Listen Now:
The Smart Take:
The Social Security Fairness Act is shaking up the retirement landscape, eliminating the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) for millions of retirees. These long-standing provisions have impacted Social Security benefits for public sector workers like teachers, firefighters, and police officers—until now.
In this episode, hear Tyler Emrick, CFA®, CFP® dive into what the changes mean, how retirees can expect retroactive payments, and the broader impact on the Social Security system. We’ll also explore the financial trade-offs, including the cost to taxpayers and how this accelerates Social Security’s looming insolvency crisis, negatively impacting younger workers.
Tune in to learn how this historic reform affects you and the future of Social Security.
Here’s some of what we discuss in this episode:
- Background on the Social Security Fairness Act that was signed into law on January 5.
- The Windfall Elimination Provision (WEP) and Government Pension Offsets (GPO) reduce regular Social Security benefits.
- Affected retirees stand to gain significant financial relief.
- The benefits come with a cost so what it does it mean for the long-term solvency?
Learn more about the Retire Smarter Solution ™: https://www.truewealthdesign.com/ep-45-retire-smarter-solution/
Sign up for our newsletter on our podcast page: https://www.truewealthdesign.com/podcast/
Have questions?
Need help making sure your investments and retirement plan are on track? Click to schedule a free 15-minute call with one of True Wealth’s CFP® Professionals.
Subscribe:
Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!
The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Tyler Emrick:
The Social Security Fairness Act is shaking up the retirement landscape, eliminating the Windfall Elimination Provision and government pension offset for millions of retirees. Tune in today as we delve into what it means for you and your retirement.
Walter Storholt:
Off to the races for another episode. In fact, our first of 2025. Walter Storholt with you alongside Tyler Emrick, wealth advisor, Certified Financial Planner at True Wealth Design. Tyler is also a chartered financial analyst as well, and we’ve got a great show on the way for you today as Tyler teased some kind of, I don’t know, breaking news in here, Tyler. At least a little bit of financial news right out of the gate into 2025 that we’ll be diving in today as it relates to Social Security. You thought you were done with Social Security, my friend. We just did that recent episode on it and that’s right back now onto your radar here.
Tyler Emrick:
I did, I did, two in a row, but as we kind of were talking beforehand, some new legislation just passed just a couple of days ago. President Biden signed it into law, so it’s going to affect quite a few of us and certainly many retirees. I think a little under 3 million retirees are going to be affected by it. So figured it’d be a good time to at least bring it up. Kind of go from there. Please excuse my preparedness as maybe I didn’t do as much prep time for it. So we’ll see what we can get through here.
Walter Storholt:
Yeah, the weeks and weeks of usual prep time we’re condensed essentially less than a day after that news broke. So good on you for just picking it up and rolling with it my friend. I’m looking forward to this. Before we dive in, did you enjoy the holidays and is your new year off to a good start?
Tyler Emrick:
Oh yeah, absolutely. Enjoyed the holidays. New Years are off to a good start. This past weekend we had a birthday in the family and got to go to Chuck E. Cheese, so.
Walter Storholt:
Nice.
Tyler Emrick:
It was a good weekend, good start to the new year up here in Northeast Ohio. We got quite a bit of snow, which I think it’s our first big snow of the year it feels like anyway. So we even got outside and got to have a little bit of a snowball fight. So it’s been a good start to the year. How about you?
Walter Storholt:
Very good. Glad to hear it. Yeah, same here. A more relaxed holiday season than usual. We didn’t travel this year, so just tried to play it low-key and catch up on rest and rejuvenate and get ready for a big year. So all is good on this end. All right, well break it down for us, Tyler, let’s get into the discussion here. Give us the background and the latest news from the Social Security standpoint with those numbers that you gave. We’ve got to have at least a few listeners here who are going to be impacted by this, I would think.
Tyler Emrick:
So the act is called the Social Security Fairness Act, and as I kind of teased a little bit here, it was signed into law on Sunday, the 5th, here, January. So what this act does, essentially two big things, it eliminates the Windfall Elimination Provision and the government pension offset. So for individuals that are affected by these two things, I’m sure you’ve ran into it and have heard these terms before, they’re often called by their acronyms. So Windfall Elimination Provision is generally referred to as the WEP and then the Government Pension Office set the GPO, but the Fairness Act essentially eliminates these two things. So from a impact standpoint, there’s about 2.8, 3 million public sector retirees who are going to be directly impacted by this elimination.
So a little over 2 million will be impacted by the WEP removal, and then a little under 800,000 or so roughly would be impacted by the GPO removal. These two call them, I guess provisions are, I mean, it’s been talked about for several years getting these removed. Actually when I was talking with it on the team earlier this week, I was very surprised that it got passed through. So we will see how it impacts. But Congress, I guess had it come through in November and December. So we had a little bit of indication that this was coming through and I think there’s been some individuals that were very, very hard-pressed to get this pushed. And as with anything, there were some other critics as well.
