How the WEP and GPO Affect Retirement Income

The GPO Calculator shows that Jill’s spousal benefit will be completely offset. The most she can expect to receive is $192 per month on her own earnings record.

The Effect of Social Security Rule Changes

Before the Bipartisan Budget Act of 2015 was signed into law, you likely recommended that clients consider the file and suspend strategy, which aimed to maximize a couple’s Social Security benefits over their lifetime. With the recent legislation, however, this popular strategy was eliminated, which has left clients wondering how to get the most benefits from the system: claiming early or waiting until age 70. 

Private-sector workers. James and Tina are both turning 66 next month. They have full retirement age benefits of $2,600 and $500, respectively. Inflation and life expectancy assumptions are 2 percent and 88 years, respectively.

The claiming strategy that will give them the most cumulative benefits out of the system over their lifetime is as follows: 

• Tina claims her benefits at age 66 ($500).
• James files a restricted application for spousal benefits only at age 66 ($250).
• James switches to his benefits at age 70 ($3,715).
• Tina switches to spousal benefits at age 70 ($1,407).

Over the next four years, they will receive a combined $750 per month. Once they both turn age 70, their benefits will increase significantly to $5,122 per month. Alternatively, what if James had filed at 66 and Tina immediately claimed spousal benefits? Under this scenario they would have received $3,900 per month over the next four years. Most important, the crossover point where the delayed strategy catches up is estimated to be between ages 83 and 84. 

Now let’s revisit Jill and Jack. The WEP reduces the government worker’s Social Security benefit, as well as the spouse’s benefit, since it is based on the worker’s benefit. It can, however, still make sense for the spouse with the higher Social Security benefit to delay claiming until age 70 and instead file a restricted application for spousal benefits.

• In Jack’s case, at age 66, he could receive a check for one-half of Jill’s WEP-reduced benefit of $192, which comes to $96 per month.
• Although the WEP reduces how much Jack can receive as a spouse now, what’s important is that he is accruing delayed retirement credits on his record.
• At age 70, Jack can claim his own worker benefit, which will have grown from $2,500 to $3,330 per month.
• Further, claiming a $96-per-month spousal benefit for four years would have no effect on Jack’s future benefit, but if he didn’t claim it at his FRA, it would be money left on the table.

Managing Expectations

Given these provisions, it’s possible that clients who are eligible for both pensions and Social Security benefits won’t receive as much retirement income as they may have expected. But if you proactively address the impact of the WEP and GPO on your clients’ benefits, you can help ensure that they don’t encounter any financial surprises during their retirement years.

Learn how to cover your clients’ pension and Social Security income gaps by downloading our Ultimate Retirement Income Planning Guide.

This material has been provided for general informational purposes. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult your tax, legal, or financial advisor regarding your specific circumstances.

This post originally appeared on Commonwealth Independent Advisor, a blog authored by subject-matter experts at Commonwealth Financial Network^®, the nation’s largest privately held independent broker/dealer–RIA.