Ask Stacy: Help! They’re Trying to Reduce My Social Security Payments!

This week’s question comes from a reader who’s afraid her golden years are about to get tarnished:

What is with the “Windfall Elimination Provision”? We have an appointment with the Social Security office in our area and they want bank statements, assets and more. Do they have the right to ask for this information? My husband is 66 and has been receiving Social Security since age 62. We needed the money to live on. Now Social Security says they overpaid him … confused. — Thanks, Joyce

Before we get to Joyce’s question, watch a recent video offering tips to maximize your Social Security. It offers good advice for those still working.

Now, here’s your answer, Joyce!

What’s the Windfall Elimination Provision?

The Windfall Elimination Provision is complicated in execution, but simple in theory: It’s supposed to prevent Social Security recipients from “double dipping” — getting a full pension from both Social Security and an employer that didn’t participate in Social Security, like a government agency or non-U.S. employer. WEP eliminates this “windfall” by reducing your Social Security payments. You can read more about it in this PDF publication.

If you worked your entire career in jobs subject to Social Security withholding, you can stop reading. WEP won’t apply to you. It also won’t apply if you were a federal worker hired after Dec. 31, 1983, or if you paid into Social Security for 30 years and had “substantial” income.

What they deem “substantial” changes yearly . You can see the amount for every year in the PDF publication mentioned above. For example, in 1955 it was $1,050. For 2013 it was $21,075.

There are other exceptions to WEP. If you think you might be subject to it, visit the link above to read them all.

If WEP does apply to you, it will reduce your monthly Social Security payments. There’s a chart on this page of the Social Security website explaining how much, but the maximum possible reduction for 2013 is $395.50 per month.

Since Joyce didn’t provide details about her husband’s former employers and earnings, I can’t say if her husband is subject to WEP. As for whether the government can request information about “bank statements, assets and more,” probably. Agencies like the IRS do it routinely.

Good luck with your upcoming appointment, Joyce. Let me know what happens.

Now let’s move on with some additional advice for those readers still working.

How to get more Social Security

We did a post a few months ago called “13 Ways to Get More Social Security.” You should read the entire article, but following are some of its most important tips:

1. Work at least 35 years

Social Security benefits are calculated based on your 35 highest-earning working years. If you work fewer years, you’ll have years with zero income averaged in – which will lower your payout.

2. Ask for a raise

If you experience a jump in salary, you’ll likely boost your future earning potential and may see an increase in your Social Security payments down the road, because, as we just explained, Social Security takes into account the 35 top-earning years of your career. Can’t get a raise? Take a second job to earn more.

3. Wait until full retirement age to claim Social Security

You can begin collecting Social Security benefits as early as age 62, but you might not want to: Your benefit will be reduced by 25 percent for life. To get your full payment, wait until you reach full retirement age – currently 66 for anyone born between 1943 and 1954. For those born between 1955 and 1959, the age gradually rises toward 67. For those born in 1960, it’s 67.

4. Better yet, wait until age 70

If you can afford to wait until age 70 to claim Social Security benefits, it’ll pay off. Thanks to what the Social Security Administration calls “delayed retirement credits,” benefits increase 8 percent each year you delay tapping into Social Security – up till age 70. So waiting until you reach 70 means about a third more income for life.

When considering this strategy, it’s particularly beneficial for the higher-earning spouse in a marriage to hold out until age 70 to increase the total benefits the couple will receive throughout their lifetime. In the event that the spouse with the higher benefit passes away, the surviving spouse will receive the higher payment.

If you took benefits early and regret the move, it might not be too late to fix it. You may be able to repay all the benefits you received so far and restart them at a higher level based on your age. But this policy isn’t as flexible as it used to be. For more details, check out this page on the SSA site.

5. Do your due diligence

Always read your Social Security statements (either received as paper statements in the mail or online at SocialSecurity.gov/MyStatement) to be sure everything has been reported correctly. Although inaccuracies are uncommon, some scenarios lend themselves to a greater chance of error – such as a name change your employer failed to update on company records.

6. Clear your debts

Your Social Security benefits are protected from most debt collections, but they can be taken to collect unpaid federal taxes, federal student loan balances, and child support or alimony. Clearing these debts will leave your Social Security benefits untouched.

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

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