So I figured today what we’ll do is just dive into these two provisions a little bit and who will be impacted, certainly what you need to do or at least what communications have been given to us to make sure that you get these benefits if they’re due to you, and then what some of the impact is going to be on all the other individuals who maybe are not directly impacted by this, but certainly would be impacted due to the cost and other funding things that are just going on with Social Security as well. So yeah, that’s what I think we’ll kind of dive into today and kind of go in from there. And if I can, and don’t hold it against me too much Walt here, but we’ll just call it the WEP and GPO going forward, if that’s all right. Windfall Elimination Provision and Government Pension Offset is kind of a mouthful, so I’ll just refer to it as the WEP and GPO.
Walter Storholt:
WEP and GPO, we’ll lump them together. Good use of acronyms there my friend. I’m on board with it.
Tyler Emrick:
You got it. So I mean these were essentially enacted. I mean they’ve been in place for quite some time, I think in the early eighties, late seventies is how long these provisions have been in place. And really what they do is they reduce regular Social Security benefits for certain state and local government workers. Think individuals like teachers, firefighters, police officers, who received pension based on their employment, but were not subject to Social Security taxes. My father will be impacted by this. He was a bus mechanic for my local high school. So when he was working all those years, he did not actually pay into Social Security for his service there. He paid into his pension plan that was for Ohio, it’s OPERS or potentially STRS. Some teachers might be getting, and depending on what state that you’re in, you could have your own acronym on what you’re in.
But again, we’re talking about individuals who did not pay into Social Security and they had their pension through elsewhere. So what the WEP and GPO, did is they were safeguards designed to prevent individuals who worked in these positions covered by Social Security from receiving excessive or duplicative benefits. So before the WEP and GPO were enacted, Social Security Benefit Formula treated these former government workers as if they earned incomes slightly lower than what they actually did. This was because their employment was not subject to those Social Security taxes as I’d mentioned earlier. So it kind of created a little bit of a misleading earning record for their earnings or what they actually paid into the Social Security system. So if you don’t know or some individuals don’t know, but Social Security is a progressive benefit structure. So what that means is these individuals might have received disproportionately higher benefits compared to what they would’ve received if their entire income had been subject to Social Security taxes.
So think of it as, for example, I’ll use my dad as an example as well. So he worked a number of years for the school system, but he also had part-time jobs he had had earlier where other jobs throughout his career where he actually paid into Social Security. And since Social Security is this progressive benefit structure, well traditionally what would happen is if you earn less, your benefit is going to be higher in the Social Security calculation. If you earn more or you’re higher income earner, then it would be skewed and your benefit would be a little bit lower based off that calculation, not in dollars and cents, but relative to your income. Well, you take him for example, where maybe his main employment throughout his entire career was at the school system. So that’s where he earned the bulk of his wages that we lived off of.
What he paid into Social Security made it seem like, well, he earned a lot less throughout his career. So the WEP provision and the GPO provisions were meant to help with that being skewed and kind of make it more of an equal playing ground for everybody that paid into Social Security. So what the WEP does is the WEP actually is based off of your own working benefit. So if we think about Social Security for example, you have a few benefits that are afforded to you when you pay into Social Security. You’re afforded your own benefit based off your own working record. And the WEP was a calculation that would actually reduce that amount paid into Social Security. So for my father’s example, this WEP calculation actually reduced and pretty much eliminated his Social Security benefit. And what that means is that when he retired, he only had his government pension plan that he had to live off of.
He had not received any Social Security benefits whatsoever because of this WEP reduction that lowered it. Now, the GPO or the government pension offset, what that did is that reduces your spousal or survivor benefit. So again, going back to there’s three benefits through Social Security, there’s your own, there’s also if you’re married, your option to get what’s called a spousal benefit or a survivor or widow’s benefit. So the GPO was enacted to reduce those spousal and survivor benefits. So again, kind of leaning on my dad’s example, my mother passed away a number of years ago and she had paid into Social Security her entire life. Well, generally speaking for a normal couple, if you lose a spouse, you would be entitled to a survivor benefit for the surviving spouse based off of whatever the deceased spouse paid into Social Security. Well, the GPO essentially eliminated it in his case as well.
