Larry, I just turned 62. My adult life was spent working as a police officer. For 18 years I worked for a county that paid into SS. The county also contributed to the State of Idaho public employees retirement fund. For 16 years I worked for a city that contributed to a 457 fund instead of SS. I have a lump sum valuation from this 457 fund. I do not receive monthly payments. I also voluntarily contributed a substantial amount of money to this fund. The city contributed to the same Idaho public employee retirement fund that the county paid into on my behalf..(PERSI) I receive a monthly retirement benefit from PERSI. My question is: How will my employment history affect my SS benefits? a SS representative advised me that I would suffer up to a 40% Windfall elimination penalty because of the 16 years of non payment into SS. Is this correct?
If you receive either a pension or a lump sum payment in lieu of a pension that's based on work and earnings that were exempt from Social Security taxes, your Social Security retirement benefits will likely be reduced due to the Windfall Elimination Provision (WEP). When WEP applies, Social Security uses an alternate less generous benefit computation formula to calculate a person's Social Security retirement benefit rate. However, there is a WEP guarantee provision that limits the amount of reduction to no more than half of the amount of the person's pension amount, or a prorated monthly amount if they receive a lump sum in lieu of a pension.
The percentage reduction in your benefit rate depends on how much your benefit rate would be without the WEP reduction. For example, if your non-WEP benefit rate would be $2000 and WEP causes that to be reduced by $400, that would be at 20% reduction. But, if your non-WEP benefit rate was $1000, a $400 WEP reduction would amount to a 40% reduction. In any case, though, the WEP reduction shouldn't reduce your monthly benefit rate by more than roughly $460.
Our software is fully programmed to handle WEP computations, so you may want to strongly consider using our software to do your Social Security planning.