I am often asked by Feds if their Social Security benefits will ever be reduced because of their federal pensions. The answer to this question is dependent upon several factors, and inquiries such as this might lead to similar questions that are being asked by the spouses of federal employees… will their benefits ever be affected?
The only folks who need to be concerned about their federal pensions having a negative impact on their Social Security benefits are those who retire with a CSRS component in their pension. This includes CSRS, CSRS Offset, and FERS Transfer retirees. A FERS Transfer retiree is someone who has at least 5 years or more of federal service in the computation of their pension that falls under CSRS rules. If you do not have a CSRS component to your pension and your retirement is based only on FERS coverage, then you would not be concerned here.
Windfall Elimination Provision
The Windfall Elimination Provision (WEP) could affect (reduce) the Social Security benefit that a worker has earned for him/herself once they are in receipt of a pension that is based on service where they did not pay Social Security taxes. We’re assuming here that the worker has enough credits under Social Security to be eligible for his/her own benefit (i.e. based upon employment before and after their federal careers, military, temporary appointments with the federal govt., CSRS Offset and/or service after transferring to FERS).
Example: Retiree eligible for $800.50/month from Social Security but his/her benefit is being reduced by $383.50/month due to the WEP… leaving him/her with a $417/month benefit.
Since the WEP could reduce the federal retiree’s Social Security benefit, then this means that the WEP could also reduce the Social Security spousal benefit for the person married to the retiree (if the spouse intended to collect a Social Security benefit based on the retiree’s Social Security work record). But keep in mind that the WEP would not affect the Social Security benefit that a working spouse may have earned for him/herself based on his/her own work record (as long as he/she is not a CSRS, CSRS Offset, or FERS Transfer retiree).
Example: Using the scenario above, the spouse of the federal retiree could be entitled to as much as 50% of the worker’s benefit when the retiree begins to collect Social Security, but it would only be 50% of the reduced $417/month benefit… i.e. $208.50/month for the spouse. Keep in mind, however, the WEP would not reduce a Social Security widow/widower benefit if the retiree predeceased his/her spouse. In this situation, the surviving spouse could be entitled to as much as 100% of the benefit… $800.50/month (even if they are collecting a full CSRS survivor benefit).
Once you retire, if you have less than 21 years of substantial earned income from which you paid Social Security taxes, then the WEP will have the most impact on your Social Security benefit. But many CSRS Offset and FERS Transfer retirees will eventually have 21 or more years of substantial earnings and might reduce the impact of the WEP. Once you have 30 years of substantial earnings, the WEP is eliminated from affecting your Social Security record.
Government Pension Offset
Now what if the federal employee never obtains enough credits to be eligible for Social Security under his/her own work record? This is usually not the case for someone under CSRS Offset or a FERS Transferee, but it can be common for someone under CSRS. Can the CSRS retiree collect a benefit from Social Security based on his/her spouse’s work record?
YES… they can… but it would be affected by the Government Pension Offset (GPO). The GPO reduces a Social Security spousal benefit that a CSRS retiree might be entitled to by 2/3 of his/her CSRS pension. In most cases, the GPO typically reduces this benefit to $0. NOTE: CSRS Offset retirees with 5+ years of Offset service and FERS Transfer retirees with 5+ years of FERS service are exempt from the GPO.
Example: CSRS retiree receiving $6,000/month (CSRS pension)… spouse of CSRS retiree receiving $2000/month from Social Security based on his/her own work record… the CSRS retiree is eligible for as much as $1000/month based on his/her spouse’s Social Security, but the GPO would reduce that benefit to $0 since that amount is less than 2/3 of $6,000/month. Even if the spouse predeceased the CSRS retiree, the GPO would reduce the $2000/month widow/widower benefit from Social Security to $0 because it is still less than 2/3 of the CSRS retiree’s pension. All this CSRS retiree would get from Social Security based on his/her spouse’s work record would be the “one-time lump-sum death payment” of $255.
What if I continue federal service beyond my mid-60s?
The examples above were all given in scenarios for someone who has retired from the federal government. But what if you are still working as a federal employee and don’t expect to separate for retirement for another few years? Good news… you are not subject to the WEP or the GPO until you retire.
Using the examples above, the employee who is still working could apply for his/her full $800.50/month from Social Security based on his/her own work record and the WEP will not reduce the benefit until the employee retires. While the employee is collecting this, his/her spouse could be collecting $400.25/month off the same record.
Using the other example above where the employee doesn’t have enough credits to qualify but is married to someone who is collecting Social Security, the employee could collect the full $1000/month spousal benefit… and if his/her spouse has already passed away, the employee could collect the full $2000/month widow/widower benefit. The GPO would not affect these benefits until the employee separates for retirement.
But don’t be so quick to get excited if you are still working and younger than your Social Security Full Retirement Age (FRA). There is still an “earnings test” that reduces any Social Security benefit you try to collect when you are younger than your FRA. But several federal employees continue working beyond their mid-60s for multiple reasons. If you plan to continue working as a federal employee beyond your FRA, then you may want to consider collecting what you can while you can if those benefits will later be affected by the WEP or the GPO!
For more information regarding the GPO, click here.
To find out what your FRA is, click here.