Washington, DC - Social Security Matters by AMAC’s Certified Social Security Advisor C.J. Miles - Association of Mature American Citizens
QUESTION: I qualified for Social Security starting at age 16, working in grocery stores for a total of 22 “substantial” years and 8 “unsubstantial” years (as defined by the government). After 30 years of paying Social Security taxes and getting 30 years’ worth of “credits,” I pursued a career in education. Now that I am retiring, Social Security is telling me I’m getting a 40% cut in benefits. There are many occupations related and intertwined with government paid income that have retirement programs along with Social Security and Medicare. Why is it that teachers were targeted for this 40% deduction? Teachers’ pay overall is not that high. I really don’t think this is fair that the teaching profession is targeted.
ANSWER: The cut in benefits you are talking about is called the “Windfall Elimination Provision” (WEP). It does not just affect teachers, but anyone in a government profession that (1) provides a pension and (2) did not deduct Social Security taxes from its employees. Teachers are an extremely common example of people who are affected by WEP because they are seasonal employees. This means that they typically have other work in their lifetime, such as part-time work and summer jobs. These jobs would have Social Security tax deductions resulting in eligibility for Social Security at retirement age. But that is where things get tricky and you can get a cut in your benefit, such as you described.
First, not everyone will get a flat 40% cut in benefits. The actual cut is based on your number of substantial years. In order to get a full Social Security benefit (yes, that is possible), you will need 30 or more substantial years. It sounds like you are already aware that substantial earnings and the amount needed for a “credit” are not the same things. One of the reasons for this is that a year of substantial earnings is based on one full year, while you can receive 4 credits per year. To help differentiate between the two, everyone should understand that the amount of earnings needed to get a “credit” is much lower than the amount of earnings needed to qualify for substantial earnings. For instance, you need 10 credits to qualify for any Social Security benefit and you can earn 4 per year. In 2015 one credit is equal to $1,220, meaning you need to earn $4,880 to earn the full 4 credits for the year. On the other hand, in 2015 you need to earn $22,050 in “covered employment” in order for that year to count as substantial earnings. Covered employment is working for an employer (or self-employment) in which Social Security taxes are paid. Teachers do not generally pay Social Security taxes because of their pensions, but may be earning credits elsewhere, such as you did at the grocery store.
This is where your prior earnings are looked at to determine how many years of substantial earnings you have under covered employment. Assuming you have 10 credits (what is needed to get ANY Social Security benefit), the number of years of substantial earnings will determine (1) if you will receive a reduction in your benefit and (2) how much that reduction will be if you have one. Each year the amount you need to earn to qualify as substantial earnings changes (it was $900 in 1937, $5,100 in 1980, $9,525 in 1990, etc.). Note that 30 or more years results in no cut in benefits.
So regardless of how many substantial years you paid into the system, the biggest question you and others have is WHY? Why are you getting a cut in benefits at all? Social Security benefits are not a cut and dry calculation. Without getting into too much detail at this point, I will say that it is tiered so that people receive a higher percentage of the first part of average earnings and a lower percentage of the next part, and so forth. This is because benefit calculations were determined so that low lifetime earnings receive a larger percentage of their average earnings and higher lifetime earners receive a lower percentage of their average earnings.
What does this have to do with you and other teachers? Since the majority of your career was in teaching, a job that did not deduct Social Security taxes, your Social Security benefit would be calculated as if you were a low-wage earner under the normal calculation. Therefore, WEP was created to offset this imbalance. Think of it this way – if your benefit was NOT cut, you would receive a substantial amount more than others who paid the exact amount that you did. While I am not in any way providing my opinion, I want to make it clear to teachers and other government employees why this law was created. You still may not find it fair, and that’s okay. This is just why it is.