Maximum WEP Impact

Rounding out our series of articles about the Windfall Elimination Provision, or WEP, I thought we should talk a bit about the maximum impact that WEP can have on you.

In other articles we’ve discussed this in part, but it hasn’t necessarily been fleshed out completely.  As you may know, the maximum WEP reduction is equal to the lesser of 50% of the first “bend point” for each year or 50% of the amount of the pension from income that was not subject to Social Security taxation. In 2015 this is $413 per month at most.

What’s important to know is that this reduction is against your Primary Insurance Amount (PIA), not necessarily against your benefit amount. Depending upon when you file relative to your Full Retirement Age, the WEP impact to your benefit could be more or less than that amount.

Wait – what?

As you may recall, the Primary Insurance Amount (PIA) is only equal to your benefit if you file at exactly your Full Retirement Age (FRA). If you file at some age (even a month) before or after your FRA, the PIA is only a foundation used to calculate your benefit. If you file before FRA, your benefit will be something less than the PIA; after, your benefit will be something more than your PIA.

So, as a result, if your PIA is reduced by the maximum WEP impact ($413 for 2015), the actual benefit reduction will be more or less than that amount unless you file at exactly your FRA.

For example, Sue has an unreduced, pre-WEP PIA (Primary Insurance Amount) of $1,500 and she is subject to the maximum WEP impact of $413. Sue is deciding when to file for her Social Security benefit – she will be 62 in 3 months, so she could file early, or she could wait until age 70 to file. Her FRA is 66 years of age.

If Sue decides to file at age 62, her benefit would be calculated as 75% of her PIA. Since her PIA is $1,500 and the maximum WEP impact is $413, her WEP impacted PIA will be $1,087 ($1,500 minus $413). Her benefit at age 62 will be $815.30 – for a dollar-reduction (maximum WEP impact) of $309.70 because if WEP had not impacted her PIA her benefit would have been $1,125.

On the other hand, if Sue decides to file age her own age 70, her benefit is calculated as 132% of her PIA – reflecting the maximum Delayed Retirement Credits. Since her maximum WEP impact-reduced PIA is $1,087 (as calculated above), her benefit at age 70 will be $1,434.80. In this case, her maximum WEP impact is $545.20. This is because if the Sue’s PIA had not been subject to the maximum WEP impact, it would have been $1,980 at her age 70.

So, the real maximum WEP impact to your benefit can be anywhere from $309.70 to $545.20 for 2015.