How a pension can reduce your Social Security benefits | Vanguard (2024)

FAQs

How a pension can reduce your Social Security benefits | Vanguard? ›

The WEP may apply if you receive both a pension and Social Security benefits. In that case, the WEP can reduce your Social Security payments by up to 50% of your pension amount.

Your Social Security benefit might be reduced if you get a pension from an employer who wasn't required to withhold Social Security taxes. This reduction is called the “Windfall Elimination Provision” (WEP). It most commonly affects government work or work in other countries.

Your CalPERS retirement benefit can affect your Social Security benefit. And your Social Security potentially can affect both the amount of your monthly pension contributions before retirement and the amount of benefits you receive after retirement. Did you know that 33% of our retirees do not receive Social Security?

How much will my Social Security benefits be reduced? We'll reduce your Social Security benefits by two- thirds of your government pension. For example, if you get a monthly civil service pension of $3,000, two-thirds of that, or $2,000, must be deducted from your Social Security benefits.

The windfall elimination provision reduces the first of those percentages. How much the SSA reduces it depends on how many years you paid Social Security taxes. The most it can fall is from 90% to as low as 40% if you spent fewer than 20 years in jobs on which you paid Social Security taxes.

When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net profit if you're self-employed. We include bonuses, commissions, and vacation pay.

You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

We reduce your benefits if you start early by about 0.5 percentage points on average for each month you start receiving benefits before your full retirement age. For example, if your full retirement age is 67, and you sign up for Social Security when you're 62, you would only get about 70% of your full benefit.

Taxes on Pension Income

You may owe federal income tax at your regular rate as you receive the money from pension annuities and periodic pension payments. But if you take a direct lump-sum payout from your pension instead, you must pay the total tax due when you file your return for the year you receive the money.

So the short answer is no, your FERS pension is not going to reduce your Social Security. As a FERS employee you certainly can get your full Social Security while getting your FERS pension.

Can you collect a pension and Social Security at the same time? ›

You can retire with Social Security and a pension at the same time, but the Social Security Administration (SSA) might reduce your Social Security benefit if your pension is from a job at which you did not pay Social Security taxes on your wages.

Thus, for workers who become eligible for benefits in 2024, the maximum reduction under the WEP may be less than $587.

You can get Social Security retirement or survivors benefits and work at the same time. But, if you're younger than full retirement age, and earn more than certain amounts, your benefits will be reduced.

Government pension offset (GPO)

A provision that reduces and may eliminate the amount of spousal and survivors benefits paid to someone who's eligible for a pension from work not covered by Social Security taxes.

Congress passed the WEP to prevent workers who receive non-covered pensions from receiving higher Social Security benefits as if they were long-time, low-wage earners.

The lawmakers are already more than halfway to securing the 218 signatures required to force a vote in the U.S. House of Representatives on their bipartisan bill to eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.

Benefits can also be reduced if there are substantial earnings in retirement or if the beneficiary is entitled to pensions from employment not covered under the Social Security system.