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How Pensions May Affect Social Security Pay

How Pensions May Affect Social Security Pay.

Article By : Patrick Mansfield | U.S. Gov Connect

Social Security is the primary and main source of income for the majority of retired Americans. In some cases, retirees have additional sources of income, such as retirement plans, to supplement Social Security payments. However, those who also receive pension payments from their employers may sometimes find that their Social Security payments will be negatively affected. 


During work, employees, along with their employers, pay into the Social Security system via a withholding tax. Employees subsequently can collect payments from Social Security once they retire. In general, the more that one works before retirement, the more such taxes he pays and the more he will receive during retirement. Pensions can also be thought of in this manner: using employee and employer contributions, they get built up during the course of an employee's career, and the employee then collects the payments after retirement. 

Private Versus Public Pensions 

Pensions that are provided by private employers work in much the same way as Social Security does: contributions are built up during the employee's career and the employee receives payments upon retirement. Such contributions and payments are completely private and not related to the government. On the other hand, pensions from public employers sometimes come at the expense of Social Security. The reason for this is that some public pensions schemes are provided instead of Social Security, whereby employers provide their own pensions plans and thereby do not pay Social Security taxes. Since no such taxes are paid, employees may ultimately be at least partially ineligible for Social Security payments. 

Will Your Social Security Payment Be Affected? 

If you are receiving pension payments upon retirement, your Social Security payments may be affected. The following guidelines provide a summary of when or how this may be the case:

Private Pensions: Private pension plans are not affected because Social Security taxes have been paid and therefore, you will receive Social Security payments without any issues.
Public Pensions: If you have a pension from a government employee, the effect on your Social Security payment depends on your employer and whether or not he has paid Social Security withholding tax. If he did not, then the Social Security Administration will take the pension into account and may reduce the Social Security payments that you would otherwise receive.

Windfall Elimination Provision

If you receive public pension payments, the Windfall Elimination Provision may cut your Social Security Benefits by up to $408 per month or half the amount you receive from your public pension, whichever is less. This partially depends on how many years you're worked while having paid the Social Security withholding tax. The exact amount is determined by a somewhat complicated formula, but the intention is to eliminate the standard preference in benefit calculations that Social Security gives to workers with lower average incomes.

Government Pension Offset

 This provision can affect you if you receive a public pension as well spousal or survivor benefits from Social Security. Here, your Social Security payment can be reduced by two-thirds of the amount that you receive from your public pension with no cap. As a result, it is possible for someone to see their entire Social Security payments disappear.

In summary, most people do not have to worry about pension payments negative affecting their Social Security income. However, if you have worked for a public employer, your Social Security payments may be impacted. Is therefore highly advised that you take a look at your current employer and your employment history to determine if you may be affected. It is better to be prudent and perform the due diligence now to avoid facing surprises when you are about to retire.
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