Quick question about the Windfall Elimination Provision

[whyme]

I will be subject to WEP, as I will have a teacher's pension in California, plus enough years to minimally qualify for Social Security benefits based on other employment.

According to the Social Security website, the maximum amount of WEP benefit reduction is $587/month. My question is whether that is the true maximum, or the maximum at full retirement age, which would actually grow to a larger number if claiming SS at age 70. Thanks.

[Caliscotsman]

Ahemm 'Elimination'

[whyme]

Ahemm 'Elimination'

Fixed the typo, thanks.

[grabiner]

The reduction is to your Primary Insurance Amount (PIA), which would be your normal monthly benefit if you retire at FRA. Normally, your PIA includes 90% of your Average Indexed Monthly Earnings below the first bend point, and the WEP reduces it to 40% if you have 20 or fewer years of substantial earnings. The first bend point is at $1174, so the WEP reduces that to $587.

If you claim early or late, the WEP effect is multiplied by the same factor as the rest of your benefit. If your FRA is 67 and you claim at 70, you get an extra 24% of the benefit you would have had at 67, so you lose an extra 24% of the WEP every month (but for three fewer years).

Reference: https://www.ssa.gov/policy/docs/program ... ision.html

[FiveK]

Coincidentally, Added Windfall Elimination Provision (WEP) calculations was a point in the latest release of that tool (aka the Personal finance toolbox).

If you give that a try, does it help with your question?

[whyme]

If you claim early or late, the WEP effect is multiplied by the same factor as the rest of your benefit. If your FRA is 67 and you claim at 70, you get an extra 24% of the benefit you would have had at 67, so you lose an extra 24% of the WEP every month (but for three fewer years).

Thank you very much for the reply, but I remain a bit confused. Here's the question I'm trying to answer. This should be simple, but perhaps it isn't. I get a statement from Social Security giving me an estimate of my benefit at age 70. Let's say that's $1700/month. Social security says the maximum it could be reduced by the WEP is $587. So, 1700 - 587 = $1113. Is that a good estimate of my benefit at 70, or do I need to multiply 587 x 1.24? (I'm a little older, so to be precise it would be based on a "full" age of 66 and some months, but you get the idea.)

If I may editorialize: this WEP is very badly implemented. People plan based on that Social Security statement. I suspect that very few of the affected people know how to calculate this and I'm sure that many don't understand it at all until they have retired and get a shock.

[FiveK]

Yes, the maximum PIA reduction is currently $587 but if your Full Retirement Age (FRA) is <67 your reduction will be less because your bend point #1 will be less. For example, if born in 1958 your BP#1 is $960 so the maximum reduction is $480.

But that's the reduction in PIA: the amount you would receive if you start benefits at your FRA, calculated when you first became eligible at age 62. So yes, the maximum reduction at age 70 would be larger, by (assuming a 1958 b'day) the product of the COLA adjustments since you first became eligible (1.203) and the 1.267 multiple for deferring until age 70. 1.203 * 1.267 * $480 = $732.

So instead of a $1700/mo benefit it would be $968/mo at age 70.

At least, that's how I understand it and how the "toolbox" mentioned previously calculates it. Do you know that you have 20 or fewer years of "WEP substantial earnings"?

[grabiner]

If you claim early or late, the WEP effect is multiplied by the same factor as the rest of your benefit. If your FRA is 67 and you claim at 70, you get an extra 24% of the benefit you would have had at 67, so you lose an extra 24% of the WEP every month (but for three fewer years).

Thank you very much for the reply, but I remain a bit confused. Here's the question I'm trying to answer. This should be simple, but perhaps it isn't. I get a statement from Social Security giving me an estimate of my benefit at age 70. Let's say that's $1700/month. Social security says the maximum it could be reduced by the WEP is $587. So, 1700 - 587 = $1113. Is that a good estimate of my benefit at 70, or do I need to multiply 587 x 1.24? (I'm a little older, so to be precise it would be based on a "full" age of 66 and some months, but you get the idea.)

You multiply the $587 reduction by 1.24.

If I may editorialize: this WEP is very badly implemented. People plan based on that Social Security statement. I suspect that very few of the affected people know how to calculate this and I'm sure that many don't understand it at all until they have retired and get a shock.

The online statement now says, "You have wages not covered by Social Security, which may reduce your benefit if you receive a pension based on those wages." However, it does not show the amount of the reduction, nor give good information on how to determine whether the reduction applies. (For example, the WEP is limited to half the value of your pension; if you took your pension benefits as a lump sum before starting SS, you might not realize that you have to convert that to an annuity to determine the WEP effect.)

[whyme]

Thank you, FiveK and grabiner. That's my answer (with fingers crossed the WEP will be repealed). I'm not certain how many qualifying years I have in the SS system, but I don't think it exceeds 20. Really disappointed in the Social Security information: they state over and over that the maximum reduction is $587, with no indication that it can be more than that under any circumstance.