If you are fortunate enough to be able to collect a pension upon retirement, you may be worried that you will see a reduction in your Social Security benefits. However, depending on the source of your pension, this may not be the case.

The most important factor in determining if collecting your pension will result in a reduced benefit is whether or not you worked for a private or public employer. Many public-sector employers that provide pension plans, such as public schools and state or local governments, do not deduct Social Security taxes from employees' compensation. Foreign employers, of course, are also not required to pay into the American Social Security system.

To prevent overcompensation to individuals who have not paid into the system, the Social Security Administration, or SSA, has instituted the Windfall Elimination Provision, or (WEP), which stipulates the terms of benefit reduction. Any decrease in benefits is based on the number of years that Social Security taxes were not withheld rather than on the amount of your outside pension. However, if you paid into Social Security for 30 years or more, you will not be subject to the terms of WEP. For more, see Top Social Security Tips for Government Employees. Employees who are eligible to receive Social-Security-like retirement benefits from another country may also be subject to WEP provisions; How to Advise Non-U.S. Citizens on Social Security provides some details. A financial advisor who specializes in these complicated questions may be able to help you determine how to handle WEP in your situation.

If your pension comes from a private-sector employer, your Social Security benefits will likely not be affected. As long as Social Security taxes were deducted from your compensation while you worked for your private employer – and you met whatever criteria qualified you for your employer's pension plan – you can collect your pension and your retirement benefits simultaneously without concern.

Hot Definitions
  1. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  2. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  3. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  4. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
  5. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
  6. Monero

    Monero is a digital currency that offers a high level of anonymity for users and their online transactions.
Trading Center