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Retirement Planning > Social Security > Claiming Strategies

Social Security Claiming: The Case of the Pension Offset

By John Manganaro

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This is the latest in a series of biweekly articles featuring Social Security claiming case studies drawn from the ALM publication “2024 Social Security & Medicare Facts,” by Michael Thomas with support from Jim Blair, a former Social Security administrator, and Marc Kiner, a planning expert with extensive experience in public accounting.

The Scenario: High-Earning Couple With a Pension

Larry and Judy are a married couple. Larry is a high earner who spent his career in the private sector, with all of his wages covered by Social Security. Judy worked most of her career in employment that was not covered by Social Security and is eligible for a pension from that work.

Judy also has some work covered by Social Security and has earned her 40 credits, but her own benefit for covered work will be reduced due to the windfall elimination provision (WEP).

Related: Top 10 Things Investors Get Wrong About Social Security

Before the WEP offset, Judy’s Social Security benefit would be $571 per month at her full retirement age of 67 in February 2029, given her birth year is 1962. The WEP reduces this benefit to $254.

Judy’s non-covered pension also affects her spousal and potential survivor benefit. These benefits are reduced due to the government pension offset (GPO) by two-thirds of the amount of her non-covered pension.

Judy’s non-covered pension is $1,476, and therefore her spousal and potential survivor benefits are reduced to $984. As a result, Judy is not eligible for a spousal benefit at age 62 or age 70.

Having been born in late 1957, Larry’s FRA is 66.5, when his full worker benefit is $2,589.

Judy has an actuarially projected death age of 87, while Larry is expected to live to 84.

What the Numbers Say

Given this complex starting scenario, Larry and Judy have as many as nine different claiming scenarios to consider, and the difference in the projected lifetime benefit between the most and least optimal strategies is about $100,000.

The least effective strategy would have Larry file for a slightly reduced worker benefit of $2,517 in January 2024 at age 66 and one month. Then, in February 2032, Judy files for her maximum worker benefit of $314 at age 70, and she eventually transfers to collecting a survivor benefit of $1,533. This strategy delivers a lifetime projected benefit for the couple of $723,965.

A very slight increase in benefits would come if Larry followed the same path but Judy filed in March 2024 for her reduced worker benefit of $178, before again switching to the survivor benefit of $1,533. This approach delivers a projected benefit of $724,011.

Another small increase comes from assuming Larry instead waited to file for his full worker benefit of $2,589 in June 2024, while Judy waits to file for her maximum worker benefit ($314) in February 2032. She would then expect to collect a larger survivor benefit of $1,605, resulting in a projected lifetime benefit for the couple of $732,980.

Another small jump in benefits comes from assuming Larry filed for his full worker benefit ($2,589) in June 2024, while Judy waits to file for her own full worker benefit ($254) in December 2029. Judy then also files for her small $57 spousal benefit — given she is 67 — before later switching to a survivor benefit of $1,605. This results in a projected total benefit of $743,644.

A bigger boost to the benefit projection comes from assuming Larry waits until age 70 in December 2027 to file for his maximum worker benefit of $3,313, while assuming Judy filed in March 2024 for her reduced worker benefit of $178. Judy again eventually switches to a survivor benefit, this time of $2,329, resulting in a projected lifetime payout of $811,080.

The optimal strategy also sees Larry wait until age 70 in December 2027 to file for his maximum worker benefit of $3,313.

But in this case, Judy waits until February 2029 to file for her full worker benefit ($254), at which time she also becomes eligible for a small spousal benefit of $56. Then, she eventually switches to a survivor benefit of $2,329, giving the couple a projected lifetime benefit of $821,698.

Credit: Chris Nicholls/ALM/Adobe Stock

John Manganaro

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