Social Security retirement benefits often make up a large portion of an individual’s retirement income. Throughout your lifetime, you can keep an eye on your projected retirement benefits on your annual Social Security statement or by looking at your online mySocialSecurity account (mySSA). It’s a great tool for making educated retirement planning decisions.
But what if your Social Security benefit’s estimate is incorrect by several hundred dollars per month? For some people, it is wrong. Even worse, they probably don’t know it is wrong. What an awful retirement surprise!
If you work for an employer who does not participate in Social Security but has their own pension instead, you probably know that your Social Security options can be complicated with tricky rules that only apply to teachers and other public servants. These rules include the Windfall Elimination Provision (WEP) and the Government Pension Offset.
Individuals often look for a way to soften the impact of these rules. Time and again I hear individuals wondering if they can sidestep these rules by simply taking their pension in a lump sum. After all, in just about every reference to these rules, the Social Security Administration (SSA) says that the rules apply to individuals with a pension from work where no Social Security taxes were paid.
So…if there’s no a ‘pension’ being paid, do the rules still apply?
They do, but with a few exceptions. For certain individuals, taking a pension out in a lump sum can be a valid method of sidestepping these rules. If this interests you, read on. The rules for when and how are complicated, and you don’t want to mess this up.
In several states, most school districts do not participate in Social Security. Instead, they have their own pension plan to which they contribute. But over time, a few school districts in these states have adopted agreements with the Social Security Administration which allows them to participate in both Social Security AND their own pension plan.
Louisiana state public employees face special challenges when it comes to figuring out their retirement benefits. Most Louisiana state public employees, who may be covered by LASERS, LSERS, TRSL, or other public employee retirement plans, don’t pay into the Social Security system. This means their ability to receive Social Security benefits is different from typical employment where the employee pays Social Security taxes. The situation gets more confusing when an eligible employee has some Social Security covered employment and some non-Social Security covered employment. Even worse, many people don’t learn about the rules until they reach retirement age, and they may have made decisions based on faulty information. Thankfully, the rules aren’t too complicated, and I’m here to help you decipher them. There are two rules that apply here: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These links give more detailed information about each rule, but here are summaries:
The spirit of the bill is great. Teachers, firefighters and other public servants often get the short side of the stick with Social Security and I thought this bill was going to go a long way towards fixing it. There were some lingering questions, but overall I was excited that some real action on this unequal treatment seemed poised to finally move forward.
That excitement was before I had a conversation with Dr. Andy Szakmary, a Professor of Finance at Richmond University. His take on this legislation was a little different than mine. He caught a few things in the Bill and supporting testimony that had slipped right by me. After several conversations with Dr. Szakmary, these are some of his comments and insight that really stood out to me.
“The primary problem with HR 711 is the 14 MILLION PEOPLE (according to Goss’ testimony, pp.3-4) who are not currently subject to the Windfall Elimination Provision (WEP) but will become impacted due to the formula change in HR 711. (versus 1.25 million people who will receive a higher benefit than under the current formula)
If you’ve been teaching for long, you’ve probably become an expert in planning ahead. It’s a good thing you’ve developed this skill because you’re going to need it as you start getting closer to retirement.
Teacher’s retirement planning can appear deceptively simple; you have a teacher’s pension and the option of an additional savings plan like a 403B. At face value, it seems that these simplified options should reduce your decisions and make the retirement planning process easier. But teachers have a unique retirement scenario that is much deeper than it appears on the surface.
Here are 3 reasons why your retirement situation is different than most of your non-educator friends.
If you’ve recently been hired in public higher education, you have a very limited time window to make a big decision. Should you choose the Optional Retirement Plan (ORP) or Teacher’s Retirement System (TRS)? You have one chance to get it right. This is an irrevocable decision.
Here’s what you need to know.
Most teachers are automatically enrolled in TRS. However, certain employees of public colleges are eligible to choose the Optional Retirement Plan instead of the TRS pension plan. This is not a decision to be taken lightly! Although both of these accounts are meant to be for retirement savings and income, they each approach this goal using two distinctly different paths.
Social Security is different for teachers. It’s more complicated, and the rules aren’t always fair.
If you’re a teacher, when your turn comes to file for Social Security benefits, you may need to fight for what’s rightfully yours.
This topic comes up in my Social Security classes all the time. One thing is consistently clear from the comments of my attendees: the quality of information regarding the integration of Social Security and teachers’ pensions is very low. In fact, the misinformation is so bad that I sometimes wish these advice-dispensing individuals would just stop!
The Unfortunate Story of Mr. Franks
Here’s a recent example. Before Mr. Franks worked (and subsequently retired) as a teacher in the state of Illinois, he worked for a large telecommunications company. During his 15-year employment at this company he paid Social Security tax and earned the necessary quarters for a Social Security benefit. Throughout his second career as an Illinois teacher, he did not pay Social Security tax. He did, however, retire with a teacher’s pension.
As he was preparing to retire he visited with a financial advisor whom he had seen around the school where he worked. The advisor told him that since he was a teacher, he would not be eligible for any Social Security. Having no good reason to doubt this “advisor,” Mr. Franks retired and started his TRS pension.
It wasn’t until he was 72 years old that he discovered he should have been receiving a Social Security benefit all along. He was livid! I’m pretty sure I’d be upset too.
If you want to avoid this happening to you, there are three things you need to know about Social Security for teachers. Take a look.
If you have a pension from a job where you did not pay Social Security taxes, your benefit may be reduced by the Windfall Elimination Provision (WEP). How do you know if you’ll be impacted? Don’t expect it to be on your Social Security benefits statement. This may surprise you but your Social Security statement does not reflect any reduction in benefits due to this provision.The Social Security Administration will wait until you file to tell you how much the reduction is if you qualify for both Social Security and a non covered pension.
Understanding if a reduction in benefits will apply to you, and how much that will be, does not have to wait until you file for Social Security. You can find out today. It starts by understanding the mechanics of the Windfall Elimination Provision.
“Can I get teacher’s retirement and Social Security?” That question is asked almost every time I speak on Social Security.
There’s no doubt this can be a complex topic and most of the teachers that I’ve talked to have seen lots of conflicting information. Let’s clear up the confusion and take a closer look at the rules on teacher’s retirement and Social Security.