Will I receive spousal or survivor Social Security if I have a government pension?
Spousal and survivor Social Security benefits. Retirement plans and government pensions. Exceptions and more exceptions.
You’re a government employee and you have a government pension coming, but what about your partner’s retirement plan? You may be entitled to some of their Social Security benefits, but does your government pension influence what you receive? It turns out it does, and the government has the details down to a T.
First things first. What are you entitled to?
You can collect up to 50% of your spouse’s Social Security benefits instead of your own. This is good if your own benefits are less than that. If you’re a widow or widower, you can collect up to 100% of your late spouse’s benefits.
Now is when the Government Pension Offset enters the picture.
The Government Pension Offset reduces your spousal or survivor Social Security benefits if you receive a government pension on which you didn’t pay Social Security taxes.
However, the Government Pension Offset doesn’t apply if:
You have a private company pension.
You’re collecting both a government pension and Social Security based on your own work history. Keep in mind the Windfall Elimination Provision may apply.
Your government pension is not based on your own earnings.
Your government pension is from a job for which you paid SS taxes and:
Your last day of employment that your pension is based on is before July 1, 2004; or
You filed for and were entitled to spousal/survivor benefits before April 1, 2004; or
You paid SS taxes on your earnings during the last 60 months of government service.
Keep in mind that if you remarried before the age of 60, you are not entitled to a survivor benefit.
If you’re still with me and those exceptions don’t apply to you, let’s look at the calculation. You have a government pension and are entitled to spousal or survivor Social Security benefits. What happens when those two worlds collide?
Spousal or Survivor Social Security Benefits vs. Your Government Pension
The Calculation
In a nutshell, your Social Security benefits are reduced to 1/3 the amount of your monthly government pension. (Even if you take your government pension in one lump sum instead of monthly payments, Social Security will calculate the reduction as if they were monthly payments.)
Example 1: Your spousal/survivor SS benefits totals $2,000/month and your government pension is $2000/month. We subtract $1,333 ($2,000 x 2/3 (or 0.667)) and you’re left with $667 per month from Social Security (1/3 the original amount) plus $2,000/month from your government pension. Your total combined benefits are $2,667 per month.
Example 2: Your spousal/survivor SS benefits totals $2,000/month and your government pension is $5000/month. Your SS benefits will be completely eliminated because what we would subtract (2/3 of your government pension, or $3,335) is more than your total SS benefits. You are left with just your government pension of $5,000 per month.
If you don’t want to do the math, use the government calculator here.
But it’s not all deductions and bad news!
Don’t forget Medicare. Even if you don’t get cash benefits from your spouse’s work, you can still get Medicare at age 65 based on your spouse’s record if you aren’t eligible for it yourself.
Retirement benefits are a tricky business. Spousal and survivor Social Security benefits aside, calculating even your own retirement benefits as a California public employee and especially as a public-school teacher can be confusing. If you haven’t already, get a solid grasp on what you’re entitled to first, and then figure out what else you may have coming your way from your partner.
Life is unpredictable. The more you know, the better prepared you’ll be for those inevitable twists and turns.
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?
The Facts
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.***
The Calculation
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:
Example 1:
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
Example 2:
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!
More than 1.6 million California public employees, retirees, and their families.
Managing one of the largest public pension funds in the US for that many people seems daunting, doesn’t it? And if you’re a recipient trying to calculate your retirement benefits, you may feel a bit lost. But terms like “benefit factor” and “final compensation” don’t have to be intimidating. Let’s break down the benefits, the variables, and get you informed and ready for retirement.
First off . . . when can you retire?
In most cases, you can retire at age 50 with 5 years of service credit. However, if all service credit was earned on or after January 1, 2013, you must wait two more years until the age of 52.
Start educating yourself now with the help of CalPERS tips and tutorials, and make sure to fill out a service retirement application within 120 days of your planned retirement date.
1. Calculating your Retirement Benefit
If you expected a formula, this won’t disappoint:
Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation
First things first. Unmodified allowance is your highest benefit payable, that doesn’t include any benefit for any beneficiary. (More on beneficiary options below.)
Now, on to those variables . . .
a. Service Credit
This equals the total years of employment with a CalPERS employer. Other types of service credit may be added, such as sick leave and service credit purchased.
To earn a full year of service credit, you must work at least:
1,720 hours (for hourly pay employees)
215 days (for daily pay employees)
10 months full time (for monthly pay employees)
b. Benefit Factor (aka Age Factor)
The benefit factor is the percentage of final compensation for each year of service credit. It is based on your age at retirement and the retirement formula.
Access your retirement benefit formula chart to figure out your benefit factor or check with your personnel office. You can also check your CalPERS Annual Member Statement to verify your retirement formula.
Find your category below and click on the link to view how benefit factors increase depending on the retirement formulas. The tables illustrating the changes are towards the back, but the entire pamphlet for each member category is extremely helpful.
If you’re employed by a public agency or special district that has contracted with CalPERS, but you’re not involved in law enforcement, fire suppression, the protection of public safety, nor employed in a position designated by law as local safety.
