By Reg Jones
Q. Can I reduce or eliminate the windfall elimination provision reduction by continuing to work? I am now 62, and about to receive a modest deferred CSRS Offset pension. I also have 24 years of substantial earnings in Social Security. If I continue to accumulate substantial earnings, can I get up to 30 years, at which point the WEP penalty disappears? That is, if I don’t apply for Social Security until I’m 70, will they calculate the WEP based on my earnings record as of age 62? Or will they wait until I apply for Social Security?
A. As I understand it, the WEP is based on the number of years of Social Security-covered service you have at age 62, whether or not you apply for a Social Security benefit.
August 31st, 2013 at 3:49 pm
WEP can be excruciatingly complicated to figure out. However, according to discussions with SS, as long as you have ‘substantial earnings’ as defined by their WEP chart, those extra years worked continue to count beyond age 62. And yes you can eliminate the WEP impact by accruing 30 years ‘substantial earnings’. If you continue to work you continue to accrue SS earnings.
The age 62 in the WEP cart denotes the amount of maximum reduction to how the SS is calculated for your eligibility year. If you read the SS WEP handout, you’ll see they describe a 3 tier calculation. The WEP reduction is applied to the first tier calculation, which then produces a lower total benefit. The reduction is zero with 30 years SS accumulated. Remember, SS uses 90% x tier 1, so 29 years is 85%x tier 1, etc.
The advantage of working to age 70 and deferring SS is the extra 32% increase in SS benefits which often helps the CSRS-offset employee by improving the total SS benefit. Accumulating 30 years SS is optimal.
The disadvantage is that there will be a reduction in CSRS benefits from the additional years worked as an CSRS-offset employee. You can eliminated the WEP reduction to SS but not the SS reduction to CSRS-Offset.
Finding the optimal time to retire under CSRS-Offset is tricky. The CSRS annuity is permanently reduced (offset) by that portion of the Social Security retirement benefit that is attributable to the period of time covered by CSRS Offset. The SS that accrues outside of federal employment is not used in the CSRS benefit reduction calculation. So you may have 30 years of SS earnings but only a portion applies to the CSRS offset of benefits.
To Calculate SS adjustment to CSRS, take the number of offset years and months rounded, divide by 40 to get a fraction and then multiply that by the amount of SS benefit. That would be pretty close to the amount that CSRS would be reduced, or ‘offset’.
To get a pretty close number for the SS benefit (and any impact of WEP) I’d recommend downloading the benefits calculator from Social Security where you can plug in all your own numbers. It will come in pretty close and will calculate the SS benefit. You can see how adding more years would affect WEP and your SS.
For CSRS, I’d recommend getting a benefits estimate ASAP, but staff is helped if you’ve already calculated out how much your SS would be and how many years of offset you have.
At some point, there is a crossover, or break point after which accumulating more years as an offset employee cause the total combined benefit of SS and CSRS to actually go down (as a federal employee). For my spouse that occurs after he turns 71, so he’ll retire around that time, which fortunately coincides with getting 30 years into SS eliminating WEP.