Dear Carrie: I'm 69, worked 23-plus years in the private sector and I am still working in the public sector and receiving monthly Social Security payments. When I retire and start receiving public employee's retirement payments, there's supposed to be an "offset" of my Social Security benefits. Can you explain how this works? --A Reader
Dear Reader: While no one likes to think about their Social Security benefits being reduced, in a case like yours, where you've worked in both the private and public sectors, that's a very likely scenario. So you're wise to be looking into this now. You don't want to be basing your retirement income planning on inaccurate assumptions about how much Social Security you'll receive.
There are two provisions that can affect your benefits: The Windfall Elimination Provision and the Government Pension Offset. Each was designed to, in effect, even things out so that an individual wouldn't receive full Social Security benefits (SET ITAL) plus (END ITAL) a government pension and therefore have an unfair advantage over someone who worked only in the private sector.
The best place to get the full details on these two provisions is the Social Security Administration, but I'll give you some basic information to start with.
HOW THE WINDFALL ELIMINATION PROVISION WORKS
This provision affects people like you who have worked in the private sector long enough to qualify for Social Security benefits and also earned a pension from work in the public sector that didn't require paying Social Security taxes (for instance firefighters, police officers and public school teachers in some states). Since you're still working at age 69, you've had the advantage of collecting Social Security benefits while continuing to earn. However, when you retire from your public sector job and begin to collect a government pension, those Social Security benefits may be reduced.
The size of the reduction depends on a number of factors, including the year you reached age 62, how long you worked in the private sector and how much you earned there. For instance, if you paid Social Security taxes for more than 20 years and had what the SSA determines to be "substantial earnings," your benefit reduction would be less than someone who paid taxes for fewer than 20 years and earned less. In any case, the reduction in Social Security benefits can't be more than one-half of the pension from your public employment. And for someone who pays Social Security taxes for more than 30 years, there's no reduction at all.