One of the more complicated provisions of Social Security relates to the impact of a government pension on the spousal, widow or widower benefit. Generally speaking, Social Security spousal benefits equal 50 percent of a retired or disabled worker’s benefit, and the survivor benefit 100 percent of a deceased worker’s benefit.
Understanding the GPO
According to Joseph Roseman Jr., managing partner of wealth management firm O’Dell, Winkfield, Roseman & Shipp, however, if an individual receives a pension from a federal, state or local government job at which they did not pay Social Security taxes, some or all of the spouse, widow or widower benefits may be decreased by the pension. Officially known as the Government Pension Offset (GPO) provision, it reduces spousal, widow or widower benefits by two-thirds of the pension from non-covered government employment.
The GPO applies to those who qualify for spousal benefits based on their partner’s work history in Social Security-covered employment and their own government pensions from work in government employment that was not covered by Social Security.
“If your [client’s] monthly government pension is $1,200, two-thirds – or $800 – would be deducted from [his or her] Social Security spousal benefit,” Roseman says. “If this same individual is eligible for a $1,000 spousal, widow, or widower benefit, the actual Social Security benefit would be $200 [$1,000 minus $800].”
The dual entitlement rule
Spousal benefits started in the 1930s in an effort to provide for women who were financially dependent on their husbands. Today, it’s more likely that the husband and wife are both working, and Social Security provisions have changed accordingly.
The “dual entitlement” rule, for instance, requires that a person’s spousal, widow or widower benefit be offset by the amount of his or her own retirement benefit.
“If a man or woman worked and earned an $800 a month Social Security benefit for themselves but were also due a $500 spousal benefit, they would be eligible for their benefit, but not the extra spousal benefit,” Roseman says.
Prior to 1977, when the GPO provision was enacted, the spouse would have received both the $800 and the $500 – even if he or she had never contributed to Social Security themselves.
Doug Keegan, regional director for Edelman Financial Services, admits that there are many moving parts to spousal benefits and government pensions. Some individuals, for example, are exempt from the outset, so it makes sense to sit down and discuss the many nuances with the client.
“There aren’t quick and easy answers,” he says.
And while people have come to rely upon and expect Social Security to be there when they retire, the reality can be much different. And in addition to the GPO and dual entitlement rule, other provisions can easily reduce benefits.
“Unfortunately, too many people wait and find out that they might not get what they expect,” he says. “It’s better to have a financial plan in place well before you retire to take a look at the many issues that can impact your retirement.”