By Russell Gloor, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens
Ask Rusty – Will my WEP Reduction Go Away if I Continue Working?
Dear Rusty: I’m 63 years old and have not yet started my Social Security. I now work for the State of Illinois and will draw a pension from that state’s university system. I don’t pay into Social Security from this position and, as a result, my Social Security payment will be reduced. But I have also worked elsewhere and contributed to Social Security for 26 years.
If I retire from the state university and begin drawing my reduced Social Security payment, and then work in a different job which does contribute to SS, will the reduction to my Social Security payment ever be eliminated? Or will I be permanently stuck with the smaller Social Security payment? Signed: Curious Educator
Dear Curious: A rule called the Windfall Elimination Provision (WEP) will apply to your Social Security benefit because your IL state pension was earned without paying into the Social Security program. The basic rule is that anyone with a pension earned without contributing to Social Security, and who is also entitled to Social Security benefits, is subject to WEP, which reduces that person’s Social Security retirement benefit. It’s a law enacted many years ago to equalize how SS benefits are paid to all Social Security beneficiaries. However, the WEP rules also provide relief for those who have only a small non-covered pension, and for those who have separately contributed to Social Security for a lot of years. For example:
• The WEP reduction to your SS benefit cannot be more than 50% of your non-covered (IL) pension
• The WEP reduction is smaller for each year over 20 years contributing to Social Security from substantial earnings
• WEP does not apply to those who have at least 30 years contributing to SS from substantial earnings
Although you could retire at 63 and collect your pension from the university and also collect your WEP-reduced Social Security, you have something else to consider if you take another job which pays into Social Security.
Social Security has an annual “earnings test” for those who collect benefits before their full retirement age (FRA). The earnings test limits how much you can earn while collecting early SS before they take away some of your benefits. The earnings limit for 2024 is $22,320 and, if that is exceeded, you will lose $1 in benefits for every $2 you are over the limit. If your work earnings substantially exceed the earnings limit, you would likely be temporarily ineligible to receive Social Security benefits. FYI, the earnings test no longer applies once you reach your full retirement age, which for you is 67.
Without knowing your expected income from a new job, I can’t say how much of your SS you would be able to receive, but you can use this as a guide: Social Security will take away benefits equal to half of what you exceed the annual earnings limit by, and they typically recover by withholding future benefits. If 12 months or more of benefits are withheld, you will be temporarily ineligible to receive benefits until your earnings are less, or you reach your full retirement age (the earnings test no longer applies once you reach your FRA). So, depending on your expected annual work earnings, you may wish to defer claiming your Social Security until you either earn less or reach 67 years of age.
If you already have 26 years contributing to Social Security from “substantial earnings,” your WEP reduction will already be mitigated, and any additional years of substantial earnings from which SS payroll taxes are deducted will result in an even smaller WEP reduction. If you can achieve 30 years of SS contributions from substantial work earnings, WEP will no longer apply. So, you may not be “stuck with” the WEP reduction permanently, but you will need to contact Social Security to request that your WEP reduction amount be reviewed in light of any additional years of SS-covered earnings (this should be done after you submit your income taxes each year you have additional SS-covered earnings).
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.
