How the Social Security Fairness Act Affects Claiming Strategies

The first example considers a 50-year-old woman, who worked in the private sector for several years and then took a job as a public school teacher, who has a $1,400 primary insurance amount (PIA) for Social Security. In short, the case study shows she will now be significantly better off in retirement.

If she plans to file at age 65, she will receive an additional $393,249 in benefits through age 90 with the repeal of WEP. This would nearly double her Social Security income. With an average benefits increase of over $15,000 per year, she may be able to retire earlier or increase her standard of living, while decreasing her longevity risk since Social Security is a guaranteed source of lifetime income.

In another example, a 72-year-old retired firefighter who spent part of his career as a private-sector consultant (for which he paid FICA tax) and has been collecting Social Security for almost a decade will receive a more modest benefit bump.

As he didn’t earn enough to see a full WEP reduction, but a partial elimination of $250 each month, his monthly income will increase by that amount. He will also receive a lump sum payment for 2024 benefit reductions.

Two GPO Case Studies

Next, the analysis considers a married 50-year-old with a $5,000 monthly pension, who has a spouse entitled to a $2,500 retirement benefit. Under the old rules, this spouse would effectively receive no spousal benefit, because two-thirds of her $5,000 pension ($3,333) exceeds her potential $1,250 spousal benefit.

With the elimination of GPO, however, they will now be eligible for $633,221 in projected lifetime spousal benefits through age 90 — completely reshaping their retirement income projection.

Another case study considers a 62-year-old worker who is divorced and has recently become eligible for Social Security benefits through her ex-husband. The woman never paid into Social Security, but her high-earning ex-husband has a $3,600 primary insurance amount.

With the repeal of GPO, she can now collect an ex-spousal benefit without restrictions — though she should work with her advisor to make the best filing decision. This will require consideration of two key points, according to HealthView Services.

On the one hand, filing now, prior to her full retirement age, would result in a permanent decrease in benefits. So, instead of $1,800 per month, she’d only get $1,170.

Second, she is still subject to the retirement earnings test, which limits how much she can earn from work while collecting Social Security prior to her FRA. Thus, she may have to retire in order to benefit from the newly available ex-spousal benefit.

The Bottom Line

According to both Elsasser and the HealthView Services report, the Social Security Fairness Act will have a significant impact on Social Security benefits received by current and former public sector employees and their spouses, ex-spouses and survivors.

In sum, they are expected to receive an additional $20 billion a year over the next decade — a figure that will transform the retirements of many who have been subject to WEP and GPO.

However, it will be important for clients to work with financial advisors to understand both gross and net benefits after taxes and Medicare deductions.

Pictured: Joe Elsasser