Big changes are on the horizon for retirees impacted by the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). The Social Security Fairness Act, signed into law on January 5, 2025, is expected to increase benefits for millions of retirees while introducing new challenges for the Social Security system. In todays podcast, I will break down what this means for you and how to adapt your retirement strategy to these changes. Plus, be sure to listen to the end to learn about our new updates to the Retirement Budget Calculator that help you stress-test your Social Security strategy.

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Articles, Links & Resources:

ssa.gov/thereforme
https://www.ssa.gov/benefits/retirement/planner/gpo-wep.html
Social Security Fairness Act Press Release from Jahana Hayes
Social Security Program Operations Manual for GPO
Social Security Program Operations Manual for WEP
Social Security Website for the new Social Security Fairness Act
Wall Street Journal Article about the new Social Security law
Social Security Contribution and Benefit Base
Kitces.com on the new Social Security Fairness Act

Transcript:

446 Understanding WEP and GPO- What the New Law Means for Social Security

Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now, here is your host, Jason Parker.

Jason Parker: America, welcome back to Sound Retirement Radio. So glad to have you joining us for this show.

Big changes are on the horizon for retirees. impacted by the Windfall Elimination Provision, we’ll call it WEP, and the Government Pension Offset, commonly known as GPO. The Social Security Fairness Act was signed into law on January 5th, 2025. It’s expected to increase benefits for millions of retirees.

While introducing new challenges for the social security system. So in today’s podcast, I’m going to break down what this means for you and how to adapt your retirement strategy to these changes. Plus, be sure to listen to the end to learn about new updates to the retirement budget calculator that help you stress test your social security strategy.

But before we get started, I like to start the day by renewing our mind. And I’ve got a verse here for us from Colossians chapter three, verse 12. Therefore, as God’s chosen people, Holy and dearly loved. Clothe yourselves with compassion, kindness, humility, gentleness, and patience. And then of course, a joke for the grandkids.

Why did the golfer bring two pairs of pants? In case he got a hole in one. Remember, articles, links, and resources can be found at soundretirementplanning. com Just click on episode number 446 and anything mentioned in today’s show I’ll have some resources there for you. If you worked in a job where you paid into social security and earned benefits by contributing at least 40 quarters, but you also had a job where you did not pay into Social Security, such as one with its own pension system, you may have been affected by the Windfall Elimination Provision or the Government Pension Offset when filing for Social Security benefits.

Careers that were commonly impacted by the WEP or the GPO include those under the old CSRS system for federal government employees who were hired before 1983, as well as firefighters, police officers, teachers, and state or local government workers. Additionally, individuals who worked abroad in jobs where they did not contribute to the U.

S. social security system may have also been affected. However, this new law will not impact individuals who retired under the FERS program, Federal Employees Retirement System program, as FERS employees contributed to Social Security during their careers. In 1983, legislation was enacted to make Social Security calculations more fair and impartial by adjusting the formula used to determine benefits.

The changes were designed to account for cases where individuals received a government pension from a job in which they did not pay into Social Security while also qualifying for Social Security benefits by having at least 40 quarters of contributions. Without this adjustment, the formula could overestimate the proportion of income that Social Security was intended to replace.

as it did not accurately consider the years spent contributing to a separate pension system. The introduction of the Windfall Elimination Provision and the Government Pension Offset aimed to address this discrepancy. However, these provisions were often viewed as unfair by those affected. Many of these individuals had contributed to both Social Security and a pension system, but saw their Social Security benefits reduced, in some cases to zero, solely because their pension came from a job that did not require social security contributions.

And this reduction felt punitive to many who had worked hard and paid into both systems. The windfall elimination provision considered how many years of substantial earnings you had while paying into social security. If you worked and contributed to social security for more than 20 years before taking a job that did not require social security contributions, The benefit reduction under the Windfall Elimination Provision was gradually lessened, and for those with 30 or more years of substantial earnings, there was no reduction to their Social Security benefits due to the Windfall Elimination Provision.

The Government Pension Offset was designed to reduce spousal and survivor benefits for individuals who received a government pension from a job that did not participate in the Social Security system, but who were also eligible for Social Security spousal or survivor benefits. If the government pension is significant, it’s sometimes resulted in spousal or survivor benefits being reduced to zero.

The windfall elimination provision currently affects approximately 2 million social security beneficiaries. And according to estimates from the congressional budget office, eliminating the windfall elimination provision would increase monthly benefits by an average of 360 per month by December of 2025.

The government pension offset is estimated to impact nearly 800, 000 retirees and the Congressional Budget Office projects that eliminating the GPO would result in an average increase of 700 for about 380, 000 affected spouses. And 1, 190 for approximately 390, 000 surviving spouses by December of 2025.