If you’re employed by a public agency or special district that has contracted with CalPERS and you’re involved in law enforcement, fire suppression, the protection of public safety, or who are employed in a position designated by law as “local safety.”
If you’re employed by the state and universities, but are not involved in law enforcement, fire suppression, the protection of public safety, or a position designated by law as industrial, patrol, peace officer/firefighter, or safety.
State industrial members are those who are employed by the California Department of Corrections and Rehabilitation or its Division of Juvenile Justice, other than state safety or peace officer/firefighter members.
If you’re employed by the state and involved in law enforcement, fire suppression, the protection of public safety, or are employed in a position designated by law as “state safety.”
c. Final Compensation
The final compensation is the highest average annual compensation during any consecutive 12 or 36-month period of employment, depending on your collective bargaining agreement or employer contract. This may include special compensation.
*If your membership date is on or after January 1, 2013, there is a cap on the compensation used to calculate your benefit.
If your service is coordinated with Social Security, the compensation cap used to calculate your benefit is equal to the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $118,775.
If your service was not coordinated with Social Security, the compensation cap used to calculate your benefit is equal to 120% of the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $142,530.
The compensation limit is calculated based on the limit in effect for each calendar year included in the final compensation period.
Are you still with me? We’ve gone through the variables, so now we can calculate your retirement benefit! Remember:
Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation
Let’s look at an example.
A local police officer retires at 60 with 30 years of service and $100k/year as his final compensation.
i. Calculate manually
Before technology changed everything, we had to do this stuff by hand. Using the 3% at 55 retirement formula (3% being his benefit factor), we review the chart on page 46 of his benefits breakdown to see that his chart maxes out at 90% of final compensation.
30 (service credits) x 3% (benefit factor) x $100,000 (final compensation)
= $90,000 unmodified allowance
***If you want a rough estimate of your final compensation, use a Time Value of Money calculator and follow the instructions here.***
But yes, technology has changed everything, and you have options to find this out:
Log into your my|CalPERS account to obtain an estimate that incorporates data your employer already reported to CalPERS. You can generate and save a variety of scenarios.
The calculation we’ve been looking at is for unmodified allowance.
And if you want beneficiaries?
2. Choosing your Benefit Type
a. Unmodified Allowance
This is the highest monthly allowance paid for life with no benefit to your beneficiary. The formula we have followed throughout this article is for this option.
b. 100% Beneficiary Option 2 with Benefit Allowance Increase
One beneficiary will receive 100% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.
c. 50% Beneficiary Option 3 with Benefit Allowance Increase
One beneficiary will receive 50% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.
d. Flexible Beneficiary Option 4
You name one or more beneficiaries and specify a specific dollar or percentage to be paid to each one.
You made it! I hope I’ve helped make these murky waters a bit more navigable. And remember, there is plenty more information and resources out there to take you confidently to retirement. You’ve worked a long time to get there. Make sure you’re prepared!
If you ask a California public school teacher what CalSTRS is, they’ll likely respond that it has something to do with their retirement. But for many, that’s as much as they know. In fact, a lot of teachers that I work with have never calculated how much they’re expected to receive from their CalSTRS pension when they retire. Nor do they know when is a good age to retire tomaximize their benefits.
Why worry about CalSTRS now?
As appealing as it may sound now to postpone the retirement discussion, it’s not necessarily in your best interest. If you figure out these details now, you’ll have a good idea of how much your fixed income will be during retirement. Not only that, but you can calculate how much you need to save to your voluntary 403(b) plan to supplement CalSTRS.
Let me walk you through the steps so you can rest a bit easier and know that you’re doing what’s necessary now to enjoy those golden years later.
1. Figure out your Benefit Structure
This is done using your initial hire date:
CalSTRS 2% at 60: You were first hired before 01/01/2013 or were a member of a concurrent retirement system before 01/01/2013 and you performed service under that system within six months of becoming a CalSTRS member.
CalSTRS 2% at 62: You were first hired on or after 01/01/2013.
2. Calculate your Retirement Benefit
Retirement Benefit = Service Credit x Age Factor x Final Compensation
Scratching your head at what service credit and age factor are? Let me walk you through those variables:
Full-time employees generally earn 1 service credit per 1 school year. Part-time employees generally earn a percentage of a service credit based on the percentage of the full-time contract.
Service credit at retirement = Current service credit balance + future service credits expected
For example, if you currently have 20 full-time service credits and are expected to work another 10 years full-time, your service credit at retirement is estimated to be 30.
If you work 50% of the full-time contract, you will receive 0.5 service credit for that year.
*Any contributions on earnings from service in excess of one year will be credited to your Defined Benefit Supplement (DBS) account up to any compensation cap.
*For CalSTRS 2% at 60, if you purchased “air time” previously, you can add this to your total service credit at retirement. The ability to buy “air time” ended on 12/31/2012.
What about unused sick leave?
Unused sick leave becomes service credit at retirement:
Days of unused sick leave / # of base days for full-time service = Service credit granted
*The base service days cannot be fewer than 175 days. If you’re an administrator, add the vacation days per contract year.
