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How Pensions Affect Social Security and Medicare Benefits

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Social Security provides benefits for individuals and spouses/widow(er)s. Social Security requires that a person’s Social Security retirement benefits be balanced by certain other retirement benefits.

Pensions from work where Social Security taxes were taken do not affect the amount of your Social Security benefit. On the other hand, pensions from work where no Social Security taxes were subtracted may result in lower Social Security benefits.
There are two calculations used to balance Social Security benefits with federal pension benefits resulting from non-covered work. One calculation affects SS benefits you receive as a spouse and the other affects SS retirement benefits you receive on your own.

  • FICA tax – Refers to the Federal Insurance Contribution Act. The Act authorizes taxes on earnings to fund Social Security and Medicare. In 2013, the SS portion of the tax is 6.2% of the first $113,700 of earnings for the worker and the employer for a total tax of 12.4%. The Medicare tax is 2.9% with no income limit. Under the Affordable Care Act there is an additional Medicare tax (0.9%) on high income earners.
  • Covered Employment/Work – Pay for work where Social Security (FICA) taxes were deducted
  • Uncovered or Non-covered Employment/Work – Pay for work where no Social Security taxes were deducted
  • Non-covered Pension – Pension from a government job where no Social Security taxes were deducted
  • GPO – Affects Social Security spouse and widow(er) retirement benefits when the spouse is eligible for a government pension from non-covered work. The SS spouse/widow(er) benefits are reduced by 67% of the pension benefit.

    Example:

    Assuming a federal monthly pension from non-covered work of $3,000/mo., and eligibility for a SS spouse benefit of $500/mo.

    Result: 67% of $3,000 = $2,010; since $2,010 is greater than $500, you would receive
    no SS spouse benefit. There are exceptions where there is no reduction in SS spouse benefits. Learn more.
    WEP – Affects the Social Security benefits of individuals who receive a government pension from their own non-covered work and are eligible to receive Social Security benefits from covered work.

    Use the Social Security Windfall Elimination Program
    Calculator if you receive a pension for non-covered work and are eligible for Social Security benefits from covered work. Learn more.
    Social Security Credits – Eligibility for Social Security benefits requires earning at least 40 credits. In 2013, you receive one credit for every $1,160 earned to a maximum of four (4) credits per year. It takes approximately ten (10) years to earn 40 credits.

    In general, you must pay FICA taxes to earn Social Security credits.
    Learn more.
    Medicare:

    If you or your spouse is eligible for Social Security benefits, you are automatically eligible for Medicare benefits. Medicare benefits start at age 65.
    Learn more.

    Before Applying for Social Security Retirement Benefits (within one year to 3 mos.)
    • Find out if you are eligible for a government pension resulting from non-covered work. Contact your Human Resources/Personnel Department
    • Find out if you are eligible for Social Security benefits from your own covered work or as a spouse. Contact your local Social Security office
    • Coordinate retirement effective date with spouse – if you or your spouse retire early and receive benefits early it may permanently reduce your Social Security benefits

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    below for more information.


    When Can You Apply for Social Security Retirement Benefits

    The earliest you can apply for Social Security retirement benefits is age 61 and 9 months. Benefits start at age 62. If you elect to receive Social Security retirement benefits at age 62, your benefits are permanently reduced by approximately 25% (versus waiting until your full retirement age to receive benefits). You can delay receiving SS retirement benefits up to age 70 and receive a larger benefit amount
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    How to Apply for Social Security Retirement Benefits

    You can apply for Social Security retirement benefits online, in-person, or by phone. You can stop and start the online application process (picking up where you left off)


    1. Online application

    2. Apply at local SS office (Locate office)

    3. Apply by phone: Call 1-800-772-1213

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    Social Security Retirement Benefits Calculators

    Use these calculators to estimate your monthly benefits or the Windfall Elimination Provision (WEP) reduction

    1. Windfall Elimination Provision Calculator

    2. Social Security Benefit Calculator

    3. Life Expectancy Calculator

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