Getting ready for retirement requires an evaluation of all your sources of retirement income. Even if you worked for the government and didn’t pay the FICA tax on your earnings, you may be eligible for benefits from your spouse’s work under Social Security.
However, when you receive both your own non-covered government pension and a Social Security spousal benefit, your Social Security benefit may be reduced. The Government Pension Offset (GPO) reduces your Social Security benefit by two-thirds of your government pension.
Why are benefits reduced? Current law requires any beneficiary’s spouse, widow, or widower benefit to be reduced by the dollar amount of their own retirement benefit. For example, if a woman worked and earned her own $900 monthly Social Security benefit but was due a $500 wife’s benefit on her husband’s record, we couldn’t pay the wife’s $500 benefit because her own retirement benefit is the larger amount.
Before enactment of the GPO, if the same woman was a government employee who didn’t pay into Social Security but earned a $900 government pension, there was no reduction. We would have paid her the full amount of wife’s benefit, and she also received her full government pension. GPO ensures that we calculate the benefits of government employees who don’t pay Social Security taxes the same way as workers in the private sector who pay Social Security taxes. Applying the GPO in this example means since two-thirds of the government pension (2/3 of $900 = $600) is more than the wife’s benefit ($500), there is no wife’s benefit payable.
If you take your government pension annuity in a lump sum, Social Security will treat the annuity as if you chose to get monthly benefit payments from your government work. Payments from a defined benefit plan or defined contribution plan (e.g., 401(k), 403(b), or 457) based on earnings from non-covered government employment are considered pensions subject to GPO, if the plan is the employee’s primary retirement plan. To read more about GPO, review our factsheet, Government Pension Offset socialsecurity.gov/pubs/EN-05-10007.pdf or visit ssa.gov/planners/retire/gpo.html.
Understanding how the GPO will affect any spousal, widow, or widower benefits should be part of your retirement planning. Good planning is the best preparation for a secure financial future.
Essie Landry is a Social Security public-affairs specialist in the Sierra West area.