Retiring With A Pension And Social Security-Things You Must Know In 2024

In case you are retiring with a pension and social security only then you must consider whether you can receive both or not, will you get full social security or not, can WEP affect your social security, will your pension reduce social security benefits, and many more.  

Retiring with a pension and social security only?

If so then you must optimize the full benefits of them to ensure your financial security. For that, you must consider whether anything can reduce your social security retirement benefits or not. But how will you know? 

In this post, I am going to explain all the things you must consider for retiring only with a pension and social security. Moreover, I will also explain things like WEP, GPO, spousal retirement benefits, Social Security 5-year rule, and many more. So, stick here till the end. 

Retiring With A Pension And Social Security

When retiring with a pension and social security, the first thing you should consider is whether you are getting both pension and social security or not  

Almost all US workers are eligible for a pension. It can be either 401k or Defined benefit pensions. However, not everyone is eligible for social security. So, let’s start by finding out whether you are getting social security or not. 

Am I Eligible For Social Security?

If you have paid social security taxes in your payroll deductions or income tax and gained 40 social security credits then you are eligible for social security benefits at the age of 62. 

Social security benefits are a special type of retirement plan. It is based on your lifetime income and the amount you get varies from person to person. However, not everyone gets it. 

Because to get full social security benefits you must pay social security taxes and gain 40 social security credits. Most social security taxes are paid from payroll deductions. However, not all employers are required to collect the tax from your payroll. 

Some federal employees retirement system like the railroad does not withhold social security taxes from employees. Moreover, some private companies and immigrants do not pay social security taxes.

As a result, these civil service retirement system and private systems do not ensure social security benefits for their employees.

On the other hand, self-employed people also get social security. But the person must pay income tax and gain 40 social security credits. 

So, please make sure you are eligible for social security. You can check by signing up on My Social Security or by contacting social security administration. Moreover, you can also find out your estimated benefits and social security statement there.

However, can you get both a pension and social security at the same time? 

Can You Collect A Pension And Social Security At The Same Time?

Yes, you can collect both pension and social security at the same time in case you have contributed to a pension plan and you are eligible for social security. 

There is no law that prohibits collecting social security benefits and pensions at the same time. 

So, in case you have contributed to a pension plan while working then you will get it no matter what. On the other hand, if your employment is social security covered then you will receive it too. But what about self-employed people? 

Yes, a self-employed person can also get both. But the self-employed person must contribute to either an IRA or a Solo-401k to get a pension as there is no company-sponsored 401k or another pension scheme for them. Moreover, they must gain 40 social security credits to get social security at retirement.  

Many people confuse social security and pensions. But they are not the same thing. Let’s have a look at the difference between them to understand better.  

Pension Vs Social Security

FactorsPensionSocial Security 
Social Security and  Pension DefinitionA pension is a retirement benefit from your employer. Social Security is a federal government-backed social insurance plan.
Eligibility You might have to contribute a portion of your income for a pension or your employer can also grant a pension. For getting social security benefits your employment must be social security covered. Meaning you must pay social security tax and gain 40 credits. 
Age RequirementsThough the retirement age is 65. But you can start getting pension benefits from 55. In certain situations, you can even withdraw your pension money before 55.  To get social security benefits you have to be at least 62 years old. 
WithdrawalYou can withdraw your pension as a lump sum or get it monthly.You can not withdraw social security benefits as a lump sum 
Pension and Social Security TaxesAll Pensions are taxable.Not all social security benefits are taxable.

By now you might have got the basic idea of pension and social security. But what if you are a government worker? Can you receive both? 

Can You Get A Government Pension And Social Security? 

Yes, you can get a government pension and Social Security. In fact, most government employee get social security and government pension.  However, there are situations when you get fewer social security payouts. 

Most government employees are required to pay Social Security taxes. This means that you have likely paid into the system for many years, and you are entitled to receive benefits when you retire.

The monthly benefit you receive will depend on how much you have earned over the years as well as on the age at which you retire.

In addition to Social Security, you will also be able to receive a pension from your government job. This pension will be based on your salary and the number of years you have worked for the government. 

However, not all government workers are eligible for social security. Because their organizations are not payroll tax covered. Moreover, if you receive both pension and social security then your social security might get reduced. 

Does My Pension Affect My Social Security?

In most cases, a pension does not affect social security benefits at all. However, in some rare situations, your social security gets reduced.  

Your pension does not affect your Social Security. However, if you worked at a job where you did not pay Social Security taxes and also worked for another job where you paid then your social security administration may cut some of your social security. So, how does a pension affect social security? 

How much will my Social Security be reduced if I have a pension?

Generally, your social security won’t be reduced if you have a pension. But if you fall under Windfall Elimination Provision or WEP then your social security can be reduced by up to  50%. 

As I have said before, if you have paid your payroll taxes then you will get social security. However, most people change jobs. 

So, in your work life, you might have worked for a company that is covered by social security and also one that is not covered by a social security system. In simpler terms, your first employer cut social security taxes from your payroll and the second one did not. Moreover,  you receive a pension from the second company. 

Then Windfall Elimination Provision or WEP will come into play and reduce your social security benefits. The reduction can be as high as 50%. 

If you have paid social security taxes for 30 years then your social security won’t be reduced. WEP is also not applicable to military reservists. 

Now let’s find out whether you pay social security tax on your pension or not. 

Do I Pay Social Security On My Pension?

No, you do not pay social security taxes on your pension. 

Social security taxes are paid with payroll taxes. Your pension does not have any payroll tax. As a result, you don’t pay social security on your pension. Does social security come with spousal benefits? or are there any other social security beneficiaries?

Social Security Spousal Retirement Benefits 

After you pass away your spouse will be entitled to your social security retirement benefit. This includes both pension and social security.

In most situations, your spouse will receive the remaining retirement amount and social security. However, if your spouse has worked at a job that did not pay payroll tax then the spousal retirement benefits can get reduced or your spouse might not receive it at all.

This is known as government pension offset Or GPO. Find out the details on government pension offset.

Lastly, let’s look at some tips. 

Tips on Retiring With A Pension And Social Security

Here are a few tips 

  • Applying for social security payments at the age of 62 can reduce your social security benefit amount. So, apply at the full retirement age which is 65. 
  • You can get the highest social security if you apply at the age of 70. 
  • Getting retirement benefits before 65 can reduce your retirement income. So, wait until you reach full retirement age.  
  • Receiving your retirement early and as a lump sum can cost you a lot of tax.
  • Both you and your partner should gain knowledge of how government pension offset applies and act accordingly.

In Summary

Retiring with a pension and social security only can be tough. But if you optimize both of the benefits properly then it’s possible. For the best output, I’ll suggest you consult with an expert financial advisor.

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