Provisions That Impact Your Retirement

There are some few letters that might impact your pension plan. The letters GPO and WEP could have big impacts on your pension and what your receive from the  Social Security.

If you’re scratching your head in confusion, you aren’t alone. The Social Security’s rules are complex and difficult to understand.

GPO stands for Government Pension Offset, and WEP stands for Windfall Elimination Provision. These are two provisions that are important to know. Especially if you have worked in a government job that did not require you to pay taxes toward Social Security.

Let’s first review how Social Security works and Provisions That Impact Your Retirement.

Social Security: The Basics

Social Security – a government-sponsored retirement program – works by calculating your 35 highest-earning years, during which you paid into the Social Security system. Once you’ve reached a designated “full retirement age,” Social Security provides you a lifetime monthly income.

By now you know the spiel: the longer you wait to collect your benefits, the better. This is because your benefits will grown by an average of 8{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} annually. The average age for collecting these benefits is 66 (if you were born between 1943 and 1954) and 67 (if you were born after 1960). It is important to note that, while your benefits increase with every year you delay collecting them. They stop increasing once you reach 70 years of age.

Your children, spouse and even ex-spouse may also be able to receive benefits under you, if they meet certain qualifications.

What is the GPO?

Now that we’ve reviewed the basics of how Social Security works, let’s talk about the Government Pension Offset provision. This provision has been around since 1977 and can decrease the benefits of your spouse or surviving spouse.

Here’s how it works: If you received a retirement account from federal, state or local government and you were not required by your job to pay Social Security taxes. Then benefits your spouse or surviving spouse may be eligible to receive will be reduced.

This reduction may also impact the benefits you receive if you are applying for Social Security on your spouse’s record.

The biggest question on everyone’s mind is: how much will this GPO provision impact my benefits? It turns out, quite a bit. The pension offset provision will reduce your Social Security benefit by 66{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} – or ⅔ – or your government pension.

If you are worried about this provision impacting your retirement, you might want to consider foregoing spousal benefit collection. You should also make sure that your retirement benefits are enough to carry you through your post-working years.

The good news is this doesn’t impact all of you Social Security options: your spouse should consider collecting his-or-her own benefits at full retirement age. This way, you will still have a Social Security option to add to your retirement income.

What is the WEP?

The Windfall Elimination Provision is designed to decrease your Social Security benefit if you are able to receive a pension through local, state or federal government entities.

Under this provision, the amount of money you are eligible to receive through Social Security is decreased before cost-of-living or delayed retirement credits are calculated.

If you are a government worker making lower wages, this decrease is problematic. Widows and widowers of government employees will most likely receive no impact by any of this provisions. Unless, they are government employees.

This provision exists because the Social Security system is designed to be progressive. This means that lower-wage workers get a higher percentage of pre-retirement earnings than those who earn more money. This amount to roughly 25{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of earnings for high-wage workers and 55{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of pre-retirement earnings for those who earn less.

So, if you work in a job where pensions aren’t covered by Social Security, your benefits won’t be calculated in the same way as they are for lower-earning workers. Under this provision, the maximum reduction is determined by the age your are able to collect benefits and the number of years during which you have contributed to Social Security.

If You Are Impacted by GPO or WEP…

One important thing to note, in case there is an impact due to one of the provisions above. Is that you should seek the help of a financial adviser. There are several options available to you to turbo-charge your retirement savings and to ensure that these benefit cuts won’t leave you high and dry in your later years.

One of the biggest ways you can circumvent any losses, is to work into your retirement years. This allows you to continue earning a steady income, to continue to save for the day when you can no longer work and may even keep you healthier.

The bottom line is that you should not rely solely on your Social Security benefits to supplement your retirement income. Always have a solid savings plan in place and should be revising it frequently to ensure you’re on track.