Will I receive Social Security if I have CalSTRS or CalPERS?
If you’re a California public school teacher or public employee, you may have asked yourself this very question. In fact, I get asked it a lot from my clients. Understanding your CalSTRS retirement benefits if you’re a teacher or trying to figure out your CalPERS retirement as a public employee is not that simple. So when we start factoring in Social Security, of course there are going to be questions.
That’s when the Windfall Elimination Provision comes breezing in. It turns out your tax withholdings and previous jobs make a big difference, so let’s clear the air! Because we don’t want to throw caution to the wind when it comes to your retirement. (Let’s see how many more references to wind I can make so you’ll never forget the name of this provision!)
According to the Cambridge English Dictionary, a windfall is a large amount of money that you win or receive from someone unexpectedly. Could that someone be Social Security?
Your SSI benefits will likely be affected if:
• You work for an employer who doesn’t withhold Social Security taxes from your salary. This can impact your retirement or disability pension. AND
• You’ve worked for another employer who did hold back Social Security retirement or disability benefits.
• You’re a public-school teacher. Most public-school teachers do not pay into SSI.
The Windfall Elimination Provision can also apply if:
• You turned 62 after 1985 OR
• You became disabled after 1985 AND
• You first became eligible for a monthly pension based on work where you didn’t pay SS taxes after 1985. Even if you’re still working, this applies.
If you’re a federal employee, you’re affected if:
• You performed federal service under the Civil Service Retirement System (CSRS) after 1956.
***If you only performed federal service under a system such as the Federal Employees’ Retirement System (FERS), your SS benefits won’t be reduced. Social Security taxes are withheld for workers under FERS.***
The Windfall Elimination Provision does NOT apply if:
• You’re a federal worker that was first hired after 12/31/1983.
• You were employed on 12/31/1983 by a non-profit organization that didn’t withhold SS taxes from your pay at first, but then began withholding SS taxes.
• Your only pension is for railroad employment.
• The only work you performed for which you didn’t pay SS taxes was before 1957, or
• You have 30 or more years of substantial earnings under SS.
• The standard 90% factor doesn’t get reduced.
• On page 2 of the Windfall Elimination Provision breakdown, consult the chart listing substantial earnings for each year. As long as you make that amount or over, that year counts towards the 30 years. The second chart shows the percentage corresponding to how many years of substantial earnings you have.
***This doesn’t apply to survivors’ benefits. Benefits for widows and widowers may be reduced because of the Government Pension Offset.***
Your Social Security benefit is based on your average monthly earnings adjusted for average wage growth. These average earnings are separated into three amounts and these amounts are multiplied by three factors to calculate your full Primary Insurance Amount (PIA).
Your PIA is what you would receive if you chose to receive benefits at the normal retirement age, neither later nor earlier.
If you become eligible for retirement or disability benefits in 2018, these three factors are calculated:
1.) The first $895 of your average monthly earnings is multiplied by 90%
2.) The earnings between $895 and $5,397 are multiplied by 32%
3.) The remaining balance is multiplied by 15%
The sum of A, B, and C is your PIA, which is then decreased or increased depending on whether you start collecting benefits before or after the full retirement age (FRA).
Let’s look at some examples:
A worker retires at 66 (his full retirement age, FRA) in 2018 with average earnings of $6,000/month. The Windfall Elimination Provision (WEP) does not apply.
1.) $895 (first $895 of earnings) x 90% = $805.50
2.) $4,502 (next part of earnings between $895 and $5,397) x 32% = $1,440.64
3.) $603 (remaining balance) x 15% = $90.45
Total PIA = $2,336.59 per month
A worker retires at 66 (his FRA) in 2018 with average earnings of $6,000/month. In this case, the WEP applies as he had 10 years of substantial earnings and then the rest in CalSTRS-covered employment that didn’t withhold any SS taxes.
1.) $895 x 40% (see chart) = $358
2.) $4,502 x 32% = $1,440.64
3.) $603 (remaining balance) x 15% = $90.45
Total PIA = $1,889.09 per month
You can manually figure out your average monthly earnings by following this chart. However, due to its complexity, it’s easier to use the following calculators:
This chart that shows the maximum amount your benefit may be reduced because of WEP.
Even if retirement feels like it’s far away, it’s good to know this information now so you can make plans accordingly. So, remember the Windfall Elimination Provision . . . because the winds of change are upon us and retirement will be here before you know it!