Teacher Retirement and Social Security Don't Play Well
Many educators that participate in the Teacher Retirement System of Texas (TRS) are unaware of two provisions of Social Security Law that affect their social security benefit.
The two provisions are the Government Pension Offset and the Windfall Elimination Provision. Most school districts in Texas only withhold for TRS and their teachers do not pay into Social Security, which means these provisions apply to most Texas teachers. A few districts in Texas and most higher education institutions pay into both TRS and Social Security, in which case these provisions will not apply.
Windfall Elimination Provision
The Windfall Elimination Provision (WEP) can lower an individual’s social security benefit that they would receive from their own previous work history paying into social security. WEP would apply to teachers who worked in other careers prior to teaching or during the summers and could reduce their social security benefit by as much as $498 per month.*
Government Pension Offset
The Government Pension Offset (GPO) affects an individual’s potential spousal or survivors benefit that they would receive from their spouse’s social security work history. Typically, an individual can claim 50% of their spouse’s social security benefit as a spousal benefit while their spouse is alive and can claim 100% of their spouse benefit as a survivor benefit upon their spouse’s death. If the individual receives a pension from employment not covered by Social Security, such as TRS, their spousal and survivor’s benefit will be reduced by as much as 2/3 of their TRS pension.
Know if the WEP and GPO apply to you
Check with your Human Resources department if your employment is covered by just TRS or both TRS and Social Security. Remember if you pay into both, WEP and GPO do not apply. Another quick way to check is by looking at a recent pay stub. If you pay into both, you should see deductions for Social Security and TRS.
Earn 30 years of Social Security work history
WEP does not apply to individuals who have 30 years of substantial social security work history and is reduced for those with 20 or more years. For teachers that have consistently worked over many years during summers or have earned income outside of their TRS employment for many years, there may just be a few years left to reach this 30-year threshold. Earning income from a Social Security covered job for a few more years after retirement can reduce the effects of WEP or eliminate it altogether.
Save to supplement retirement income
If you are a teacher affected by WEP and GPO, consider being proactive and save an additional bucket of funds to supplement your retirement income. Many school districts offer 403(b) qualified plans. These retirement plan types allow you to defer a portion of your income tax-deferred until retirement. In 2021, you can defer up to $19,500 a year ($26,500 a year if you are age 50 or over). Depending on the 403b Plan Provider, these funds can be invested in either mutual funds or annuities, with the potential to grow during the deferral period.
To learn more about the GPO and WEP, you can visit the Social Security Administration website at the link below and contact our office. We would be happy to help you determine if these two provisions apply to you and can help develop a savings strategy and financial plan to mitigate their effects.
*Please see the chart published on the SSA website linked here for the Maximum Monthly Amount Your Benefit May Be Reduced Because Of The Windfall Elimination Provision (WEP) https://www.ssa.gov/benefits/retirement/planner/wep.html#limit
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with eh tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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