Why Is My Pension Killing My Social Security Benefit?

Welcome to our “Social Security Q&A” series. You ask a question about Social Security, and a guest expert answers it.

You can learn how to ask a question of your own below. And if you would like a personalized report detailing your optimal Social Security claiming strategy, click here. Check it out: It could result in receiving thousands of dollars more in benefits over your lifetime!

Today’s question comes from Darren:

“I have a government pension, and I am also supposed to receive Social Security. I have learned that I may not get all my benefits from Social Security because I have a pension.

I’m wondering how I can get all the money plus interest that I put into Social Security. I am very angry about the fact that I may not get the money that I put into the system. How can I request that the money I put in be given back to me with interest?”

Preventing a Social Security ‘windfall’

Darren, you raise some interesting points. Let’s take up the last point first.

Simply put, you cannot get your money back by requesting a refund. Once it is paid into the Social Security system, the only way to recover your contribution is by qualifying for Social Security benefits and living long enough so that your lifetime benefits at least equal your contributions to the system.

You want your money back from Social Security because you have learned that your government pension may reduce your Social Security benefits. Your concern may be unfounded. The government pension must come from employment where no Social Security taxes were paid. Many governments provide a pension and also pay into the Social Security system (along with their employees). In this instance, your Social Security benefits would not be reduced.

Let’s assume that your eligibility for Social Security benefits arises from other employment where you did pay into Social Security taxes. In this case, you are likely to be affected by the Windfall Elimination Provision (WEP). The size of the WEP penalty depends on several factors, as indicated here.

The maximum WEP penalty applies to those with 20 or fewer years of employment covered by Social Security. Here is how the penalty works: Your Social Security benefit is reduced by about 56%, up to a maximum reduction of $463 a month in 2019. (2020 figures have not yet been posted.) An additional proviso is that the penalty cannot reduce your government pension by more than half.

To illustrate, suppose your government pension is $800 a month. Your tentative Social Security benefit is $1,000 a month, based on fewer than 20 years of covered employment. The 56% penalty would reduce your benefit by $560. That amount would be reduced to $463, the penalty cap mentioned above. Finally, the penalty would again be reduced, since one-half the government pension is $400. So, the final penalty in this instance would be $400 a month.

Many people who are affected by the WEP feel that the penalty is unfair. However, the WEP was designed to improve fairness in the Social Security benefit structure. That structure is relatively more generous to lower-benefit persons than to higher-income, higher-benefit persons.

Accordingly, without the WEP, a person with a handsome government pension (from noncovered employment) and more than 40 quarters of covered employment could mimic a true lower-benefit person and enjoy a “windfall” gain from Social Security. WEP helps to correct for this potential source of unfairness.

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About me

I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years.

In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.