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The Windfall Elimination Provision Repeal: What You Should Know

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The-Public-Servants-Protection-and-Fairness-Act-of-2021

In April of 2021, Ways and Means Committee Chairman Richard Neal, (D-Mass.), reintroduced the Public Servants Protection and Fairness Act of 2021. This legislation was originally presented to Congress in 2019, but died without receiving a vote. But now that the balance of power has shifted in both houses of Congress, this proposal has a much higher likelihood of passage. 

The goal of this Act is to provide an equitable Social Security formula for individuals with noncovered employment and to provide relief for individuals currently affected by Social Security’s Windfall Elimination Provision (also known as the WEP). 

Repealing the WEP with a new formula should help ease the difficulty that individuals with noncovered pensions face when planning for retirement. Although it’s not widely known, the annual Social Security benefit estimate does not include the WEP penalty in the estimated benefit. Furthermore, most Social Security technicians – let alone financial advisors – fail to understand the nuances of how the WEP is applied. They cannot explain it adequately, and although they may be trying to help, too often only add to the confusion.

There’s no reason we need to keep going this way. It’s past time for this outdated rule to be reformed.

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Why the Windfall Elimination Provision (WEP) Should be Reformed 

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windfall elimination reform

It’s a rare day that passes without someone asking me, “Will the WEP be eliminated?” 

The WEP is the Windfall Elimination Provision, and it’s a part of Social Security that can really complicate benefits for those who fall under it. This provision can reduce benefits by nearly $500 and the Social Security Administration generally can’t explain the rules around when and how the WEP will apply. Retirees who are subject to this rule are upset and ready for a change. 

Although it’s been talked about for years, I don’t think we can reasonably expect Congress to pass a total WEP repeal. My official stance is that such a change is highly unlikely. However, I do think reforming the Windfall Elimination Provision is likely, and possibly in the near future. 

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Firefighter Pensions and Social Security: How to reduce or eliminate the impact of the Windfall Elimination Provision (WEP)

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Firefighter Pensions and Social Security: How to reduce or eliminate the impact of the Windfall Elimination Provision (WEP)

If you are a firefighter and are planning for retirement, you need to know the rules on receiving firefighter pensions and Social Security. Specifically, you need to understand how much the Windfall Elimination Provision (WEP) will reduce your Social Security payments. 

This rule can reduce the Social Security benefit rules of anyone who:

1. Worked at a job where they did not pay Social Security taxes and qualified for a pension from that job
AND
2. Worked at another job where they did pay Social Security taxes, which qualified them for Social Security benefits

While these WEP rules affect anyone who has a pension from a job where they didn’t pay Social Security, there is a special nuance in these rules that could help ease the pain for many firefighters. Before we jump into that, let’s cover a few of the basics.

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The Myth of Fixing Social Security Through Raising Taxes 

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If you ever want to get folks riled up on both sides of an issue, mention the proposed idea to fix Social Security through raising taxes.

The potential increase on the maximum taxable wage cap for Social Security stirs the passion of just about anyone who has confronted the enormous task of saving for retirement. Unfortunately, much of the conversation that happens around this topic slants to one side. 

You hear a lot of soundbites that sound good in the media or specific debates that make a certain income class feel protected — and meanwhile, the facts simply don’t get enough airtime. 

Let’s give the facts the attention they deserve. In this article, we’ll dive into the large body of existing research on this topic. Along the way, we’ll correct some historical misinformation so you’ll understand how the history of the Social Security program as a whole fits into today’s proposals to fix the system.When we finish here, you’ll know the true impact of fixing Social Security through raising taxes or changing the payroll taxes really looks like. 

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How the Coronavirus Pandemic Will Impact Social Security

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impact of covid on the average wage index

 

Within the next few months, you’re going to start hearing a lot about the impact of the coronavirus pandemic on the Social Security system. 

Even though we have been dealing with this pandemic for many, many months now, we still don’t yet know the full measure of economic damage caused by the shutdowns of schools and businesses. We can reasonably assume this devastation will have long-term effects we’ll feel for years into the future.

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Universal Social Security: Should There Be A Flat Payment Amount for All Retirees?

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universal social security system

The concept of a universal Social Security benefit, where all retirees receive the same flat payment, isn’t a new idea. But this proposal recently resurfaced and gained attention for its potential to be a long-term fix for the solvency of the Social Security program. 

Proponents of this strategy see it as a way to avoid raising taxes and avoid cutting benefits to mid-and lower-income retirees. At the very least, Universal Social Security benefits certainly would be a departure from the current structure of the program. 

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How the CPI-E Compares With the CPI-W for the Annual Social Security COLA

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If the annual cost of living adjustments to benefits would have been based on the CPI-E, instead of the current CPI-W, the benefit increase in 2022 would be 1.1% lower! 

cpi-e vs. cpi-w

Recently, the Social Security Administration announced yet another Social Security cost of living adjustment. And once again, the amount of the adjustment left some wondering why it wasn’t higher. 

The announcement ignited the same conversation and questions as it does every time. In the comments of my videos, my Facebook group, and on my website, many people  say things like, “My expenses have increased a lot more than this cost of living adjustment,” or, even more commonly, “There has to be a better way to measure the increases to living expenses than the way it’s being done now!” 

Given that it’s such a common response to the usual Social Security cost of living increases, I want to cover the proposal that may change how these adjustments are calculated. 

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Joe Biden’s Plans to Change Social Security 

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Now that the votes have been counted and we know that Joe Biden will be “President” Biden in January 2021, it’s time to dive into his plans to change Social Security. 

Biden campaigned on a number of agenda items that came up fairly often during his election bid. We can reasonably expect at least some of his proposals will go through the legislative process to become laws during his term in office.

One of the proposals involves plans to change Social Security.

The New Administration’s Plans to Change Social Security 

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Social Security’s Monthly Income Limit for Retirement Benefits: Most Frequently Asked Questions and Answers

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social security monthly income limit

If you file for Social Security retirement benefits before your full retirement age, there is a limit on the amount of income you can earn. This limit is almost always based on your annual earnings, but in certain circumstances, it could be your monthly earnings that are counted.   

 The monthly income limit was created because the Social Security Administration recognized that some people who retire mid-year have already earned more than their yearly earnings limit.  The SSA recognized that it wasn’t fair to make those individuals wait until the next year to file for benefits if they are truly retired, so there are some cases in which it’s your monthly earnings that are counted. 

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How the Government Pension Offset and Windfall Elimination Provision Affects Dually Entitled Spouses

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Trying to plan for your retirement — but can’t understand the complicated rules for calculating Social Security benefits when you have your own benefit and a spousal benefit?

You’re not alone! Most people find this really perplexing…

…and when you add in a spouse that’s affected by the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) to the mix, the rules become even more tangled. 

If you have a scenario where both spouses are subject to these rules, it can really seem like the convoluted rules are setting you up to fail!  In a case like this, it can mean that one spouse could be forced to have their Social Security benefit calculated with the dual penalties from both the WEP and GPO (at the same time!) 

This application of both of these rules is not necessarily a “double penalty,” but rather a separate type of penalty on each of the separate benefits. 

Don’t worry if it all seems hopelessly confusing. I’ll explain all of this below. 

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