Planning to Retire – Social Security Considerations

Today I’ll point out two more things that could blindside you when you retire: the windfall elimination provision (WEP) and the government pension offset (GPO). Both of these only apply to those covered by CSRS. So, if you are a FERS employee or retiree, you can sit this one out.

The WEP reduces the Social Security benefit of anyone who is 1) receiving an annuity from a retirement system where he didn’t pay Social Security taxes and 2) has fewer than 30 years of substantial earnings under Social Security. Note: To get credit for a year’s worth of Social Security credits in 2016, you’d only have to earn $5,040; however, for those earnings to be considered substantial, you’d have to earn $22,050.

Since the Social Security Administration has no idea that you are covered by CSRS, any estimates of future benefits you get from them will usually be too high. Only when SSA’s benefits roll is matched with OPM’s annuity roll at age 62 will the WEP be applied. If you are retired and eligible for a Social Security benefit based on a limited work record, that benefit will be reduced, sometimes dramatically. If you are still working at age 62, the match will be made when you finally retire.

There’s another surprise coming for those covered by CSRS: the GPO. It reduces any spousal Social Security benefit you may be entitled to by $2 for every $3 you receive in your CSRS annuity (or the CSRS component of a mixed FERS/CSRS annuity if you have fewer than five years of FERS service).

These legislated snakes in the grass can bite you where it hurts – in your wallet. That’s why I once again advise you to sign up for a pre-retirement seminar, paying for it out of your own pocket if you have to. What you learn there can help you avoid pitfalls that would otherwise ruin your retirement.