Retiring With a Pension and Social Security: Let’s Help Figure It Out

Having enough funds for a secure retirement is important. While there are various methods to save for your post-working years, the primary ones are Social Security and pensions. Both of these systems work in different ways, with pensions mainly being workplace plans and Social Security being federally funded.

What about retiring with a pension and Social Security at the same time? This is a possible scenario, provided that you are eligible and take the necessary steps during your working years. Here, you can find out whether you can get both pension and Social Security, what factors will affect your Social Security benefits, and what actions you can take now.

Can You Collect a Pension and Social Security at the Same Time?

So, can you get a pension and Social Security at the same time? The answer is yes, you can have both, but several factors can affect the exact sum you earn.

The first thing you need to get any Social Security payouts is to work for a number of years and earn sufficient income to obtain the required 40 credits.

The next thing to take into account is what kind of pension you have—covered or non-covered.

With the covered pension, you will get all your Social Security benefits in full. This happens thanks to the fact that Social Security taxes are withheld from wages with a covered pension.

Another option is a non-covered pension. In this case, Social Security taxes are not withheld from wages, and your potential benefits may be reduced. Typically, this may be your situation if your employer is non-US or a local and state government.

In both cases, you can get both a government pension and Social Security in your retirement, but those with non-covered pensions will be subject to specific reductions.

How Much Does Pension Affect Social Security?

Now that you have the answer to “Can you collect a pension and social security simultaneously?” let’s focus on more details.

As was mentioned, those with covered pensions don’t have to worry about any Social Security reductions, as they don’t apply to them. If this is not your case, you may ask, “How much will my social security be reduced if I have a pension that is non-covered?”

Here’s how it works: if you have a non-covered pension and under 30 years of sufficient covered earnings (those on which Social Security tax was paid), you are subject to the so-called WEP (windfall elimination provision). This reduction formula does not affect survivors’ benefits, but your disability and retirement benefits will be decreased.

Retirement benefits you get with Social Security are calculated using three percentages applied to three portions of your AIME (average indexed monthly earnings). The goal of this calculation is to get your exact primary insurance amount or PIA.

For instance, if you have a covered pension and your AIME is $9,000, your PIA will be calculated using predetermined percentages. 90% will be taken from your first $1,174 (resulting in $1,056.60). 32% will be taken from your next earnings from $1,174 to $7,078 (resulting in $1889,29). Finally, 15% will be taken from the amount of $7,078 (resulting in $288,30). In this way, your PIA will be $1,056.60 + $1889.29+ $288,30 = $3234,19.

Those with non-covered pensions will get a reduction from the first 90% to up to 40% if they paid Social Security tax for 20 years or under. Here are the reductions for different numbers of years.

Pension vs. Social Security For Spouses and Widows

Do you get Social Security if you have a pension? This is a complex question, and the situation becomes even more complicated when we talk about widows or spouses.

For example, suppose you have less than 40 Social Security credits, but you have a spouse. In that case, it’s possible under specific circumstances to qualify for half the amount your husband or wife is eligible for when they retire.

Another example is that you may have 40 credits, yet your benefit is lower compared to the spousal one. In this case, you may receive an additional sum that will even out the difference in your retirement benefits.

There are also special conditions for widowers, as they may receive a survivor’s benefit if they meet the requirements. If a widower reaches full retirement age, they may even receive a Social Security benefit that will fully match their spouse’s benefit. Those who decide to take the benefit earlier will receive a smaller sum.

Social Security and Pensions: Minimize The Impact Of The WEP And GPO

As we discussed above, the WEP reduces the Social Security benefits of people who have not paid into Social Security for a specific number of years. Here are some strategies you can use to minimize the impact.

Make sure you are aware of the WEP to have an exact pension plan

One of the first things you should do is find out exactly how much the WEP will affect your benefits. A lot of people are not aware of this provision until it’s too late to make serious changes. There are plenty of calculators online for this purpose.

Choose jobs that pay into Social Security

Those who have worked jobs for 30 years or more and pay into Social Security don’t suffer from the WEP formula application. If you are serious about your future benefits, you may want to consider a full-time or a part-time job that pays into Social Security.

Don’t claim your Social Security benefit too early

When you delay claiming your Social Security, it increases by a specific percentage every month after you reach your full retirement age. You can use this opportunity to get better payouts, even though this won’t have any effect on the WEP.

The Government pension offset (GPO) is used to adjust the survivor’s or spousal benefit for people with non-covered pensions. To reduce the impact of the GPO, you can use the following strategies.

Take advantage of the 60-month rule

The GPO can be completely avoided with the help of the 60-month rule. The way it works is that you have to pay taxes on your income during the last 60 months that you work a governmental job.

Lessen the GPO by opting for covered work

Similarly to the WEP, the impact of the GPO can also be mitigated by working a job that pays into Social Security. By doing this, you will earn credits over time, and, thus, the GPO won’t take away all your benefits.

Think about alternative retirement plans

In some cases, choosing a private pension plan or making contributions to an IRA account is the only solution to secure the future. If you know that the GPO will hurt your retirement prospects, this is the way to go.

Final Thought

Retiring with both a pension and Social Security is possible for a large percentage of people. At the same time, the answer to “Will my social security be reduced if I have a pension?” is not a simple one. Two of the main provisions, the GPO and the WEP, can significantly affect the potential Social Security benefits for people with non-covered pensions, so it’s something to keep in mind. If you prepare for retirement early enough and are aware of your specific situation, you can mitigate the impact and have the desired retirement.