And these changes could provide a significant financial boost to individuals whose benefits have been reduced under these provisions. According to the Congressional Budget Office, as reported by the Wall Street Journal, The states with the highest proportion of social security beneficiaries impacted by the government pension offset are Alaska, Colorado, Louisiana, Ohio, and Massachusetts.

And then in a similar manner, the states with the highest share of social security beneficiaries affected by the windfall elimination provision are Alaska, Nevada, Colorado, Louisiana, Ohio, Massachusetts, and Maine. And if you want to read more about this, I’ll include a link to the Wall Street Journal article in the show notes.

If you paid into Social Security but also worked in a job where you contributed to a pension system instead of Social Security, And your social security benefits, spousal benefits, or survivor benefits may have been impacted by the windfall elimination provision or the government pension offset. You may now see an increase in your benefits.

And the Social Security Administration has noted that there’s no immediate action required on your part, aside from ensuring that your mailing address and direct deposit information is up to date. There are currently no additional actions required for automatic adjustments under the law. Most people can make sure that everything is up to date through their personal My Social Security account online.

And there’s a notice on the Social Security website saying that there’s really not a need to call or visit a Social Security office. And there’s still a lot of uncertainties about how and when these changes will be implemented. And I’ll include articles, links, and resources in the show notes at soundretirementplanning.

com. Just click on episode 446. Uh, and these articles will help you stay informed. The Congressional Budget Office estimated that repealing both the Windfall Elimination Provision and the Government Pension Offset will cost approximately 198 billion over the 10 years from 2024 to 2034. However, there’s also going to be a small offset to that price tag in that some individuals who currently receive Supplemental Nutrition Assistance Program benefits may see a reduction in their SNAP assistance due to their increased Social Security income.

This reduction in SNAP benefits is projected to save 2 billion over the same period, so it’s partially offsetting the cost of the repeal of the windfall elimination provision in the government pension offset. The Congressional Budget Office also reports that eliminating the windfall elimination provision in the GPO government pension offset is expected to advance the exhaustion date of the Social Security Trust Fund by approximately six months.

So the good news is, if you were impacted by WEP or GPO, your benefits may increase. If you have not yet filed Social Security because you believed that the GPO would have significantly reduced or eliminated your benefits, you should consider filing now to become eligible for any benefits that you now may become entitled to.

Although the new law eliminating the WEP in the GPO was signed in January of 2025, the changes will apply retroactively to January 1st, 2024, and it remains unclear whether retroactive payments will be issued as a lump sum or through increased monthly benefits. Because these additional payments will put more pressure on the social security system’s solvency, we have to consider the impact a future reduction could have on your retirement.

And you probably heard that old saying, don’t shoot the messenger. When I recently posted a video on YouTube about the potential for social security cuts, I received this comment on the video. They said, fear mongering. Cuts to social security won’t happen. And I have to tell you, this is not fear mongering.

If anything, I consider myself to be an optimist who’s trying to reduce the fear that people have around retirement. But at the same time, we need to be prudent. And when the social security trustees report has been saying for years to prepare for the possibility of a future reductions to benefits, I think we need to seriously consider it in our planning.

It’s just silly to bury your head in the sand and pretend like everything’s okay. When there is indeed a risk that needs to be considered. So on my most recent social security statement, at the very bottom of the first page, there’s a link to ssa. gov forward slash there for me, and I’ll include this link in the show notes.

Clicking on this link opens a PDF infographic designed to help us understand the current viability of social security. The infographic explains that social security is supported by two trust funds, the old age and survivorship insurance. OASI and the Disability Insurance, DI, funds. These trust funds can only pay benefits if they have sufficient reserves.

It notes that while the OASI and the DI trust funds have faced potential depletion in the past, Congress enacted significant reforms in 1977 and 1983. which helped stabilize the program and build the 2. 7 trillion currently held in trust funds, almost 2. 8 trillion currently held in trust funds. Remember that some of those reforms included the taxation of social security income, increased payroll taxes, a gradual increase in the retirement age from 65 to 67, as well as the windfall elimination provision and the government pension offset provisions to name a few.

The notice highlights that the combined OASI and DI trust funds are projected to pay full benefits in full and on time until 2035. Even if no legislative changes are made before 2035, the trust funds will still be able to pay approximately 83 percent of scheduled benefits beyond that point. And this underscores the importance of ongoing planning and, on a broader level, about our elected leaders implementing reforms to ensure the program’s long term sustainability.

