Good News for Some Current and Future Social Security Beneficiaries
In retirement, your income may come from a variety of sources, such as retirement accounts, investments, Social Security, pensions or even continued part-time work. Maximizing these streams of income is integral in achieving your goals after one’s primary working years are over. On January 5th, 2025, the Social Security Fairness Act, HR 82 was signed into law, ultimately reversing the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Together, these two rules have historically prevented former public service workers who receive pensions, like teachers, firefighters, police officers, postal workers and others, along with their spouses, from getting their full Social Security benefits each month. Now, nearly three million Americans will find themselves with more net income.
Background
Social Security dates back to 1935 when Franklin D. Roosevelt signed into law the Social Security Act, a federal safety net for elderly, unemployed, disabled and disadvantaged Americans. The law stipulated payment of benefits to retirees over age 65 based on lifetime payroll tax contributions. Two subsequent provisions, the Windfall Elimination Provision and the Government Pension Offset aimed to equalize benefits for public service workers, the thought being that someone receiving a government pension should not also receive Social Security benefits under the same formula as a retiree with no similar pension.
Enacted in 1983, the Windfall Elimination Provision adjusted the Social Security benefit formula for individuals who receive non-covered pensions (pensions from jobs where Social Security taxes were not withheld) and qualify for Social Security benefits based on other Social Security-covered earnings. Congress passed the WEP to prevent those receiving non-covered pensions, such as state or local government employees, from receiving higher Social Security benefits. While intended to prevent double-dipping, it penalized millions of public employees who also worked in Social Security-covered jobs. The Government Pension Offset is similar to WEP, except that it affects the spousal and survivor benefits of someone receiving a non-covered pension. Under the GPO, these benefits were reduced by two-thirds of the non-covered pension amount. This meant that a widow(er) receiving a survivor benefit would see a significant reduction once they began drawing their public pension.
Both the WEP and GPO have been highly controversial over the years primarily because they impact Social Security benefits in ways that many see as inequitable or overly complex. Through the WEP, reductions in Social Security benefits can disproportionately affect lower-income workers who rely on these benefits for retirement income. At the same time, the GPO has been seen to unfairly penalize individuals who earned benefits through their spouse’s Social Security contributions.
Recent Legislation
The Social Security Fairness Act, HR 82 eliminates both the WEP and GPO. By repealing the WEP, Social Security gets fully restored to affected individuals, ensuring they receive the same benefits as other workers with similar earnings histories. The repeal of the GPO will allow affected individuals to receive full spousal and survivor benefits without offsets. This will simplify a complex system, increase retirement income and improve financial security for millions of public-sector workers and retirees. It is estimated that repealing the WEP may lead to an extra $300 to $500 per month in Social Security payments, whereas others could see an additional $1,000 or more per month with the repeal of the GPO. These increases are slated to go into effect around December 2025. In addition, they are also supposed to be retroactive to January 2024, so a sizable lump sum check could be coming to millions of Americans as a result.
However, restoring benefits translates into increased costs for a shrinking Social Security Trust Fund. Funding of Social Security already faces challenges, and this will certainly add to that. Congress may need to raise taxes, cut programs or make other reforms to Social Security.
Next Steps
Although the law is officially in effect, the Social Security Administration is still determining how to implement these changes. If you or someone you know are impacted by this change, no immediate action is required as adjustments to benefits will be made automatically. If your Social Security benefits were previously reduced by the WEP or GPO, you do not need to reapply or contact the SSA. However, if you are impacted by GPO and never filed for spouses’ or surviving spouses’ benefits, or if you are not sure whether you ever applied for spouses’ or surviving spouses’ benefits, you may need to file an application. The date of your application might affect when your benefits begin. Filing sooner may help you get a higher benefit amount.
An increase in Social Security income creates a significant opportunity for individuals and families. This money could be used to start an emergency fund, pay down debt and invest for various goals. A financial plan can be a great place to start or revisit with a shift in family income like this one to make sure you are using this income increase in the best way possible for your specific situation. If you would like to develop (or revisit) a financial plan, or if you have any other questions or concerns, please reach out to your Relationship Manager.
