If a person has 30 years or more of substantial earnings under the Social Security program, he or she will receive the full Social Security benefit, plus any public pension they are entitled to. The amount that is considered substantial earnings is increased each year. For 2013, it is $21,075. If the person has fewer years of substantial earnings, the percentage of the first $791 that is paid in benefits could be reduced to as little as 40 percent, according to the Social Security Administration.
Financial advisors need to know how the public pension systems work for various types of public employees in each state, Kisner says. For example, in some states, teachers pay into their own pension program as well as into Social Security. In other states, they only pay into their union retirement system.
The WEP affects only the worker collecting on his or her own earnings. However, a person collecting as a spouse, widow or widower of a beneficiary, who also gets a public pension, also could have his or her benefits as a dependent reduced under the Government Pension Offset rule.
The Social Security Administration will reduce the dependents’ Social Security benefits by an amount that is equal to two-thirds of the public pension. There are some limited exceptions to this rule.
“I teach a retirement planning class at a community college, so I hear about people’s benefits being reduced a lot of times,” Kisner says. “Some people are overestimating what they will receive in retirement. For some, this can be a game changer, so they need to be aware of what to expect ahead of time.”
Additional information on the WEP can be found on the Social Security Administration Web site.