Will My Pension Cut My Social Security Payments?

Pensions can reduce the need to boost your own retirement savings, but only if they don't hurt your Social Security. Image source: Social Security Administration.

For most Americans, Social Security is the only source of regular monthly income to help them supplement their retirement savings. But many workers are fortunate enough also to be eligible to receive pensions from past employment that can provide additional income. Unfortunately, in some cases, those separate pension payments can reduce the amount of Social Security benefits you receive -- but the rules don't make sense to everyone. Let's take a closer look at how pensions can affect your Social Security.

The private vs. public pension distinction
To figure out whether your pension will hurt your Social Security benefits, the first thing you need to know about your pension is whether you got it from a private employer or from a government or public-sector job. The answer to that key question is the biggest factor in determining whether you'll see a cut in your Social Security benefits because of your pension.

For Social Security purposes, all private employers pay taxes into the system, with workers having Social Security tax withheld from their pay and employers matching that amount with taxes of their own. Any pension program that a private employer provides comes at additional cost for the employer, and it's intended to supplement the Social Security benefits that its workers will receive. The Social Security Administration therefore doesn't factor those private pensions into benefits calculations, and the only potential adverse impact is that taxable private pensions can boost your income to high enough levels that some of your Social Security benefits might become subject to income tax.

Source: Social Security Administration.

By contrast, the rules covering government and public-sector workers aren't nearly as uniform. Some government employees do pay Social Security taxes, and those workers generally won't see their benefits reduced solely because of an additional pension. However, many state and local government entities opt to provide their own pension programs in lieu of Social Security, and their workers therefore don't pay Social Security withholding taxes. Because those workers didn't pay into the Social Security system, the Social Security Administration does take into account the pensions they receive instead, and those amounts can reduce any Social Security benefits that they'd otherwise be entitled to receive.

2 ways a pension can cut your Social Security benefits
If you get government pension payments, then your Social Security benefits are in danger in two ways. The Windfall Elimination Provision makes downward adjustments to benefits based on your own work history, affecting those who worked in non-government jobs in the past and therefore who have paid Social Security taxes into the system. The formula for the reduction is complicated, but the idea is to eliminate the preference that Social Security's benefit calculations ordinarily give workers with lower average incomes compared to those with higher average incomes. Depending on how many years you worked under Social Security, your benefits can be cut by as much as $408 per month or half of whatever you get from your government pension, whichever is less. Those who worked 30 or more years paying Social Security taxes, though, are exempt from the provision.

Source: Social Security Administration.

In addition, if you receive spousal or survivors benefits from Social Security, government pensions can eat into those benefits as well. The Government Pension Offset provision generally reduces your Social Security payment by two-thirds of whatever you receive from your pension. With no maximum, some people see their entire Social Security payment disappear as a result of the Government Pension Offset. Certain exemptions apply for pensions that aren't based on earnings or for those who paid into Social Security for at least the last five years of their government service.

Most workers don't have to worry about pension income cutting into their Social Security payments. But if you've worked for a government employer, it's worth taking a closer look to make sure you won't face any unpleasant surprises when you decide to retire.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2014, at 10:13 AM, BERFAL wrote:

    What about survivors benefits? My wife passed away and my social security survivors benefit was reduced by two thirds just because I'm getting a government pension. It's just not right.

  • Report this Comment On August 29, 2014, at 10:21 AM, 1badanimal wrote:

    I seem to have the reverse problem. My government employer is going to reduce my pension payment once I start collecting social security payments. My employers theory is if my pension payment is lets say $1000 a month once I start receiving a SS payment of lets say $400 a month they are going to reduce my pension payment to $600 so I am back to receiving a $1000 a month total that doesnt seem correct.

  • Report this Comment On August 29, 2014, at 12:34 PM, greyhound44 wrote:

    I simply cannot believe how dumb the idiots in the USA are!!!!

    retired expatiate

  • Report this Comment On August 30, 2014, at 10:08 AM, bkmobal wrote:

    Worked 40 quarters under SS and 37 years under CSRS took $400.00 a month cut in SS. Nestor vs Fleming SS can be changed at any time.

  • Report this Comment On September 02, 2014, at 8:48 AM, Mathman6577 wrote:

    The other side of the coin is that pension payments from private employers can be reduced (called the "offset") by SS payments.

  • Report this Comment On September 02, 2014, at 12:56 PM, SkepikI wrote:

    <It's just not right.>

    <Nestor vs Fleming SS can be changed at any time.>

    Rule #1 Golden Rule...he who has the gold.....

    Rule #2 Vote for crooks who reward scammers and crooks, the lazy and incompetent...deplete the fund sending $ to those who didn't contribute much.... All of us deserve what we get (maybe little to nothing?)

  • Report this Comment On September 04, 2014, at 1:11 PM, danrlh wrote:

    If EVERYBODY paid SS tax on ALL of their income, these SS benefit reductions would not be necessary.

    The SS benefit reductions are intended to make SS MORE fair - although, if they are YOUR benefits that are being reduced, you may think that it is not fair.

    Because not everybody pays SS tax and because of the complicated SS benefit formula, the complicated benefit reduction formulas are required to make SS a little less unfair.

    Maybe the reduction formulas are not right, but eliminating the reduction would be UNFAIR to those who paid SS tax on ALL of their income.

