If you’re planning your retirement around a combination of income from Social Security benefits and a pension from your job, you aren’t alone. This is a common plan, and for most people it is a pretty solid one. In some cases, however, your pension can affect your Social Security benefits. You should know if this exception might apply to you, and plan accordingly so that you have enough income in retirement.
In most cases, individuals who earn a pension also spent many years paying into Social Security taxes. These people will not usually see their Social Security benefits affected by their pension plans. However, in 1983 Congress passed a law called the Windfall Elimination Provision (WEP), to address some unfairness in the Social Security system. In some instances, workers who were not required to pay into Social Security taxes were receiving a pension along with Social Security benefits.
If your pension comes from a foreign employer, an non-profit organization, or a local, state, or federal government job, the WEP rule might apply to you. In this case your pension has been based on earnings that were not subject to Social Security taxes, and you may not be entitled to full benefits. You may still be eligible for Social Security based on wages from other jobs, but the amount of your benefit could be reduced.
The reduction of your benefits will be dependent upon the year in which you turn 62, along with the number of years you paid Social Security taxes. WEP law does not allow the reduction to be more than half of your pension amount. WEP does not apply to survivor benefits.
Most people don’t have to worry about the WEP rule. If you suspect it may apply to you, be sure to plan for retirement accordingly. Talk to your financial planner to be sure you will have enough income to retire comfortably. The last thing you want to do is count on a Social Security check that turns out to be much smaller than you had expected.