smart to pay attention. It’s also your responsibility to correct mistakes. If you’re incorrectly identified on your work records or if your income is reported incorrectly, let your employer know. You can contact the SSA (see Chapter 1) to correct an error in the name on your Social Security card.
Your employer is the one who points out W-2 errors to the SSA. If your employer refuses, you should bring the matter to the attention of the Internal Revenue Service (IRS). You can contact the IRS at 800-829-1040.
THE WINDFALL ELIMINATION PROVISION: IF YOU QUALIFY FOR A PENSION AS WELL AS SOCIAL SECURITY
Have you spent part of your life working for an employer who wasn’t part of the Social Security system, and are you earning a pension from that employer? If so, you could get hit by the Windfall Elimination provision, which means that the SSA uses a different formula to compute your benefit, and your benefit is reduced. The Windfall Elimination provision is complex and has various exceptions, but be aware that it may apply if you turned 62 or became disabled after 1985 and you first qualified for a pension based on work in which you didn’t pay Social Security taxes after 1985. Importantly, this provision doesn’t apply to federal workers hired after December 31, 1983.
Although the Windfall Elimination provision may cost you, it’s capped at 50 percent of your uncovered pension. If you have an uncovered pension of $1,000 per month, the most that your Social Security benefit can be reduced by is $500, and depending on the specific facts of your situation, that amount may be a lot less.
Want to find out more? A good place to start is the Social Security website. You can find out more about the impact of a pension from uncovered work on your benefits at www.ssa.gov/pubs/10045.html.
THE GOVERNMENT PENSION OFFSET PROVISION
Say you qualify for spousal or survivor’s benefits in Social Security, but you also get a pension because of your own work in local, state, or federal government. If so, your Social Security may be reduced under the Government Pension Offset provision. The reduction is significant: It comes to two-thirds of the amount of your government pension. Suppose you have a government pension of $900 per month, and you’re eligible for a Social Security widow’s benefit of $1,200 per month. In this case, Social Security may reduce your widow’s benefit by $600 (two-thirds of $900), leaving you with a Social Security benefit of
Congress enacted the Government Pension Offset provision to make sure that Social Security benefits for government workers are reduced in a similar manner as for individuals who have worked entirely within the Social Security system. For example, if you qualify for a Social Security spousal or survivor’s benefit, but your own work record makes you eligible for an even larger benefit, you get only the benefit you’ve earned yourself. You can’t receive both your larger benefit and the smaller spousal or survivor’s benefit. In practice, several factors can preserve your full Social Security benefit, such as the following:
● Your government pension isn’t based on earnings.
● Your government pension is based on a job in which you paid Social Security taxes and you filed for Social Security benefits before April 1, 2004, or your job ended before July 1, 2004, or you paid Social Security taxes on your earnings during the last five years of government work.
● You’re a federal employee who switched from civil service retirement to the Federal Employees Retirement System (FERS) after December 31, 1987, and you filed for Social Security spousal or widow/widower benefits before April 1, 2004; your job ended before July 1, 2004; or you paid Social Security taxes on five years of earnings for government employment between January 1988 and when you become entitled to benefits.
You can find out more about the Government Pension Offset provision at www.ssa.gov/pubs/10007.html.
Covering your spouse and children with retirement benefits
Social Security benefits for spouses are part of the economic foundation of older households. Under the rules, a spouse may get up to half the full benefit given to the retired breadwinner.
A noteworthy exception is when the spouse is caring for a child who also qualifies. In this case, the spouse gets 50 percent of the breadwinner’s full payment regardless of the spouse’s age. (For a deeper exploration of spousal benefits, including issues for spouses who qualify based on their own working records, see Chapter 9.)
Here’s an example: Max has just retired at 66 and begun collecting a full retirement benefit of $1,600 per month. Olivia, his wife, who is 63, qualifies for a spousal benefit of half that amount – $800 – if she waits until her full retirement age of 66 to claim it. But that’s three years away. If Olivia collects the spousal benefit now, Social Security reduces her benefit by 25 percent, to $600. (Unlike the basic retirement benefit, which continues to increase up to age 70 if you don’t claim it at full retirement age, spousal benefits don’t grow after the spouse reaches full retirement age.)
You may also earn benefits that cover your dependent children if you die, retire, or become disabled. Suppose an older dad has a child. If the father begins to collect Social Security retirement benefits while his young child still lives at home, the child may qualify for as much as half the father’s benefit (75 percent of the benefit if the father dies).
Social Security may make no distinction among biological children, adopted children, and stepchildren. For that matter, a dependent grandchild may also qualify. (See Chapter 10 for more details on child and family benefits.)
Say Johnny is a securities lawyer married to a much younger woman. When Johnny hits 60, his 30-year-old wife, Larissa, gives birth to a daughter, Janniva. Johnny
