Will Receiving a Pension Cut Into My Social Security?

You might have heard that you'll lose part of your Social Security retirement or disability benefits (SSDI) if you receive an employee pension. And it's true for certain types of pensions.

Fortunately, if you worked only for private employers and paid Social Security taxes (FICA) at each job, you'll get to keep your full pension and full Social Security benefits. You'll only see a reduction in Social Security if you worked in the private sector and for the government or another employer who didn't pay Social Security taxes.

Here's how to know whether you'll lose benefits because of your pension and how the benefit reduction works.

Which Pension Types Affect Social Security Benefits?

The 1983 Windfall Elimination Provision (WEP) requires the Social Security Administration (SSA) to reduce your benefits if you have a pension from any employer that didn't withhold FICA taxes or pay into the Social Security system, such as:

• the U.S. government's civil service
• a state or local government, or
• a foreign employer.

If your pension comes from a job where you paid FICA taxes or self-employment taxes, the WEP won't change your Social Security benefits.

Why Does My Pension Affect My Social Security Benefits?

Social Security calculates benefits so that low-wage workers receive a higher percentage of their lifetime earnings than high-wage workers. High-wage earners still get more benefits, but it's a smaller portion of the wages they received when working.

Your Social Security disability or retirement benefits are based on your average monthly earnings over your lifetime (35 years). The SSA determines your benefit by dividing your average monthly earnings into three "bend points" (which change every year based on average wages). The agency then multiplies each bend point by a percentage (90%, 32%, and 15%) and then adds up the amounts to get your primary insurance amount (PIA). Your PIA is the amount of benefits you're entitled to receive. (Learn more about how Social Security determines how much your benefits will be.)

For someone who becomes eligible for benefits in 2024, the bend point calculations would be:

• 90% of the first $1,174
• 32% of earnings between $1,174 and $7,078, and
• 15% of earnings over $7,078.

Before the WEP, this resulted in people with full-time government jobs and relatively little private sector work receiving higher Social Security benefits because they were calculated as if they were long-term low-wage workers. So they could get a full government pension and Social Security benefits equal to 90% of their private sector earnings.

In 1983, the WEP changed that by requiring Social Security benefits to be offset based on pension amounts.

How Much Will the WEP Offset Reduce My Social Security Benefits?

The formula used to calculate how big a bite will be taken out of your Social Security benefit due to the WEP is complicated. Basically, Social Security reduces the 90% multiple for the first bend point based in part on when you reached age 62 or became disabled. If it was in 1990 or later, the 90% factor could be reduced to as little as 40%.

If you have a very small government pension, however, Social Security won't reduce your retirement or disability benefits by more than half the amount of your pension.

You can estimate how much your Social Security benefits will be reduced by your pension under WEP rules using the online calculator at SSA.gov.

Is There a Pension Offset for Spousal Benefits?

Under a separate law, the Government Pension Offset (GPO) rule, your government pension will reduce any spouses, widows, or widowers benefits you can receive from Social Security. The GPO reduces Social Security spousal or survivor benefits by two-thirds of the amount of your pension. But there's no reduction to your Social Security benefits if the government pension you're getting isn't based on your own earnings (for instance, if you inherited it from your late spouse).

For more information, see Social Security's brochure on the Government Pension Offset.

Exceptions: When the WEP Offset Doesn't Apply

The WEP rules don't apply if your only government work was under the Federal Employees' Retirement System (FERS) or a similar program where you paid Social Security taxes on your income. But the WEP offset applies to any pension you earned as an employee of the federal government after 1956 under the Civil Service Retirement System (CSRS).

You also won't have a WEP reduction of your Social Security benefits in the following situations:

• You were first hired as a federal worker after December 31, 1983.
• You're an employee of a non-profit organization that was exempt from Social Security coverage on December 31, 1983 (in most cases).
• Your only pension is for railroad employment.
• The only work you did without paying Social Security taxes was before 1957.

The WEP offset rules also change if you worked for a number of years at jobs paying Social Security taxes.

If You Paid Social Security Taxes for 30 Years or More

Social Security won't reduce your retirement benefits if you have 30 or more years of "substantial earnings" on which you paid Social Security taxes. The agency will continue to use the 90% factor in its monthly benefit formula.

What qualifies as substantial earnings changes each year, but for 2024, it's $31,275. (See the table below.)

If You Paid Social Security Taxes for 20-30 Years

If you have 20 or fewer years of substantial earnings, you'll still get hit by the offset, and the 90% factor will be reduced to 40% in determining your monthly benefit.

The good news is that if you have 21 years of substantial earnings or more (but fewer than 30), your benefits will still be reduced, but the percentage used to calculate your monthly benefit is reduced progressively. So, at 30 years or more, the percentage is 90%, but it drops 5% for each year less than 30, as follows:

One more bit of good news: if your Social Security benefits are reduced due to WEP (or GPO), the offset won't affect your eligibility for Medicare. You can still get Medicare based on your spouse's work record, even if your pension makes you ineligible to receive any Social Security benefits.

For more information, see Social Security's brochure on the Windfall Elimination Provision.

_{Updated March 22, 2024}