Retiring With a Pension and Social Security: What to Know
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Can you collect Social Security and a pension at the same time?
You can retire with Social Security and a pension at the same time, but the Social Security Administration (SSA) might reduce your Social Security benefit if your pension is from a job at which you did not pay Social Security taxes on your wages.
There are two different kinds of pensions: covered and noncovered.
A covered pension is a pension based on employment that withheld Social Security taxes from your wages.
A noncovered pension is based on employment that did not withhold Social Security taxes from your wages. These employers are typically state and local governments or non-U.S. employers.
» MORE: When does Medicare start?
How much will my Social Security be reduced if I have a pension?
If you have a covered pension (meaning you paid Social Security taxes on the wages you earned from the employer), the SSA will not reduce your Social Security benefits.
If you have a noncovered pension and you have fewer than 30 years of other substantial earnings on which you paid Social Security taxes, then the SSA uses the windfall elimination provision (WEP) formula to adjust the Social Security benefits you receive. This reduction applies to retirement and disability benefits (SSDI), but it does not apply to survivors benefits.
To calculate Social Security retirement benefits, the SSA uses a complicated formula that applies three different percentages to up to three different portions of a person’s lifetime average indexed monthly earnings (AIME). It adds the results together to determine your monthly retirement benefit at full retirement age, otherwise known as your primary insurance amount (PIA).
Income range | Percent applied to your PIA |
|---|---|
$0 - $1,174 | 90% |
$1,175 - $7,078 | 32% |
$7,079 and above | 15% |
For example, an AIME of $8,000 would produce a PIA of $3,084.19.
($1,174 x 90%) + ($5,904 x 32%) + ($922 x 15%) = $1,056.60 + $1,889.29 + $138.30 = $3,084.19
The windfall elimination provision reduces the first of those percentages from 90% to 40% if you spent fewer than 20 years in jobs on which you paid Social Security taxes. The SSA adds 5 percentage points for every year past 20 years that you have earnings on which you paid Social Security tax.
Years of earnings on which you paid Social Security tax | Adjusted percentage applied to your PIA |
|---|---|
30 or more | No adjustment (remains at 90%) |
29 | 85% |
28 | 80% |
27 | 75% |
26 | 70% |
25 | 65% |
24 | 60% |
23 | 55% |
22 | 50% |
21 | 45% |
20 or fewer | 40% |
The SSA cannot reduce your Social Security benefits by more than half of the noncovered pension. For example, if your noncovered pension pays $500 a month, the windfall elimination provision won’t reduce your Social Security retirement benefits by more than $250 per month.
The SSA has a windfall elimination provision calculator that can help you understand how much your retirement benefits will be reduced when you begin receiving your monthly pension.
The SSA considers a pension countable income that will affect your eligibility for Supplemental Security Income (SSI) in the same way that any other kind of income would.
Exceptions to the windfall elimination provision
If you have a noncovered pension, the Social Security Administration might not reduce your Social Security benefits if any of the following apply to you:
You have 30 or more years of substantial earnings under Social Security.
You’re a federal worker first hired after December 31, 1983.
Your only pension is for railroad employment.
You’re an employee of a nonprofit organization that was exempt from Social Security coverage on December 31, 1983.
Retirees are most likely to encounter the first of these exemptions (30 or more years of substantial earnings).
When to take Social Security if you have a pension
The main rule for deciding when to take Social Security if you have a pension is to maximize the combined total amount you will receive. In some cases, it may not be beneficial to wait to take Social Security retirement benefits if a future pension is going to reduce the size of that Social Security check.
For example, let’s say you’re eligible for a pension that doesn’t start until you reach age 65, and your Social Security benefit at age 62 will be $1,500 per month. If the Social Security Administration will reduce that $1,500 to $1,000 once your pension starts, you'd receive an extra $500 for 36 months, or $18,000, before the Social Security Administration reduces your check due to your noncovered pension.
Alternatively, you could wait until you turn 65, when your Social Security benefit rises to $1,700 per month. Because the Social Security Administration will reduce that by $500 due to your pension, your payment would be $1,200 a month ($200 more than if you took benefits at 62).
Dividing $18,000 by $200 tells us that 90 months (7.5 years) after you turn 65 is the age (72.5 in this case) at which the cumulative amount of Social Security and pension benefits you may receive if you file at 65 equals the cumulative amount you may receive if you file at 62. It signifies the point at which it "pays off" to wait to take Social Security if you also have a pension.
This breakeven point can help you decide when, based on your life expectancy, lifestyle needs and other considerations, it's best to start taking Social Security benefits.
For family members who might receive spousal benefits or survivors benefits based upon your earnings record, there is another rule to factor into your calculations. The Social Security Administration reduces Social Security spouse or survivor benefits by two-thirds of the amount of your noncovered government pension.
For example, if your family members are eligible for an $800 spousal or survivors benefit but you receive a monthly government pension of $900, the Social Security Administration will deduct two-thirds of your pension ($600) from the spousal or survivors benefit. The check in this example would be $200 after the government pension offset (GPO) is applied. In some cases the GPO may completely cancel out the spousal or survivors benefit.
Social Security and pensions for spouses and widows