For most workers, calculating social security retirement benefits is simple; the Social Security Administration (SSA) does the math and estimates a worker’s benefit well before retirement. But if you spent all or most of your life working as a teacher or government employee, social security benefits can be a black hole. You likely wonder whether you even qualify for social security, never mind the amount of the benefit. Maybe you once worked in a private-sector job and contributed to the system—was it all for nothing? Read on, and you’ll find how windfalls and offsets apply to you.
Pulling Back the Curtain: Understanding SSA Calculations
First, you need to understand how social security retirement operates for most workers. Those workers who pay a portion of their salaries to SSA over 40 or more quarters qualify for SSA retirement benefits. The 40-plus quarters of payment don’t have to be consecutive —just cumulative over a working life. The benefit amount depends on the worker’s historical wages and the worker’s age at retirement. The SSA sends workers a yearly SSA Benefit Statement estimating benefits that will be received at typical retirement ages: 62, 67 and 70. If you are a government worker, you might glance at the SSA Benefit Statement and toss it away—don’t.
Retiring in Massachusetts: GIC/MTRS vs SSA
Most, if not every school and government employer in Massachusetts participate in the state Group Insurance Commission (GIC) and the Massachusetts Teachers’ Retirement System (MTRS). GIC and MTRS are retirement systems separate from social security exclusive to Massachusetts teachers and government workers. GIC and MTRS are separate agencies but operate in similar ways with respect to SSA benefit determinations.
If you are a Massachusetts teacher or government worker whose employer contributes to SSA, stop reading and refer to the previous paragraph. If you are in the large group that contributes to GIC or MTRS, read on.
In 1983, Congress ended what the SSA calls “double-dipping,” establishing a byzantine system to determine benefits for public employees. This does not mean that some Massachusetts public employees cannot still qualify for SSA retirement benefits. But it is possible that SSA benefits will be reduced to offset GIC/MTRS benefits. The system also affects SSA benefits payable to family members of government employees.
Factors that determine SSA retirement benefits are:
- A person’s retirement age
- Whether a person wants to collect based on their own wage contributions to SSA or based on a spouse’s contributions (spousal benefits).
- Public employees with GIC/MTRS benefits who want to collect SSA based on their own private sector work history fall under the “Windfall Elimination Provisions.”
- Public employees who want to collect GIC/MTRS and SSA based on spouse’s private sector work fall under the “Government Pension Offset” calculation.
Calculating Your Benefits
Factors that determine SSA retirement benefits are:
- A person’s retirement age
- Whether a person wants to collect based on their own wage contributions to SSA or based on a spouse’s contributions (spousal benefits).
- Public employees with GIC/MTRS benefits who want to collect SSA based on their own private sector work history fall under the “Windfall Elimination Provisions.”
- Public employees who want to collect GIC/MTRS and SSA based on spouse’s private sector work fall under the “Government Pension Offset” calculation.
For example:
- A teacher working part-time jobs with contributions to social security for 40 quarters will qualify for SSA benefits but must apply the “Windfall Elimination Provisions.”
- A lifetime employee of the city public works department married to a mechanic might qualify for benefits based on her spouse’s wage contributions, but the benefit is calculated using the Government Pension Offset.
Get out your calculator and we will illustrate the world of windfalls and offsets. For either the windfall or offset calculation described below, you’ll need a copy of the latest SSA Benefit Statements for yourself and your spouse. This form estimates the benefits a worker may start collecting at age 62, at full retirement age (66 years 6 months to 67, depending on birth year) and at age 70. The statement is available on the SSA.gov website or at your local social security office.
Calculating SSA Benefits Based on Your Own Contributions (Windfall Elimination Provision)
Step 1: Calculate your “average covered wage.”
You will use your SSA Benefits Statement to figure out your average salary over all the years in which you paid into social security.
First, you need to count the number of years in which you received “substantial” earnings, as defined by the SSA. (A table on the SSA website lists official substantial earnings for the last 75-plus years. The websites of the various public employee retirement boards also provide this information.)
Next, you total the amount of your substantial earnings and divide that total by the number of years in which you received substantial earnings. The resulting number is your average covered wage.
Step 2. Calculate the percentage of your average covered wage that you will receive as your SSA retirement benefit.
a. Congratulations if you paid into SSA for 30 or more years and had substantial earnings for that entire period. You qualify for the full social security benefit. Multiply your average covered wage by 90 percent and this is your estimated yearly benefit at full retirement age. There is a reduction if you begin to collect at age 62 and an increase if you begin at age 70.
b. If you paid into SSA less than 30 years, your benefit based on the first $895 of your average covered wage is reduced from 85 percent (29 years or less) to 40 percent (20 years or less). For example, a worker with a 20-year contribution history would estimate their annual benefit as follows:
- Multiply the first $895 of average covered wage by 40%;
- Multiply the average covered wage over $895 through $5,397 by 32%;
- Multiply the average covered wage over $5,397 by 15%;
- Add the three figures (reduce for age 62, increase for age 70).
Remember, the above calculation is for the SSA benefit you would receive based on your own history of paying into the system. Read on if you propose to collect based on a spouse’s work history.
Calculating SSA benefit based on your spouse’s work history (Government Pension Offset)
The calculation of the Government Pension Offset is simpler than the Windfall Elimination arithmetic, but the SSA is much less generous to public employees who propose to receive a portion of their spouse’s SSA benefit.
Ordinarily, a worker’s spouse is entitled to receive half of the retired worker’s social security benefit, whether or not the spouse worked and contributed to the social security system. But for individuals receiving public pensions, their SSA spousal benefit is decreased by two-thirds of their government pension. The offset often prohibits the government pensioner’s ability to receive social security benefits from a spouse.
There is only one step in the Government Pension Offset calculation, and for it, you need your spouse’s SSA Benefits Statement and a statement of your anticipated public employee’s pension. Multiply your pension benefit by 2/3 and deduct that amount from the estimated spousal benefit from your spouse’s SSA Benefit statement.
Example: If your anticipated teacher’s pension is $3,000 per month, the SSA benefit you would receive from your spouse’s social security work history would be reduced by approximately $2,000 ($3,000 x 2/3).
Ready to Retire? Have Questions About the Process? Or Benefits Due to You?
Now you have an idea how this works, but you surely have questions based on your own unique circumstances. There are exceptions to the above general rules for certain workers and low-income earners. Handy calculators and charts are available at ssa.gov (search the terms “windfall elimination” or “government pension offset”) and more information is available by calling or visiting local SSA offices (note that visiting hours are limited during the quarantine). The GIC and MTRS staffs are helpful and knowledgeable in this area and their websites have calculators as well.
Our office would also be happy to assist and is at the ready with legal and business counseling services. Contact our team to discuss your circumstances or needs.