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.
Join AARP for just $9 per year with a 5-year membership and get a FREE Gift!
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 a February 2023 report by 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.
VIDEO: How Does Social Security Fit into Retirement Planning?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.