For example, if you have 125 unused sick days, and 182 full-time service base days, the service credit granted is 0.687 service credits (125/182). If you’re expected to have 30 years of service at retirement, you will now have 30.687 years of service at retirement.
Remember your benefit structure that we discussed at the beginning?
CalSTRS 2% at 60
The age factor is set to 2% at age 60. If you retire prior to age 60, this will decrease.
The earliest you can retire is age 50 with a base age factor of 1.1%. However, you must have 30 years of service credits to retire between 50 and 54 years old.
*If you have 30 years of service at age 50, your age factor is 1.3% (1.1% base + 0.2% career factor). (This can be found in the Member Handbook under Age Factor Tables.)
*However, if you have 20 years of service at age 50, you can’t retire until age 55 because you don’t have the mandatory 30 years of service to be able to retire between 50 and 54.
You can retire with any amount of service credits starting at age 55. If you have 30 or more years of service under the 2% at 60 benefit structure, a career factor of 0.2% will be added to the age factor until it maxes out at 2.4%. The age factor maxes out at 2.4% at age 63 regardless.
*If you retire at 60 years old with 30 years of service, your age factor is 2.2% (2.0% base + 0.2% career factor).
*If you retire at 60 years old with 29 years of service, your age factor is 2.0% (2.0% base + 0.0% career factor).
CalSTRS 2% at 62
The age factor is set at 2% at age 62. If you retire prior to age 62, this will decrease.
The earliest you can retire is at age 55 with an age factor of 1.16% with any amount of service credits. The age factor maxes out at 2.4% at age 65. (With this benefit structure, there are no career factor benefits.)
*If you retire at 60 years old with 30 years of service, your age factor is 1.76%.
If you have 25 or more years of service credit, CalSTRS will use your highest 12 consecutive months of average annual compensation.
If you have fewer than 25 years of service credit, CalSTRS will use your highest average annual compensation during any period of 36 consecutive months of paid employment covered by CalSTRS.
CalSTRS 2% at 62:
Your final compensation is based on your highest 36 consecutive months of average compensation, regardless of how many years of service.
Ifyou want to get a really rough estimate of your financial compensation, you can use a Time Value of Money calculator. Enter the following values:
Mode: Choose “End”.
Present value: Enter in your current annual salary.
Payment: Leave blank.
Future value: Leave blank.
Annual rate (%): Enter in an estimate of the average annual pay raise you expect to receive. If you think you should average a pay raise of 3% per year, either put that in or put in a lower number, such as 2%, if you want to be more conservative.
Periods: The number of additional years you expect to work. If you think you’re going to retire in 10 years, put in “10”.
Compounding: Choose “Annually” from the list.
Press on the “FV” button to calculate your estimated final compensation.
*For example, if you currently make $80,000/year and are expecting to retire in 10 years with an average pay raise of 2% per year, your final compensation is estimated to be $97,519.55. Keep in mind that this is only a rough estimate!
Cheers to progress! We’ve gone through the variables, so now we can calculate your retirement benefit! Remember:
Retirement Benefit = Service Credit x Age Factor x Final Compensation
Let’s look at an example:
You are 60 years old with 30 years of service credits. You’re looking to retire in 2 years. Your final compensation is estimated to be $90,000 per year at retirement. Let’s calculate!
1. Calculate manually:
Before technology swooped in, we had to do this stuff by hand. (Remember that with this example, you fall into the CalSTRS 2% at 60. That is important for your career factor.)
32 (service credits) x 2.4% (max age factor + 0.2% career factor) x $90,000 (final compensation)
But yes, technology has made our lives easier, at least in some ways! This calculator will also show you the estimated benefits for the various beneficiary options available … which brings me to … beneficiary options! (You didn’t think that was it, did you?)
This option will give you the highest monthly benefit for your lifetime. However, the benefits stop after you die, whether that is 1 year or 40 years into retirement. If there are any remaining contributions and interest in your Defined Benefit account, they will be paid to your beneficiary or estate in a lump-sum payment.
100% Beneficiary Option
You will receive the most reduced benefit with this option. If you die, your beneficiary will receive 100% of what you received. If your beneficiary dies before you, your benefit will be increased to the Member-Only Benefit.
75% Beneficiary Option
You will receive a reduced benefit. If you die, your beneficiary will receive 75% of what you received. If your beneficiary dies before you, your benefit will be increased to the Member-Only Benefit.
50% Beneficiary Option
You will receive a reduced benefit. If you die, your beneficiary will receive 50% of what you received. If your beneficiary dies before you, your benefit will be increased to the Member-Only Benefit.
The lower the percentage for the beneficiary, the greater your payout. After the member-only benefit option, the 2nd highest option for you is 50%, which gives your beneficiary 50% of your pay when you die. With the 75% option, you receive a little less, but your beneficiary will receive 75% of your pay. And lastly, you receive the lowest payout with the 100% option because your beneficiary will receive the same amount as you.
That wasn’t so bad, was it? Do you feel a bit more prepared? You’ve devoted your career to our state’s future, so it’s high time you sat down and thought about your own. For more information, be sure to check out the Member Handbook or let yourself be taught for a change with CalSTRS tutorial videos. There’s a wealth of information out there for the taking!
