Following Up
Last week we discussed the Social Security Fairness Act and how it ended the Windfall Elimination Provision and Government Pension Offset processes that were used to reduce benefits for some Social Security filers.
This week I wanted to provide some additional information about the scope of the change and its potential impact.
First, the link below goes to a three-pager from the Congressional Research Service. Among other things, the paper discusses how, as of last month, over 3 million Social Security beneficiaries have seen their benefits reduced or eliminated by the WEP and GPO. California and a handful of other states account for roughly 60% of these numbers. Many of these beneficiaries could see hundreds of additional dollars per month tacked onto their Social Security benefits while others, such as spousal beneficiaries and widows(ers) could see, on average, nearly an extra $1,200 per month. And there’s maybe 6 million more workers that haven’t yet retired who can now plan for a WEP-less retirement. So this reversal is going to be a big deal for many households.
Remember this change is retroactive to January 2024, so monthly Social Security checks will rise for impacted folks and they’ll also get a lump sum for over a years’ worth of the difference. Even though not every Social Security dollar is taxable as income, this change will likely create some tax issues for recipients. It’s a good problem to have, of course, but you’ll want to address this issue with your tax advisor and/or humble financial planner.
But it’s going to take some time. The Social Security Administration hasn’t updated their site since I wrote about this last week but the speculation is that actually implementing these changes and getting money to impacted filers could take at least a year from now.
What should you be doing if you think this change will impact you? As I mentioned last week, you can call the SSA and follow the prompts I listed and that are also available on their website. Assuming you get someone on the phone, they should help you understand how this law change pertains to your specific situation.
The next best thing would be to get a current copy of your Social Security earnings record, a year-by-year list of how much income you’ve paid payroll tax on. You’d get this by registering for the portal at www.ssa.gov and then downloading a copy of your statement. Assuming your earnings seem correct, you can back into what your unadjusted Social Security benefit is likely to be. I don’t think SSA’s free benefit calculator can handle this sort of thing but I may be wrong. Other calculators exist that are arguably better anyway, or at least easier to use.
The following link takes you to a company called Covisum. This is a software company in my industry that created a free downloadable calculator to help with this process. The calculator is meant for financial planners and seems relatively straightforward, so it’s worth a shot if you’re a DIYer. Additionally, the company has a really good webinar on this topic and within the same link below that’s free to watch. It provides some good background and would be helpful for context even if you don’t use their calculator (and you certainly don’t have to!).
https://www.covisum.com/kitces-ssfa
I use software from another provider for this type of thing so I’m available to help as well.
Both the Congressional report and the webinar I just mentioned also address the looming issue of Social Security default. Doing away with the WEP and GPO provisions will help a lot of people, but this extra money only drains a leaking bucket faster, if you want to think of it that way. Apparently that difference speeds the 2033 to 2035 default timeline by about six months. Default in this context refers to the Congressional Budget Office estimating that the SSA would be able to afford benefit payments of about 78% of what they are currently – not running out of money by then and being able to fund 0% of payments. Still, a 20+ percent benefit reduction actually happening would be a massive problem for what by then would be an even larger percentage of our population.
See this SSA page for an update as of last August https://www.cbo.gov/publication/60679
Unfortunately that pours cold water on otherwise good news, but it’s the reality of the situation. As with the WEP and GPO repeal, Congress regularly gets the same essential recommendations on how to “fix Social Security”, so it’s not like there isn’t a plan. The difference with WEP and GPO was that, for at least a moment, there was the political will necessary to address the issue. I’m confident this will happen with the Social Security problem but, if past is prologue, it won’t be until the last minute. Since that’s a whole separate topic and I try to keep these posts short, we’ll save that for another day.
Beyond that, and to repeat myself, you’ll want to get into the details if you’ve been directly impacted by the WEP and/or GPO. Much of the leg work will be your responsibility but let me know if you have questions and I’ll be happy to help as much as possible.
Have questions? Ask us. We can help.
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