Now, you can take no responsibility and just hope that the government figures things out, or you can be proactive and take matters into your own hands to understand how future changes could impact your plan so that you can make the necessary adjustments. And look, I get it. When people hear that one of their primary sources of inflation adjusted, tax efficient income, social security, could be reduced in the future, It can understandably cause concern.

Many individuals base their retirement planning decisions on the expected amount of Social Security income they’re going to receive. In many instances, Social Security is the only guaranteed income that people have in retirement. So to help address these concerns, we’ve added a new feature in the Retirement Budget Calculator under the Scenario section.

This feature allows you to model the potential impact on your retirement plan if Social Security benefits were reduced by 17 percent starting in 2035. The current projection of 2035 as the depletion date was calculated before the passage of the new Social Security Fairness Act. The Congressional Budget Office estimates that this new legislation may advance the depletion date by approximately six months.

So with this new feature in the calculator, you can stress test your retirement plan and gain greater confidence in preparing for potential changes to social security benefits. The new law places additional financial strain on a already strange social security system, making it reasonable to begin thinking about potential changes Congress might implement in the future based on how they modified things last time.

Here are a few things we might consider. Number one, higher taxation. Congress could introduce an increase in the taxation of Social Security. 50 percent of Social Security became taxable in 1983 under Ronald Reagan. And then in 1993, Bill Clinton signed legislation that increased Social Security from 50 percent to as much as 85%, depending on how much other income you had using a formula called Provisional Income Rules.

Number two, payroll tax increases. Another possibility is an increase in payroll taxes to bring more funding into the social security system, similar to the 1983 legislation. Number three, raising or eliminating the wage cap. In 2025, wages up to 176, 100 are subject to social security taxes. Congress might raise this cap or eliminate it altogether to generate additional revenue for social security.

Number four, raising the full retirement age. Changes to the full retirement age have already occurred in the past. It used to be 65, and then it increased to 66 in a few months. And for those who are my age, full retirement age is now 67. So it’s possible that Congress could further increase the full retirement age to 68 or later.

And then number five, reducing delayed retirement credits. Currently, individuals earn an 8 percent increase in benefits for each year that they delay claiming Social Security beyond their full retirement age, up to age 70. With advances in medicine, science, and technology extending lifespans, the actuarial break even point for delaying benefits may shift, and this could lead to a reduction in the delayed retirement credit percentage.

These are just a few of the things that I’m thinking about, and I’m not a fan of trying to predict what the future or what changes Congress may make, but we can plan for the future. Being aware of these possibilities can help us plan for a secure retirement. The future is uncertain and it is risky. The more time we spend imagining what could happen, the easier it is to spiral into all kinds of what if scenarios.

This is why I personally find comfort in the wisdom of do not worry about tomorrow, for tomorrow will worry about itself. Worry and anxiety often stem from concerns about what might happen in the future. One way to manage worry is to focus on today. While preparing thoughtfully for tomorrow, change is a constant and many people want to know if they can retire comfortably and stay retired.

Taking a planning first approach to retirement allows us to build models that stress test your plan, helping you understand how potential changes could impact your specific situation. Retirement planning isn’t something you do once and forget about it. You don’t print off a bunch of papers and then go stick them in a cupboard somewhere.

It’s an ongoing process of adapting to life’s uncertainties to build resilience. Social security is one of the key decisions in retirement planning, but it doesn’t have to be a source of worry. The goal is to optimize it by evaluating when to start benefits, how to maximize income over two lifetimes, how to minimize taxes and how to prepare for your spouse to be financially secure.

This guaranteed income from Social Security, which you’ve contributed to, plays an important role in your overall cash flow plan. And retirement is all about cash flow. Your income determines your lifestyle in retirement. And planning for cash flow is fundamentally different from the accumulation phase of your financial journey.

Flexibility is critical when planning for the future. By building a margin of safety into your plan, we can better prepare for the unexpected. Life changes are inevitable, but with a strategy focused on adaptability and resilience, your retirement plan can remain strong, thoughtful, ongoing planning, Integrated with a smart investment strategy is key to navigating the future with confidence.

Announcer: Thank you for tuning in to Sound Retirement Radio. For articles, links, and resources from today’s show, visit sound retirement planning.com. If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning head over to retirement budget calculator.com.

Need assistance with investment management, explore our services at Parker Financial. Information and opinions expressed here are believed to be accurate and complete. For general information only, it should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products.

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Investing involves risk. Jason Parker is the president of Parker Financial, LLC, an independent fee based wealth management firm located at 9230 Bayshore Drive NW, Suite 201, Silverdale, WA. For additional information, call 360 337 2701 or visit us online at soundretirementplanning. com.