e.g. City of Philadelphia, any pension you get from that work can reduce your Social Security benefits. The Windfall Elimination Provision (WEP) can affect you when you earn a pension from an employer who didn’t withhold Social Security (S.S.) taxes and you qualify for S.S. or disability benefits from work in other jobs for which you did pay S.S. taxes. Depositphotos_9833686_l-2015-cropped

The Windfall Provision can apply if:

  • You reach 62 after 1985; or
  • You became disabled after 1985; and
  • You first became eligible for a monthly pension based on work where you didn’t pay S.S. taxes after 1985. This rule applies even if you’re still working.

The WEP doesn’t apply if have 30 or more years of substantial earnings( www.ssa.gov/pubs/EN-05-10045.pdf) under Social Security. If you have 21 to 29 years of substantial earnings, the factor used to reduce your S.S. benefit is reduced. At 30 years there is no reduction.

The WEP reduces your Eligibility Year (ELY) benefit amount before it is reduced or increased due to early retirement, delayed retirement credits, cost-of-living adjustments, or other factors.

There is a maximum monthly amount your benefit can be reduced because of WEP. (www.ssa.gov/retire2/wep-chart.htm)

Example: If you Eligibility Year (ELY) is 2016; i.e. you turn 66 in 2016, and you have 20 years or less of substantial earnings, the maximum monthly reduction because of WEP is $428.00. If your full S.S. benefit at 66 is $1,428.00 your ELY benefit after WEP would be $1,000.00. If you choose early retirement benefits the month you turn 62, your monthly benefit is reduced to 75%. Your age 62 benefit is $750.00 ($1,000 *75%=$750) per month. If your full retirement had not been reduced by WEP, your age 62 retirement benefit would have been $1,071. Early retirement changed the reduction for WEP from $428 to $321. If you choose delayed retirement, for example you decided to wait to age 70 to receive S.S. benefits, your ELY is still 2016. Your benefit increases 8% for each year you delay. So at 70 your monthly benefit will be 32% higher. Your age 70 benefit is $1000 * 132% = $1,320. If your full retirement benefit ($1,428) had not been reduced by WEP, your age 70 benefit would have been $1,885. Delaying retirement increased the reduction for WEP from $428 to $565.

There are many decisions to be made when you are considering retirement. How and when to collect Social Security is a very important part. If you are affected by the WEP and don’t understand it’s impact, or would like a more detailed explanation, feel free to give us a call Jim: 215-332-4968 | Kevin: 215-633-8020, or contact us directly via the form below!

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