Dear Rusty: I have a question in regard to the “windfall act.”
I am receiving a pension from the State of Nevada. I retired from the State, and did not pay into Social Security, but I worked in the private sector before and am currently working in the private sector. My question is: How much “penalty” will I be subject to when
I decide to finally hang it up? Signed: State Retiree
Dear State Retiree: The State of Nevada is one of 27 states which, for all or some employee categories, do not participate in the Federal Social Security (SS) program; rather their State pensions are designed to provide a retirement benefit in lieu of Social
Security. Because you receive a Nevada state pension and have also worked in the private sector long enough to be entitled to a
Social Security (SS) benefit, your SS retirement benefit, when you claim it, may be reduced by the Windfall Elimination Provision
(WEP), with the amount of reduction based upon how many years of substantial SS-covered earnings you have. If you have 20 or fewer years of SS-covered employment, here’s how WEP will affect your Social Security benefit:
Your actual benefit amount is based upon your “primary insurance amount” (PIA), which is computed using the average monthly earnings from the 35 highest earning years over your lifetime, known as your Average Indexed Monthly Earnings or “AIME”
(only earnings up to the maximum payroll tax cap for each year are counted). Your PIA is the Social Security benefit you are entitled to at your full retirement age. Normally, when WEP doesn’t apply, your Social Security benefit amount is computed by taking the monthly average of those 35 inflation-adjusted years of earnings (your AIME) and using a standard formula to arrive at your
PIA. That formula includes using 90% of the first part (called a
“bend point”) of your AIME to be the first portion of three used to arrive at your PIA amount. For those first becoming eligible for benefits in 2019 (usually at age 62) that first bend point is $926, which means that $833 (90%) would normally be the first contribution to your PIA. But when WEP applies, the formula is different; instead of using 90% of that first bend point, if you had 20 or less years of covered-SS substantial earnings they use 40%, which would mean that the first bend point would add $370 to your PIA amount instead of ...
