By Russell Gloor, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens
Dear Rusty: I don’t understand exactly how the Windfall Elimination Provision (WEP) works for my situation. I turned 62 in 2017 and am currently still working in a “non-covered” job, not paying into Social Security, but from which I will get a government pension when I retire. I began collecting Social Security at my full retirement age in 2021 and am now collecting $1507 per month thanks to the cost of living adjustments since I started. Will my Social Security benefit be reduced by $587 if I retire this year? Signed: Confused by WEP
Dear Confused: You’re certainly not alone to be confused by WEP, and your situation is somewhat special because you started your SS benefits before taking your “non-covered” government pension. And, unfortunately, most tools and charts which suggest how much WEP will reduce your Social Security benefit don’t accommodate that nuance very well.
In your case, when you claimed Social Security at your full retirement age (FRA), you were awarded the full benefit you were entitled to, unreduced by WEP because you were not yet collecting your non-covered government pension. You were able to collect your full SS amount and receive each year’s full cost of living adjustments (COLA) to those higher amounts. What actually happens is that each person’s Primary Insurance Amount (PIA) is first determined at age 62, and Social Security applies an annually awarded COLA to their PIA (primary insurance amount), even if they’re not yet receiving benefits. You received your full PIA, including COLA, because you claimed at your full retirement age. But when you start collecting your pension from your non-covered government job, the Windfall Elimination Provision (WEP) will kick in and reduce your Social Security benefit.
The amount of WEP reduction depends on how many years you had contributed to Social Security from “substantial” earnings but, with 20 or fewer years, the maximum WEP reduction is determined by the year you turn 62 and doesn’t change. Since you turned 62 in 2017, your maximum WEP reduction, according to Social Security’s process, is $442.50 – lower than the $587 you suspect.
Nevertheless, due to the way Social Security calculates the WEP reduction, the reduction from your current amount will seem larger than the WEP maximum. And that’s because of the way Social Security applies the WEP reduction to your benefit. They start by first removing all cost-of-living increases since you were 62 from your primary insurance amount (PIA). They will then take your PIA (sans COLA) and subtract $442.50 (if you have more than 20 years of substantial SS-covered earnings they will subtract less), and then they will reapply all the cost-of-living increases since you were 62 to your WEP-reduced PIA. What just happened, in effect, is that your previous (pre-WEP) COLA increases were removed from your PIA, and those same COLA percentages were reapplied to your smaller WEP-reduced PIA, to arrive at your new monthly benefit amount under the Windfall Elimination Provision. And that new amount will be lower than your previous SS benefit amount by more than the published maximum WEP reduction for the year you turned 62.
A word of caution: Timely notification to Social Security of your non-covered pension is very important. As soon as you receive your non-covered pension award letter, deliver it to your local Social Security office and request a WEP recalculation of your SS retirement benefit. The WEP recalculation will likely take months to process, during which time you will continue to receive your higher non-WEP SS benefit. That means you will be overpaid for the period between when your non-covered pension started and the month your new WEP SS payment began, and that overpayment must be refunded to Social Security.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.
