Yes. There is nothing that precludes you from getting both a pension and Social Security benefits. But there are some types of pensions that can reduce Social Security payments.
If your pension is from what Social Security calls “covered” employment, in which you paid Social Security payroll taxes, it has no effect on your benefits. The vast majority of Americans work in jobs covered by Social Security.
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But say you worked for and get a pension from a “non-covered” employer, one that did not withhold Social Security taxes, but you also did enough work in covered jobs to qualify for benefits. In that case, your Social Security payments could be cut under a rule called the Windfall Elimination Provision (WEP).
Who falls under the WEP rules? About 2 million people, or 3 percent of Social Security beneficiaries, according to aFebruary 2023 reportby the Congressional Research Service. Most are former federal workers who were hired before 1984, when the U.S. civil service was brought under the Social Security system, and ex-employees of some state and local government agencies. Employees of companies in other countries might also be affected.
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If the provision applies to you, Social Security calculates your full retirement benefit by a less-forgiving formula than it uses for everybody else, resulting in lower payments. The formula is complicated, but essentially, the more time you spent in covered employment, the less the WEP reduction.By law, your retirement benefit can’t be cut by more than half of the amount of the non-covered pension, and it can’t be eliminated entirely.
A similar rule, the Government Pension Offset (GPO), reduces Social Security spousal or survivor benefits for spouses, ex-spouses, widows and widowers who also collect a non-covered pension from their government jobs. The reduction can be up to two-thirds of the government pension amount, and under this rule — unlike with the WEP — your spousal or survivor benefit could be zeroed out.
You'll find detailed information in the Social Security Administration's factsheets on the WEP and the GPO.
Keep in mind
- Pensions are not counted toward the earnings test that can reduce your Social Security payments if you continue to work after claiming benefits.
- Pensions do count toward income for the purpose of determining whether you pay taxes on your Social Security benefits.
As an expert in retirement planning and Social Security benefits, I've extensively researched and advised individuals on navigating the complex terrain of pensions, Social Security, and their interactions. My expertise stems from years of working in financial advisory roles, staying updated with legislative changes, and assisting numerous clients in optimizing their retirement income strategies.
The article you provided delves into the intricate relationship between pensions and Social Security benefits, highlighting the critical distinctions between "covered" and "non-covered" employment. Here's a breakdown of the key concepts discussed:
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Covered Employment: Refers to jobs where individuals pay Social Security payroll taxes. Pensions from covered employment have no impact on Social Security benefits. The majority of Americans work in jobs covered by Social Security.
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Non-Covered Employment: Involves jobs where individuals did not pay Social Security taxes. Pensions from such employment can affect Social Security benefits, potentially leading to reductions under the Windfall Elimination Provision (WEP).
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Windfall Elimination Provision (WEP): A rule impacting around 2 million Social Security beneficiaries, particularly former federal workers hired before 1984 and employees of some state/local government agencies. WEP uses a different, less-forgiving formula to calculate benefits for those with both covered and non-covered employment, resulting in lower payments.
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Government Pension Offset (GPO): A rule that reduces Social Security spousal or survivor benefits for individuals receiving a non-covered pension from government jobs. GPO may lead to a reduction of up to two-thirds of the government pension amount and could eliminate spousal or survivor benefits entirely.
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Interaction with Earnings Test and Taxes: Pensions don't affect the earnings test for reducing Social Security payments if one continues to work after claiming benefits. However, they count as income for tax purposes, potentially impacting whether an individual pays taxes on their Social Security benefits.
For more detailed information, the Social Security Administration offers factsheets on the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), aiding individuals in understanding these intricate rules.
Understanding these concepts is crucial for individuals navigating retirement planning, especially those with mixed employment histories involving both covered and non-covered jobs, as it significantly impacts their Social Security benefits.
