Q & A
My WEP reduction is so much…should I just take spousal benefits instead?
Complete Question: I was a government employee for most of my career, but I also paid into Social Security. As you probably know, this means that I am affected by WEP, which reduces my Social Security benefits. I don’t agree with this, but it is what it is. Anyway, my reduction due to WEP is so severe, that I’m thinking I should just get a spousal benefit instead. My wife wasn’t a government employee so she’s not affected by WEP and she has a fairly large Social Security benefit. So I realized that my spousal benefit is higher than my own benefit, even though it’s cut in half. Am I allowed to change my benefit and switch to a spousal benefit?
Answer: Unfortunately, it is not that simple. Even though your wife was not a government employee and therefore, not affected by the Windfall Elimination Provision (WEP), you will still be affected if you elect spousal benefits. This is called the Government Pension Offset (GPO). GPO is specifically intended for situations similar to this. It reduces spouse’s and survivor’s benefits of government employees.
Social Security benefits already have many rules when it comes to electing spousal benefits. To give you just one example, if you are younger than full retirement age and your own benefit is larger than the spousal benefit, you cannot choose to receive just the spousal benefit. When you add in the complications of a government pension, the rules become even more complicated. So before we can even address whether or not you can switch your benefit type, we need to look at how your government pension affects your benefits.
WEP will reduce your Social Security benefit payment if you have a government pension. However, it does come with a guarantee for people who have a “relatively” low pension amount: the reduction in your Social Security benefit payment cannot be more than half of your pension. For example, if your Social Security benefit is $1,000 and your pension benefit is $400, the maximum your Social Security benefit can be reduced by is $200. In other words, you would be guaranteed at least $800 ($1,000 – $200) regardless of the WEP calculation.
GPO, on the other hand, does not have any guarantees. While WEP calculations can be quite complicated, you can count on that guarantee. The GPO calculation for spousal benefits are much simpler – your Social Security benefit is reduced by 2/3 of your government pension. So if you have a government pension of $750 and a spousal Social Security benefit of $500, your Social Security benefit will be reduced by $500 (2/3 of $750). Notice that this means your Social Security spousal benefit disappears completely ($500 – $500 = $0). This isn’t always the case, but it can happen. You could also end up with a very small Social Security benefit. For example, let’s say that your government pension is $600 instead of $750. Then your Social Security would be reduced by $400 (2/3 of $600), leaving you with a $100 spousal monthly benefit amount ($500 – $400 = $100).
So to answer your question, take GPO into consideration. If the reduction calculation for GPO is not worth it, especially since there is no guarantee, then you will have your answer.