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Social Security: How the Government Can Snatch Your Benefits

Flickr / odolphie.

Last week, I covered a rather esoteric part of the Social Security Act called the Windfall Elimination Provision, which could affect anyone who has worked in both the public and private sector. For baby boomers approaching retirement, knowing how this law can affect benefits can avert a rather nasty surprise later on.

The WEP isn't the end of the public-private employment issue, however. Another provision, the Government Pension Offset, can easily gobble up most of your Social Security spousal or survivor benefits – even if your spouse paid into that trust fund his or her entire work life.

How it works
If you thought the WEP was complicated, the GPO is even more convoluted. Probably, this is due to the fact that it covers both spousal and survivor benefits, whereas the WEP covers workers only. And, while the WEP has a handful of exceptions to the rule, the GPO has an absolute basketful.

First, let's take a look at the basic concept of the GPO, which is similar to the WEP: it prevents employees who have primarily worked outside of the Social Security system from collecting full Social Security benefits. In this case, the employees in question are not the workers, but the spouses of those workers.

How much is the offset? It is quite hefty, reducing by two-thirds the benefit amount a spouse or widow/widower might otherwise expect. For instance, let's say that you want to tap into your spouse's $1200 monthly Social Security payment, half of which you would be entitled to if you did not have a pension. Because you collect a pension of $900 per month, however, you must subtract $600, or two-thirds of your monthly pension total, from the amount due you.

Can you guess what will happen? Right – you will get nothing, because the amount subtracted is greater than – or, in this case, exactly – the amount you would otherwise collect. If your pension was $600 per month, you would be entitled to a $200 spousal benefit ($600 minus $400).

Surviving spouses run into the same problem. In that case, however, the law can be particularly punitive, due to the additional loss of the deceased spouse's benefit. Normally, if the surviving spouse had never worked, he or she would receive 100% of the deceased spouse's Social Security benefit. With a pension in the picture, however, the two-thirds rule kicks in.

The Social Security Administration notes that, even in the case of a surviving spouse who also qualified for Social Security, the survivor's benefit would not be paid if the surviving spouse's monthly check was the same or larger than the widow or widower's monthly benefit. In an effort to be fair to all, Congress amended the GPO in 1983, deciding to consider two-thirds of an outside pension the same way as an earned Social Security benefit.

In fact, before the GPO was enacted in 1977, the SSA would have had to pay full survivor's benefits to the deceased's spouse in addition to a private pension. The law was meant to supply income only to dependent spouses who would have no other means of income once the breadwinner died, not to add to the survivor's own benefit level. 

Exceptions? Oh, yes
There are many exceptions to the GPO, including being eligible to draw your pension before 1983 – while, at the same time, you were already receiving one-half of your spouse's benefit. 

A whole slew of exceptions revolve around a loophole that existed in the GPO language before 2004, when Congress finally took action to close it. Thousands took the opportunity to exempt their benefits from the law by working, on the very last day of their government careers, in a position covered by Social Security. The new language changed the "one day" rule to 60 months. An excellent explanation and history of these varied exceptions can be found in this recent Congressional Research Service report, which is definitely worth more than a cursory read.

Though your family will not escape the provisions of the GPO if it applies, knowing ahead of time that benefit levels will be affected will be invaluable to boomers as they plan for retirement – and beyond.

Another government rule that affects your retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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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 July 20, 2014, at 2:12 PM, franksalot wrote:

    My wife, before she married me had a pension from Austria. She worked here in America for 17 years paying into the SS system. When she went to apply for early SS retirement she was informed her SS benefits would be affected by WEP because of her foreign pension...and this divestated her.

    Then I came into the picture and heard how they had cut her SS benefits in half to where she only received a little over $200 a month.

    We got married and now she gets nearly three times what she was getting in SS benefits through my work record.

    A SS representative told my wife, when she went to apply for spousal benefits, that the GPO would be in effect and her spousal benefits would be drastically cut.

    I had read the law concerning the GPO and asked this SS rep. if foreign pensions were affected by the GPO and this rep had the audacity to tell me yes.

    Today my wife gets three times what SS stole from her in regards to the wep law because foreign pensions do not cause the GPO effect...only federal, state and local pensions do.

  • Report this Comment On July 20, 2014, at 7:05 PM, msnega wrote:

    I will be retired Oct 31 of this year with a Gov. pension. I will be 65, I will wait one more year for "full" benefits from SS. I worked part time most of the time I worked for the Gov. I am only entitled to 813, which will be cut about one half because of the WEP. They have a max they can cut it's somewhere around $400. It's not a lot but it will pay the utilities. The government always wins. It doesn't affect you if you have 30yrs of substantial earnings. Some of mine are, some aren't.

  • Report this Comment On July 20, 2014, at 7:27 PM, TheAncient wrote:

    Our beloved Congress knows how to make cuts unfortunately for We, the People it is the working classes who suffer the cuts, get the shaft while the elite and corporations reap the benefits. However, this is We, the People's fault entirely for voting in year in and year out the same kinds of creatures who do this to the people they are supposed to represent. They, Congress, will continue to screw over the American people because they know we aren't intelligent enough, have enough courage to make the necessary leadership changes.

  • Report this Comment On July 20, 2014, at 9:39 PM, columbusboy8 wrote:

    Just wait until all the illegals go on social security without ever paying in one red cent! Wake up, America!

  • Report this Comment On July 20, 2014, at 11:22 PM, sandyshoes wrote:

    Yes, I know all about that. I'm 83, widowed, and worked in hospitals for 20 years a long time ago when salaries were low, and for the US Govt. for six. That was enough to cut my SS by a third.(I get $640 a month now) If I'd known that would happen, I would not have taken that second career with the Foreign Service, where I worked very hard. The pension I get for the 6 years - into which I paid 4% of my salary and had SS taken out, too - is so small it barely covers my cable bill. It hardly matters. And from that is also taken my medical insurance. but i'm lucky to have one of the insurance plans sponsored by the govt.

    My husband was career civil service, an aerospace engineer for 30 years, CSRS, no SS. When those under CS retirement plan were offered entry into Social Security (and their money used to beef up the system), he paid several thousand dollars to buy in.But his SS was less than mine because of way fewer years under SS. and the "double-dipping" penalty, Of course, I didn't get that when he passed away, because mine was larger.

    It has always annoyed me that stay-at-home wives of working husbands are entitled to their own and their husband's social security. I raised children, too, ran a household and worked, plus went to college all at one time, and they're getting more than $1000 a month in most cases. They can also take half of his while he's still alive, before they take what they're "entitled" to! So wrong!


  • Report this Comment On November 07, 2014, at 5:55 PM, chercat wrote:

    Can someone help explain this to me ? I recently applied for SS benfits .I worked for the state of MA for almost 17 years and left age 35 and took the money in a lump sum . I never realized the WEP would affect me because I did not draw a pension check , But I was informed otherwise by the SS reop . I am stymied by their formulas but it says that they cannot take more than half your pension if it is a small one and the max they can take is $408 for my age and year of attaining age 62 .

    Is anyone else in this boat - how do they calculate my lump sum benefit which was only $14,000 in 1987 .

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