Ask Carrie by Carrie Schwab-Pomerantz

Dear Carrie: I'm 69, worked 23-plus years in the private sector and I am still working in the public sector and receiving monthly Social Security payments. When I retire and start receiving public employee's retirement payments, there's supposed to be an "offset" of my Social Security benefits. Can you explain how this works? —A Reader

Dear Reader: While no one likes to think about their Social Security benefits being reduced, in a case like yours, where you've worked in both the private and public sectors, that's a very likely scenario. So you're wise to be looking into this now. You don't want to be basing your retirement income planning on inaccurate assumptions about how much Social Security you'll receive.

There are two provisions that can affect your benefits: The Windfall Elimination Provision and the Government Pension Offset. Each was designed to, in effect, even things out so that an individual wouldn't receive full Social Security benefits plus a government pension and therefore have an unfair advantage over someone who worked only in the private sector.

The best place to get the full details on these two provisions is the Social Security Administration, but I'll give you some basic information to start with.

HOW THE WINDFALL ELIMINATION PROVISION WORKS

This provision affects people like you who have worked in the private sector long enough to qualify for Social Security benefits and also earned a pension from work in the public sector that didn't require paying Social Security taxes (for instance firefighters, police officers and public school teachers in some states). Since you're still working at age 69, you've had the advantage of collecting Social Security benefits while continuing to earn. However, when you retire from your public sector job and begin to collect a government pension, those Social Security benefits may be reduced.

The size of the reduction depends on a number of factors, including the year you reached age 62, how long you worked in the private sector and how much you earned there. For instance, if you paid Social Security taxes for more than 20 years and had what the SSA determines to be "substantial earnings," your benefit reduction would be less than someone who paid taxes for fewer than 20 years and earned less.

In any case, the reduction in Social Security benefits can't be more than one-half of the pension from your public employment. And for someone who pays Social Security taxes for more than 30 years, there's no reduction at all.

The SSA website (socialsecurity.gov) has tables and calculators to help you determine your specific reduction. But just as an example, for someone who turned 62 in 2004 and had substantial earnings for 23 years, the maximum reduction in benefits would be $214.20 a month.

WHO IS AFFECTED BY THE GOVERNMENT PENSION OFFSET

The GPO is another provision you need to be aware of if you collect a public pension and are also eligible for Social Security spousal, widow's or widower's benefits. Essentially, the provision reduces this type of benefit by two-thirds of the government pension you receive. For example, if your pension were $900 a month, two thirds of that amount, or $600, would be deducted from your spousal, widow's or widower's benefit. So if you were eligible for an $800 spousal benefit, you'd only collect $200 from Social Security ($800 minus $600).

This may seem like a big reduction, but it was designed to sync up with the general Social Security rules governing benefits to spouses, widows or widowers, which don't allow an individual to collect both his or her own benefits plus benefits based on a husband's or wife's work record.

Of course, there are many exceptions, so if you fall into this category, it's best to contact the SSA with the specifics of your situation.

WHERE TO GET THE DETAILS

Fortunately, the SSA makes it easy to get information. Publication No. 05-10045, which covers the Windfall Elimination Provision and publication No. 05-10007, on the Government Pension Offset, are both available at socialsecurity.gov (just plug the number into the search function). You can also speak with a Social Security representative by calling (800) 325-0778. As I said, much depends on your age and your individual work and earnings history, so it would be well worth your effort to get the details now. That way you can plan ahead, be prepared and when you finally retire, fully enjoy the fruits of your labor.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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