Dear Rusty: I lived and worked in the United Kingdom prior to coming to the U.S. at age 45, which qualified me for a U.K. State Pension worth the equivalent of about $740 U.S. dollars per month. Since moving to the U.S. I have contributed to the U.S. Social Security system for 14 years and my estimated U.S. Social Security benefit is $1,643 per month. I have heard about something called “WEP” and must be honest and say I don’t fully understand. Can you provide some advice or references so I can understand what happens to these sums when I retire? I don’t have any other pension income, so understanding these numbers is important. FYI, I hold both U.S. and U.K. passports and will retire in the USA. Signed: Blessed from the U.K.
Dear Blessed: The “WEP” provision you refer to is known as the “Windfall Elimination Provision.” It affects anyone who is eligible to collect Social Security benefits, but who also has a pension from another entity (corporation, public agency, or foreign country) which did not participate in the U.S. Social Security program (meaning that SS FICA payroll taxes weren’t paid during that employment). WEP will reduce your U.S. Social Security benefit by using a special formula to compute your benefit amount. Generally, the WEP reduction is determined either by the number of years of substantial SS-covered earnings that you have, or the WEP maximums (one of which is that your U.S. Social Security can’t be reduced by more than half of your non-covered pension). With less than 20 years paying into the U.S. system, you will incur one of the maximum WEP reductions.
Something else important to understand is that the current estimate you have from Social Security doesn’t include the WEP reduction. That estimate assumes that you will continue to earn at your current level until you reach your full retirement age. You haven’t shared your birthdate, but from your email I assume you are now about 60 years old. If you were born in 1959, your full retirement age (FRA) for U.S. Social Security purposes is 66 years and 10 months (if you were born after that your FRA is 67, and if you were born before that subtract 2 months for each year prior to 1959). Your FRA is when you will get your “full” SS benefit. If you claim before that (age 62 is the earliest you can claim) your benefit will be reduced (even before WEP), and if you wait beyond your FRA you’ll earn Delayed Retirement Credits (DRCs) which will increase your benefit amount. DRCs stop at age 70.
Based upon what you’ve told me, I believe that your WEP reduction will probably be limited to one of the maximums, either half of your monthly U.K. pension, or the maximum for your “eligibility year” (2022?). We don’t yet know what the standard maximum WEP reduction for 2022 will be, but for 2020 it is $480. That is the most that your Social Security benefit could normally be reduced. But if your U.K. pension is about $740 USD then your maximum reduction should be about $370, because the WEP reduction can’t be more than half of your non-covered (U.K.) pension. So, your U.S. Social Security benefit of $1,643 will most likely be reduced by about $370 to about $1,303. You will need to contact the U.K. pension system to see if any of your U.K. pension will be offset by your U.S. Social Security benefits.
Russell Gloor is an Association of Mature American Citizens certified social security advisor. To submit a question, visit amacfoundation.org/programs/social-security-advisory or email ssadvisor@amacfoundation.org.
