Retirement Readiness

We’re often asked for tips on how to create a successful retirement.  We think this such a great question that we’re devoting a new column to this topic.  In each newsletter, you’ll find one “tip” we’ve found to be invaluable on the path to retirement victory.  We hope you enjoy the information.

Tip #3 – Navigating Social Security – Part 1: Tips for Government Employees

Last month I received a 64-page booklet “simplifying” social security – ouch!  I can’t imagine how many pages the “un-simplified” version was!

Like the tax code, Social Security is complicated.  Overly complicated, but we’ll let that go.  The point is, not even the folks at the Social Security office always understand the in’s and out’s of your situation and how to maximize your benefits.

If your work history has been pretty simple (ie, you have worked with the same employer most of your career), then your benefits options will probably be pretty simple, too.  But if you’ve had different job situations, as many people have, your situation can get more complex, and your benefits may be different from what’s listed on your Social Security Statement.

Before you say, “what statement?” – let’s clear that up first.  From 2011 to 2014, the Social Security Administration stopped mailing paper statements, in an effort to save money (an estimated $70 million/year!).  The idea was to encourage workers to sign up at “my Social Security” and obtain the information online.  That was not a resounding success (in 2014, when mailings resumed, Reuter’s reported that only 6% of workers had signed up online), so the SSA is back to mailing paper statements – but not every year.  Workers can expect to receive paper statements at 5-year increments.  More information is here:

Now let’s talk about what’s on that statement and your anticipated benefits.

One situation I see frequently is misunderstanding of the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP).  These rules effect anyone who has worked for an employer who has NOT paid into the Social Security system.

Most often this means teachers and government employees.  Governments often pay into a pension plan for their employees, instead of Social Security.  In Texas, for example, most teachers can expect a lifelong pension from TRS, the Teachers Retirement System of Texas, rather than from the Social Security Administration.

So far it sounds like a pretty simple “either-or,” right?  If you haven’t been paying into the Social Security system, it makes sense that you probably aren’t going to receive a benefit from Social Security.  But let’s say you are a teacher. You worked for a few years in a high school that didn’t contribute to Social Security, and now you’re working for an employer that IS paying into Social Security.  When you retire, can you collect your pension from TRS and Social Security?  Maybe.

There are two factors to consider.  The first is eligibility.  To even qualify to receive benefits at all, you need to have paid “substantial earnings” IN to the system for at least 40 quarters (10 years).  The Social Security office figures this on a system of “credits” which they explain in this brochure:

Now let’s say you’ve earned enough credits and you’re eligible to receive Social Security benefits.  The second factor to consider is your benefit amount.  According to the SSA website, if you will be receiving a government pension, “the formula used to figure your benefit amount may be modified, giving you a lower Social Security benefit.”

This is where the GPO/WEP can bite you.  Depending on the amount of your government pension, your Social Security benefits potentially could be “reduced to zero.”  In other words, you get nothing from Social Security, even if you have paid in and are eligible for benefits.  An explanation of how this works, as well as an online calculator, can be found here:

For government employees, past and present, this is a big deal in your financial planning.  It could mean the difference between your expecting to receive $2000/month when you retire, or zero!  Even if retirement is years away, that knowledge should affect how you are spending and saving today.

Knowing about the GPO and WEP could also affect your decision to retire early or later, as well as the employment decisions you make during your working years.  Considering taking a part-time job with an employer that pays in to Social Security?  That could help you to earn your quarters, but a large government pension could offset a small benefit from SSA.

Did I mention that this could also affect your spouse?  We haven’t even touched the topic of spousal benefits!  That’s a tale for another day.  Watch for Part 2 in next month’s column!

Of course, all of this is based on current law.  Our government officials could vote to make changes to this in future, in which case we all get to learn it all over again!

If you have questions, we can help!  We use Social Security Timing software to help you make decisions about when and how to take your Social Security benefits.  If you’re curious, please email me or give me a call.


Fee-based investment management services are offered by Shadowridge Asset Management, LLC, a Registered Investment Advisor in the State of Texas. Shadowridge Asset Management, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency. The information contained in this newsletter have been derived from sources believed to be reliable, but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Individuals should consult with professionals specializing in the areas of tax, legal, accounting, or investments regarding the applicability of this information to his/her situation.