If you’re a teacher nearing retirement, there are some crucial factors you need to understand about your future benefits, especially if you’ve worked in a state where teachers do not pay into Social Security.
Two federal regulations, the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), can drastically impact your Social Security benefits, so you need to be aware of how they work. This post breaks down what these provisions mean, who is impacted, and what you need to consider as you approach retirement.
What Are the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?
Windfall Elimination Provision (WEP): WEP affects Social Security benefits for those who earned a pension from a job that didn’t pay into Social Security (like public school teachers in some states) but also earned Social Security credits from other jobs. WEP adjusts the formula used to calculate your Social Security benefit, reducing the amount you’ll receive.
Government Pension Offset (GPO): GPO, on the other hand, reduces Social Security benefits based on your spouse’s earnings. Specifically, if you receive a pension from a government job where you didn’t pay Social Security taxes, GPO can reduce or eliminate the spousal and survivor benefits you would otherwise be eligible for through your spouse’s Social Security record.
Who is Impacted by WEP and GPO?
Both provisions mainly impact public sector employees, like teachers, firefighters, and police officers, in states where these workers do not contribute to Social Security. This includes 15 states, such as:
California
Texas
Illinois
Ohio
Missouri
Massachusetts
If you’ve worked in a non-Social Security state, you need to understand that both WEP and GPO could significantly reduce any Social Security benefits you might be eligible for.
Example 1: The Impact of WEP on a Teacher’s Social Security Benefits
Let’s say you're a teacher in California. Throughout your teaching career, you contributed to CalSTRS, so you didn’t pay into Social Security through your teaching job. However, before you became a teacher, you worked in various roles for 15 years and accumulated enough credits to qualify for Social Security.
Normally, Social Security benefits are calculated based on your 35 highest-earning years, but because you’re receiving a pension from your non-Social Security teaching job, WEP will reduce your Social Security benefit. If you have 20 or fewer years of substantial earnings, you can expect to receive 40% of your eligible benefits.
Example: Since you worked for 15 years before becoming a teacher, let's say you are eligible to receive $1000 per month in Social Security benefits. But because you are receiving a state-sponsored pension through CalSTRS, your benefit will be reduced because of WEP by up to $587 per month (this is the maximum reduction for 2024).
This reduction can be substantial and may catch you off guard if you are planning to rely on Social Security as a secondary income source in retirement.
Example 2: The Impact of GPO on Spousal Benefits
Now, imagine you’re a Missouri teacher nearing retirement. Your spouse worked in a private sector job and will receive Social Security benefits. As a spouse, you would normally be eligible to receive up to 50% of your spouse’s Social Security benefit during retirement. But if you are also receiving a public pension from a non-Social Security job, GPO will reduce your spousal benefits. This also applies to the survivor benefit if your spouse were to pass away before you!
The offset is calculated by reducing your spousal/survivor benefit by two-thirds of your public pension. So, if your monthly pension is $3,000 per month, your spousal benefit would be reduced by $2,000. If your spousal benefit is less than $2,000, you will receive no benefit at all.
Key Considerations for Teachers Nearing Retirement
It’s essential to understand how WEP and GPO could affect your retirement planning. Here are some crucial considerations:
Understand Your Pension Plan: If you’re working in a state that doesn’t contribute to Social Security, make sure you understand your state’s pension plan, how it’s calculated, and how it interacts with Social Security. This knowledge is essential for setting realistic retirement expectations.
Estimate Your Social Security Benefits: Use the Social Security Administration’s online WEP and GPO calculators to estimate how these provisions may affect your benefits. This can help you better plan for how much income you’ll receive from Social Security, or if you’ll receive any at all.
Maximize Your Pension Benefits: Because WEP and GPO can reduce or eliminate Social Security benefits, it’s more important than ever to maximize the benefits from your state’s pension plan. Consider factors like increasing your years of service or making catch-up contributions to any available retirement savings plans.
Consider Other Income Sources: With the potential reduction in Social Security benefits, teachers should consider additional sources of retirement income. Options may include personal savings, IRAs, 403(b) plans, or other investments to ensure financial stability in retirement.
Review Spousal Benefits: If your spouse paid into Social Security, be aware that GPO could reduce or eliminate spousal or survivor benefits. This is particularly important for couples where one partner is depending on the other’s Social Security for retirement income. Talk to a financial planner about your options for maximizing benefits under these circumstances.
Stay Informed About Legislative Changes: WEP and GPO have been the focus of debate and proposed legislation over the years. While changes to these provisions haven’t passed into law yet, it’s worth staying informed about any potential reforms that could affect your retirement benefits.
Final Thoughts: Don’t Let WEP and GPO Catch You Off Guard
For teachers in non-Social Security states, the Windfall Elimination Provision and Government Pension Offset can have significant consequences on retirement planning. Without understanding how these provisions work, many teachers may find themselves unprepared for the financial reality they’ll face in retirement.
As you near retirement, it’s crucial to have a clear picture of how your pension and any potential Social Security benefits will interact. By understanding the rules, estimating your benefits, and planning for alternative income sources, you can secure a more stable and comfortable retirement.
David Gourley, CSLP® is the Founder and lead Financial Planner at K-12 Planning, an independent financial planning firm specializing in finance for teachers. He served for eight years as a high school mathematics teacher before transitioning into the financial services industry. He started K-12 Planning in 2024 and his passion for serving as a fiduciary for teachers and a student loan planning expert runs deep, as his wife and several other family members have served as educators for years.
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