    $400 per month reduction does not sound all that bad. For some people, it should probably be more than that to make it "fair".

    If you (are prepared to do a lot of math and) compare someone with 10 years of SS covered employment and 30 years of government employment with no SS tax versus someone with 40 years of employment covered by SS, you will see that some reduction of benefits is FAIR - assuming that the person who paid SS tax for 40 years should get 4X the SS benefits of the person that paid SS tax for 10 years.

    I just did some quick calculations using the "Social Security Quick Calculator" on the web site. Based on my input and the numbers the Calculator produced, the maximum WEP for 2012 SHOULD be at least $395 - but the maximum shown in the table for 2012 is only $383.50. That is pretty close.

  • Report this Comment On September 04, 2014, at 1:36 PM, danrlh wrote:

    Again, using the Social Security Quick Calculator (SSQC), I came up with a maximum WEP reduction of at least $404 vs. the $383.50 in the table.

    Method: I entered $80,000 income for the person born on 6/15/1950 - the date pre-entered in the SSQC; the result was $1938 at FRA. Then, I went back and entered $20,000 - trying to simulate someone make $80,000 for 8.75 years (1/4 of 35 years; the result at FRA was $828.

    Now: 8.75 years / 40 years = 0.21875

    so, the person working 8.75 years should get

    $1938 x .021875 = 423.94

    This is more than $404 less that the $828 calculated by the SSQC.

  • Report this Comment On September 05, 2014, at 3:15 PM, Zinj wrote:

    The social security arithmetic doesn't work. Without getting into all the hurt feelings around the world "deserve", the simple math is that there are far fewer people paying into the system than pulling benefits out of the system.

    It was NEVER an account, to be saved. It has never held any identity as "your money" since it was first yanked out of your paycheck. From inception, Social Security has been a transfer payment from working people to retired people. Which is great...but you cannot legislate away arithmetic.

    One problem is that Social Security eligibility was granted at a particular age (intially 65, but there are now modifications and carve-outs to that). But as lifespans extend, so do the number of years lived in "retirement", which is a 20th century invention (and a great one, but far from the "natural order" of things some people assume). We did not use actuarial tables so that we would have an automatically shifting benefits age, as we should have.

    We can be as generous or miserly as we like, but if we had set Old Age benefits to kick in at the year the median member of a particular age group had, say, a projected 15 more years of life, then the system would automatically accomodate lengthening (and shortening, if that comes to pass) lifespans. But we didn't. We drew a line at 65 and have fretted about it ever since.

    But our problem is not just longer lifespans. That's a GREAT problem -- millions of people are far from "elderly" at age 65. Our other issue is that the Baby Boomers decided not to have as many kids as the WWII generation. That's probably good for the planet but it makes the math of a transfer-payment based Old Age fund really difficult.

    So we COULD tax workers more, with the implicit knowledge that they're getting a bum deal and will never see the kind of $$-out to $$-in ratio that their parents and grandparents did. That's one possibility. Another possibility is to continue to adjust outward the qualification age. Still another (and this seems to be what Washington is mostly using) is to tinker with the calculations of inflation so that benefits don't grow very fast. Seniors know they're getting screwed but because it's somewhat conceptually tricky to explain, it's harder to rally against it.

    Personally, I think the Baby Boomers should bear the brunt of any changes to keep the plan solvent. Americans born before 1945 can hardly be expected to give more than they already have and, let's face it, the Boomers have been the "me me me" generation since before they could vote.

    Numerically small and politically impotent Generation X can expect very minimal or even no benefits in their mid 60s. The system will have collapsed by then, but I also think that by the time the X-ers get into their 70s and 80s, something new will have replaced it, funded by the larger generations which follow the Gen-Xers. My prediction is that the Boomers will break Social Security rather than fix it.

    But all this pales in comparison to the MASSIVE fraud, waste, theft and abuse of the Medicare system. We're getting bled dry on bogus claims that aren't investigated by the Feds. You can go to jail for years for robbing $20 from a convenience store, but stealing $20 million from Medicare won't even get the Feds attention. It's disgraceful.

  • Report this Comment On September 05, 2014, at 3:16 PM, Zinj wrote:

    wanted to edit that first line to say "far fewer paying into the system per beneficiary than used to be the case. USed to be 5:1, now is less than 3:1.

  • Report this Comment On September 06, 2014, at 4:54 PM, crca99 wrote:

    I have advanced degree, presumably can comprehend, went to Social Security website, and didn't find any of this stuff. The calculator didn't ask for external pensions and had no place to volunteer one. I will trust you and believe that my government job that pays into SS will result in the pension they have promised.

    May I add that my Baby Boomer group was the social justice generation. Our walls were hung with posters of free speech, make love not war, end the military industrial complex, smile on your brother, love one another right now, be part of the solution, not part of the problem, save the planet.

  • Report this Comment On May 27, 2015, at 12:56 AM, cheated wrote:

    Why are my CSRS benefits reduced by $1385 each month???

  • Report this Comment On August 21, 2015, at 9:00 AM, mannpan wrote:

    I worked for the government for 27 social security was paid. The government shut down and had to take an early retirement, had the yrs to do this, but got penalized for my age. I have been working for the State for 20 yrs. paying social security into the system, I will be receiving a state pension when I retire. I will be turning 65 soon and got an estimate what I would get, would my government pension hurt me, of what I would get for SS, They estimated $1100.00!

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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