In a surprise move, Congress passed the Social Security Fairness Act, which will end the WEP and GPO programs. The WEP (Windfall Elimination Provision) and GPO (Government Pension Offset) reduced Social Security benefits for retirees who receive a government pension that did not participate in Social Security. The legislation is headed to President Biden, who is expected to sign it into Law.
What are the WEP and GPO?
Some government jobs do not participate in Social Security, as they are covered by their own pension program. This includes many police, firefighters, some state employees, and about 40% of teachers. There are about 2.5 million such retirees today. Many who receive a pension also had other jobs (before, after, or during) where they paid into Social Security. The WEP/GPO programs reduced Social Security benefits since these retirees were already receiving another government pension. These were designed to prevent retirees from “double dipping” into two government pensions and have been around since 1983 and 1977.
Employee participation in Social Security was up to state and local governments. For example, teachers in Texas do not participate in Social Security but teachers in New York do. So, the teachers in TX do not have FICA withheld from their paychecks, but do have 7.7% withheld to pay into the Texas Teachers Retirement System. The teachers in NY have money withheld for both Social Security and for the state teachers benefits. And the teachers from NY can collect both a pension and their full Social Security in retirement.
But what was unfair to the Texas teacher is that if they also worked 10+ years at a different job, their Social Security benefits from that job were reduced under the WEP. But the NY teacher does not get dinged for collecting both a pension and SS, and gets the full amounts.
The WEP reduces an employee’s own Social Security benefits, when they also receive a government pension. The GPO reduces Social Security spousal and survivorship benefits by two-thirds, for individuals who receive a government pension.
Planning Strategies
This change creates an opportunity for additional planning for many employees. We should evaluate your individual situation, and make calculations for your exact numbers. Here is our general advice:
1: There is now a larger incentive for teachers, police, etc. to qualify for Social Security benefits. You need 40 quarters of contributions to become eligible for SS. You can track your eligibility online at SSA.gov by creating an individual account. Teachers and others should look for summer work, self-employment, or for a part-time job in retirement, to qualify for Social Security, if they have not already done so. Having both retirement benefits will be enormously valuable.
If you are thinking about going into a career that does not participate in Social Security, please think about how to get 40 SS credits. At the same time, it is now much more attractive for retired police and firefighters to work another type of job after they retire.
2: You will want to think carefully about the timing of your Social Security benefits. In many cases, government employees retire relatively young, but it may pay to delay Social Security to receive a larger benefit. This can help reduce longevity risk. Again, we should be running the calculations individually. You do NOT have to claim both a pension and SS at the same time or year.
3: Spousal benefits. Many more government employees will now be eligible for a larger spousal benefit (based on their spouse’s earnings). And so we now need to think about when a spouse claims their benefit and when the other spouse should claim their spousal benefit. There are no deferred retirement credits for spousal benefits, meaning you should never defer from age 67 to 70, if your SS benefit will be a spousal benefit. If you are divorced, but were married for at least 10 years, you may be eligible for a spousal benefit in Social Security, based on your ex-spouse’s contributions. This is true, even if you never worked in a SS-eligible job.
Really, Washington?
The repeal will increase Social Security benefits for 2.5 million Americans today, and more in the future. The benefits will be retroactive to December 2023. The additional cost will be $195 Billion over the next 10 years. (And more for each subsequent decade.) Unfortunately, Congress did not include any way to fund this increase in benefits, so these costs will be added to the Government debt. This bill will accelerate the bankruptcy of Social Security by about six months, presently estimated in 2033.
While government employees have been lobbying for a repeal for decades, I am a bit surprised that Congress suddenly felt that this was a priority. I didn’t hear any politicians talking about the WEP and GPO during the campaigns this fall or summer. Recently, we’ve heard the goals of trimming $2 trillion from government spending. Instead, some of those same Congresspeople just voted to add $195 Billion in new spending over the following decade.
I have been writing for 17 years about how Social Security is broken. We have to either reduce benefits (such as increasing the retirement age), increase taxes, or some combination of both. Instead of understanding this necessity, our elected officials just decided to make Social Security more expensive. And while I support and appreciate government employees, including many family members, many of the government pensions were already fair, if not generous, compared to Social Security benefits.
There are a large number of retirees who do not need additional Social Security benefits. The average age of millionaires in the US is 61. The average net worth of Americans age 65-74 is $1,794,600 according to a 2023 Federal Reserve Study. (Granted, the median is much lower than the average.) From 2019-2022, 65-74 year olds saw their net worth increase by 27%, whereas Americans aged 35-44 saw only a 9% increase and 45-54 year olds (my age cohort) saw an increase of just 1%. While there are many poor elderly people, there are also many retirees who are doing very, very well.
We Must Save Social Security
Social Security is an entitlement program where current taxes pay for current benefits. The SS taxes you paid in 2024 are not being saved for you. They are paying your parents or grandparents this year. And this worked because there were 40 workers for every retiree in 1940. Today, however, there are less than three workers per retiree and this will gradually approach two workers per retiree by 2050. And so, we ought to ask if ending the WEP and GPO is intelligently alleviating elder poverty, or is it just giving away money to older Americans and leaving a massive debt to our grandchildren?
Unfortunately, we can’t save Social Security by keeping it as is. Something has to change, and soon. In our retirement planning process, Social Security is an essential component of the financial plan. When I remove Social Security benefits from our MoneyGuidePro retirement software, the plans usually project a strong possibility of failure. We need to be telling our elected officials that saving Social Security is a top priority. Some difficult decisions need to be made. We’ve been waiting a long time for politicians to speak honestly about Social Security, to debate intelligently about solutions, and to show the will to do the right thing even if it’s unpopular. Unfortunately for us, the day for fixing Social Security is not going to be today.