So he did not get a spousal or a survivor benefit when my mother had passed because of this GPO reduction. So again, these two things, the WEP and the GPO were introduced to kind of correct and not have unfair benefits for some individuals, but in some cases for my dad for example, it pretty much eliminated the entirety of Social Security benefits to him where he didn’t receive any for spousal survivor or his own earnings record. So they affected, like I said, about 2.8 or 3 million individuals. So this is going to be a pretty big deal for those individuals that didn’t receive anything where now with these repealed, they’re going to now potentially have access to some type of Social Security benefit, whether it be their own or a spousal or survivor benefit.
Walter Storholt:
Pretty interesting to see the moving parts that are involved with this and also the fact that it seems like this comes as a little bit of a surprise to you. That is interesting to me.
Tyler Emrick:
Yeah, absolutely. Like I said, we knew it was in Congress and we knew it was kind of going through, but there had been many times in the past where it had been trying to be pushed through and there might’ve been some changes or whatnot and they just kind of all faltered and never got passed through. But this time it did.
Walter Storholt:
Surprise in it being passed, not surprised that it existed. Sorry.
Tyler Emrick:
Correct, yes. Oh yes, absolutely. That it passed. Yes, absolutely. Because as you kind of think about, there’s individuals and families on both sides of the coin here, which we’ll kind of talk about. This legislation is certainly going to help a number of individuals from a benefit standpoint, but as we’ll allude to a little bit too, that’s going to come at a cost to Social Security. But before we get to any of that, I mean they have given us some indication on, well, what do you want to do here? How are you going to get this benefit? So on Sunday, Biden had mentioned that essentially we would be looking at on average individuals that were affected by this are going to see about an increase of almost 400 bucks a month on their Social Security benefits or a Social Security benefit starting of roughly $400 a month.
So I think that’s going to be a pretty wide spectrum. I’ll be interested to see how the dollars and cents come down because as you could imagine, we have a number of families that are going to be impacted by this as well. So we’ll start to see kind of how those numbers shake out. Now they’re going to actually make the payments retroactive, so they’re going to go back and you’re going to get payments all the way back to January of 2024. So obviously we’re sitting in January of 25 now, so by the time this all shakes out, we’ll see how long it takes for them to do the backend work to actually start seeing some of these benefits. But you could see a pretty substantial one-time payment for those retroactive benefits back to January of 24, or at least a year, maybe a year and a half of benefits by the time this kind of goes through.
Now, the Social Security Administration, the direction that they’ve given us has basically said, “Hey, if you’ve previously filed for Social Security benefits, you do not need to take any action now. You do want to make sure that the agency has your current mailing address and direct deposit information if you’re getting a benefit from them currently, but there is really no action that needs to be done if you’ve previously filed for Social Security benefits.” And then they also mentioned that most beneficiaries would be able to verify any of this personal information on mysocialsecurity.gov, the website or ssa.gov actually is the website that you can go to. If you haven’t created an account there, you can just create an account, log in, and there’ll be some indication on there and you can check your information to make sure that they have all the updated information so that you get your benefit. But I’m sure we’ll get more and more direction as time progresses here and as they figure out exactly when we can start expecting these payments to come through.
Walter Storholt:
Yeah, it could be life-changing dollars for some, depending on budgets and those kinds of things. And for whoever gets this benefit, even if it’s not necessarily a life-changing amounts, still an impactful amount for many. So that’ll be interesting to see. You alluded to this though, Tyler, it sounds like this is one of those short-term versus long-term conversations, and it sounds great in the short term for those who will benefit, but further long-term strain on the industry of Social Security.
Tyler Emrick:
Yeah, the preliminary numbers that I’ve seen, I mean the Congressional Budget Office estimates that to provide these benefits, it’s going to cost a little under $2 billion over the next decade.
Walter Storholt:
So not a whole lot?
Tyler Emrick:
You start using the B word. They speak with I guess trillions now, but billion, that’s quite a bit. And I’ve seen estimates even as high as 20% higher, so approaching almost 240 billion from a cost standpoint. So we’ve seen some pretty big numbers here in the initial indications on what it’s going to actually cost. So for those of you that are not necessarily directly impacted by this, you’re certainly going to be impacted because it’s going to accelerate Social Security’s insolvency issue. I mean, I think, again, the articles that I had a chance to read up on yesterday estimated that anywhere between six months to a year it would accelerate that insolvency. So if we kind of go back and I think in our last podcast we touched on this, literally the one we just did, but we were talking about how each year the Social Security Administration outlines, well, what is the funding status or what is Social Security’s financial status?
And most of the time when they come out with that, at the beginning of the year, you’re looking at Social Security running out, or at least the Social Security trust fund running out around 2033, 2034. So this new legislation here passing certainly will speed that up a little bit and probably start to see numbers push into 2032 or maybe even earlier, depending on how all these numbers eventually shake out. And you pair this with, we do have a new administration coming in, and there were some indications too that it might be some work to change how we pay taxes on Social Security and maybe even eliminating that tax on Social Security, which I think the numbers on there, if that ends up passing through, is another 1.4 trillion. So we’re out of the billions now and into the trillions if that legislation gets passed. So that’s going to be potentially another weight that the trust fund’s going to need to carry.
