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~Social Security & Late Retirement~

 

You may have seen in the news that the House of Representatives voted on Tuesday to repeal the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) laws.  These are two punitive laws that can dramatically reduce Social Security for retirees who receive a state pension.  This is the first time a bill like this has made it through the House.  But this bill still has to pass the Senate, and it's unclear if it will even make it to the floor for a vote.  If it does, that would be great news for many of us!

 

If the WEP and GPO aren't repealed, for those who might retire after age 67, there are some nuances in the way Social Security benefits are paid that might be worth looking into.

 

Under the WEP and GPO, Social Security payments are penalized only when one is actually receiving their state pension.  So one question is, can you just start collecting Social Security at age 62 while you're still working, but not yet receiving your state pension, thus avoiding the WEP penalty temporarily?  The answer is "yes" - but there is a catch.  

When one earns income from their job while receiving Social Security, there is a Social Security penalty if you make about $22,000 (this is adjusted each year with inflation).  So for every dollar one earns over ~$22,000, one's Social Security benefit is reduced by fifty cents.  So, if one has a small Social Security benefit to begin with (likely the case for many teachers), you can see how claiming Social Security at age 62 could end up eating away the entire Social Security payment, especially for school employees that have relatively high salaries.  For example, if one earned $82,000, their Social Security benefit would be reduced by about $30,000 (see:  https://www.usatoday.com/money/blueprint/retirement/earn-and-collect-social-security/)

 

However, once one turns 67 (full retirement age for Social Security), the income limit on receiving Social Security no longer applies.  So for school employees who are affected by the WEP and decide to work past age 67, it might be worth collecting Social Security at age 67, instead of waiting until their state pension kicks in and they are actually retired.

 

Of course, every person's situation is unique, and before employing any financial strategy like this, consult the Social Security Administration, your financial advisor, and tax professional.  I have found that calling the Social Security office in Portland (877-319-3076) to be very helpful, as opposed to calling the national number,

 

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November 15, 2024