INmail: Navigating Social Security benefits and public employee offsets

Scott: I have clients where both spouses were born in 1952 and therefore eligible to claim Social Security benefits as a spouse while allowing their own retirement benefit to continue to grow up until age 70. The husband, who continues to work as a public employee in California, has never paid into Social Security and will receive a public pension when he stops working in a few years. The wife plans to claim Social Security at age 70. Can her husband claim Social Security spousal benefits on her earnings record?

MBF: Public employees in about a dozen states, as well as federal employees under the old Civil Service Retirement System, do not participate in Social Security and are not subject to payroll taxes.

Consequently, they are subject to two rules that could reduce or eliminate potential Social Security benefits if they receive a pension based on work where they did not pay FICA taxes.

The Windfall Elimination Provision applies to public-sector employees who worked at least 10 years in the private sector. They may receive a Social Security benefit but those benefits can be cut in half if they also receive a public pension.

A separate rule, the Government Pension Offset provision, can reduce any potential Social Security spousal or survivor benefit by two-thirds of the amount of their non-covered pension.

I suggest one spouse delay claiming Social Security until age 70 to create a larger survivor benefit. But I do not recommend this strategy when one spouse is subject to GPO since they are unlikely to receive a Social Security survivor benefit, depending on the size of their pension.

The husband can file a restricted claim because he was born before Jan. 1, 1954. The GPO reduction doesn’t kick in until he gets his pension. But he can’t collect a spousal benefit until his wife claims her Social Security. He can collect a spousal benefit even though he’s working because earnings restrictions disappear at full retirement age. The wife should file for Social Security ASAP and the husband should file a restricted claim now before he gets his pension.

Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.