This insolvency issue is certainly not going to go away and certainly expedites the ticking time clock where something’s going to need to get done to make sure that trust fund’s protected. Now again, if the trust fund does run out, it does not mean that Social Security benefits goes away. We are still paying into Social Security, Walt, so through payroll taxes and right now through taxes on Social Security. So Social Security is not completely like, Hey, if nothing happens by 2033 or 2032, Social Security goes away. That’s not necessarily the case.
You would see a decrease payment from Social Security. I’ve seen estimates anywhere from 25 to 30% decrease in your payment if nothing gets passed. But on the podcast, we’ve talked about it quite a few times about the solutions that are available to help solve the funding issue through Social Security. So I don’t know if it’s necessarily something to be too concerned about, but it certainly should be on our radar. And I could imagine that politicians will turn their attention to the funding issue at some point here in the coming years, and it’ll be something we’re obviously watching and monitoring and want to make sure what’s going to be the solution to shore up that funding issue through Social Security.
Walter Storholt:
All right, very good. So we’ve got maybe some solutions that’ll help this, but again, the people that are going to get this benefit, they’re not too worried about that part of the problem and the equation, right?
Tyler Emrick:
No, they’ve been fighting for this for quite some time, kind of like what we alluded to a little bit earlier in the podcast. But no, I mean, I think there’s a lot of individuals, roughly 2.8 million that are going to be pretty happy with the legislation passing and are going to see that increase in benefits. And obviously we’ll just have to continue to monitor and make sure that those benefits are going to be there for everybody. And like I said before, we’ll see what solution is passed here through legislation to shore up that underfunding issue. But I can imagine it’s probably not going to happen anytime soon, but we’ll start to hear some of the headlines as we get closer and closer, as with everything –
Walter Storholt:
See if any other ripples come from this.
Tyler Emrick:
… in politics. Yes, absolutely. And I think it’s going to be fascinating to see how the Trump administration handles it and if they do continue to push through and try to deliver on Social Security not being taxable to families who are drawing it, and then you’ll see where their head’s at after this getting passed through but…
Walter Storholt:
Yeah, we’ll buy Greenland and then keep figuring out Social Security after that.
Tyler Emrick:
Yeah, that’s right. That’s right.
Walter Storholt:
Just saw on the news as we’re recording this a few minutes ago that Trump Force One has landed in Greenland, so there you go.
Tyler Emrick:
Fair enough. I don’t know how you keep up with it all, but yeah, no.
Walter Storholt:
Good stuff. All right, man, well, great breakdown of what to expect here. Anything else you wanted to hit on?
Tyler Emrick:
No, I think that’s everything that we wanted at least get out. I mean, with it happening so soon here, we figured that a lot of our listeners would have questions, certainly those ones that are impacted by this directly. So we wanted to get something out just to paint the picture a bit. There’s nothing that needs to necessarily get done right this second. Obviously be working with your financial advisors to see how this impacts your financial plan and your tax situation for the year. And obviously for individuals that are maybe not drawing Social Security, there might be some steps down the road you’re going to need to take to be able to get this. But obviously making sure that it fits into the financial plan. Anytime money can get added to your own personal plan, that’s going to be a good thing. So I’m sure we’ll have some good conversations with families over the coming year.
Walter Storholt:
Excellent. Well, thank you Tyler for the help. And speaking of working with your advisor to talk about these things, if you’re not discussing these types of matters with your advisor, that should be a bit of a red flag. These are the kinds of discussions you should have when you go through any sort of planning process or ongoing relationship with an advisor. So don’t hesitate to reach out if you would like a second opinion of your financial plan or if you’re looking to put one together officially for the first time as well.
You can go to truewealthdesign.com and click the Are We Right For You button, and that’ll help you schedule a 15-minute call with an experienced advisor on the True Wealth Design team led of course by Tyler Emrick and Kevin Kroskey, Certified Financial Planners. Again, go to truewealthdesign.com, click the Are We Right for You button and schedule your call to see if you’re a good fit to work with one another and ask any questions that might be on your mind initially. Well, Tyler, thank you for all the help. Happy New Year to you, my friend, and we’ll talk to you again in a few weeks.
Tyler Emrick:
Yeah, sounds great. Have a good one.
Walter Storholt:
All right, you as well. That’s Tyler, I’m Walter, we’ll see you next time right back here on Retire Smarter.
Speaker 3:
Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
