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UK state pension and USA social security

UK state pension and USA social security

Old Mar 16th 2018, 11:59 pm
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
Here's the culprit:
https://www.ssa.gov/planners/retire/wep.html

Any comments aside from "I told you so".
I'm thinking all the examples given in the above link quoted from your post seem to imply that WEP is calculated based on the number of years of contributions paid at age 62.

The Windfall Elimination Provision pamphlet clearly states in several places:-

If you have 30 or more years of substantial earnings,
we don’t reduce the standard 90 percent factor in
our formula.
nowhere does that pamphlet say the substantial years of earnings has to be 30 by age 62.

WEP is a percentage reduction, from the amount of SS you would have received, based on years of substantial earnings. Their examples at 62 and 66 seems to imply that WEP would be the same amount, IMO that is wrong as the SS payment at 66 is bigger than at 62, and WEP is the same percentage of either amount (all else being equal).

The other thing that I think is wrong is the examples seem to be SS payment at 66, minus WEP, then either the 25% reduction for retiring at 62, or plus 32% for 70. My understanding of how Mrs L was worked out was, full SS as at 66 less the reduction for taking it a 65, then less the WEP. I spoke with the guy who processed our pensions and that was how he explained he was working it out, and how I expected him to.

My comment is I hope the person who wrote the examples got it wrong.

Last edited by lansbury; Mar 17th 2018 at 12:01 am.
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Old Mar 17th 2018, 12:30 am
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Default Re: UK state pension and USA social security

Originally Posted by lansbury View Post
I'm thinking all the examples given in the above link quoted from your post seem to imply that WEP is calculated based on the number of years of contributions paid at age 62.
As I read that page, I would agree with your interpretation. Everything depends on ELY.

Originally Posted by lansbury View Post
Their examples at 62 and 66 seems to imply that WEP would be the same amount,....
Not sure I agree. The 'culprit' seems to be saying, IMO, ELY (eligibility year - 62 for all) governs all WEP calculations. So,.. everything is first calculated on ELY, and then adjusted for any additional years. Then, for some reason, there is the mention of full retirement age. Very confusing.

Originally Posted by lansbury View Post
My comment is I hope the person who wrote the examples got it wrong.
Either it's very incorrect and a large mistake, or SSA have decided to claw back some future benefits for those whose ELY is after 2017 by altering the calculations. There was the attempt in 2015/16 to revise WEP in HR 711, but my understanding was that Bill has yet to be passed.
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Old Mar 17th 2018, 12:33 am
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Default Re: UK state pension and USA social security

Originally Posted by lansbury View Post
I'm thinking all the examples given in the above link quoted from your post seem to imply that WEP is calculated based on the number of years of contributions paid at age 62.

The Windfall Elimination Provision pamphlet clearly states in several places:-

nowhere does that pamphlet say the substantial years of earnings has to be 30 by age 62.

WEP is a percentage reduction, from the amount of SS you would have received, based on years of substantial earnings. Their examples at 62 and 66 seems to imply that WEP would be the same amount, IMO that is wrong as the SS payment at 66 is bigger than at 62, and WEP is the same percentage of either amount (all else being equal).

The other thing that I think is wrong is the examples seem to be SS payment at 66, minus WEP, then either the 25% reduction for retiring at 62, or plus 32% for 70. My understanding of how Mrs L was worked out was, full SS as at 66 less the reduction for taking it a 65, then less the WEP. I spoke with the guy who processed our pensions and that was how he explained he was working it out, and how I expected him to.

My comment is I hope the person who wrote the examples got it wrong.
I’ve never seen that page before, but what doesn’t make sense to me is predicating the deduction on early, rather than full retirement age.
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Old Mar 17th 2018, 12:41 am
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Default Re: UK state pension and USA social security

Originally Posted by Nutmegger View Post
I’ve never seen that page before, but what doesn’t make sense to me is predicating the deduction on early, rather than full retirement age.
Well, if you take SS early, that's the only way they can do it.

Personally I think they should calculate WEP based on years of SS contributions when you take it. After all, you are still paying SS taxes if you work, even past FRA.
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Old Mar 17th 2018, 1:10 am
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Default Re: UK state pension and USA social security

The chart in this link suggests they really do take contributions at age 62:

https://www.ssa.gov/planners/retire/wep-chart.html
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Old Mar 17th 2018, 1:15 am
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Default Re: UK state pension and USA social security

Originally Posted by Giantaxe View Post
Well, if you take SS early, that's the only way they can do it.

Personally I think they should calculate WEP based on years of SS contributions when you take it. After all, you are still paying SS taxes if you work, even past FRA.
Obviously that’s the case if one does take early retirement, but that date shouldn’t be the benchmark if one waits until the full retirement age, and that page seems to indicate that it is.
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Old Mar 17th 2018, 6:15 am
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Default Re: UK state pension and USA social security

Originally Posted by Giantaxe View Post
The chart in this link suggests they really do take contributions at age 62:

https://www.ssa.gov/planners/retire/wep-chart.html
It certainly reads that way.

I suspect there has been a rule change as I don't recall mention of an eligibility year when my wife was claiming her SS. Also I can't recall seeing anything about age 62 in reference to calculating WEP in the past.
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Old Mar 17th 2018, 7:08 am
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Default Re: UK state pension and USA social security

This is sort of good to know. It looks like I am going to lose a big chuck (45%) of social security. This could influence where I can afford to retire.
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Old Mar 17th 2018, 11:59 am
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Default Re: UK state pension and USA social security

I've always been under the impression that the ELY was a part of the calculations for WEP, but not the method used in this latest page. I thought one's year of retirement, the entitlement year whether at 62, full retirement age, or beyond and taking into consideration the additional years of substantial contributions and the FICA one would pay during those years, was calculated and then WEP would be applied based on the figures from the ELY. The latest page is much different.

We all agree WEP is for those in the US with non-covered pensions, usually from local government employment (teachers, firemen, etc.). Those pensions generally match the US SS in benefits, unlike the UK State pension. There was a convenient coincidence that foreign pensions could also be considered for WEP. Alterations to WEP are primarily instigated with the US employee in non-contributing work in mind.

There is a subtle message in the wording on that latest SSA page: take US SS early and there is a bonus - a smaller WEP amount will be deducted, or if one decides to delay to full retirement year or beyond - an increase in WEP deductions will occur. That makes sense if the SSA is attempting to reduce future payouts by encouraging everyone to take SS at 62.

I would no longer feel comfortable commenting on WEP beyond two simple statements. If one has a foreign pension(s), WEP will likely be applied, and the only certain way to escape WEP is to have attained 30 substantial years of contributions by the time one reaches age 62.
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Old Mar 17th 2018, 4:24 pm
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
There is a subtle message in the wording on that latest SSA page: take US SS early and there is a bonus - a smaller WEP amount will be deducted, or if one decides to delay to full retirement year or beyond - an increase in WEP deductions will occur. That makes sense if the SSA is attempting to reduce future payouts by encouraging everyone to take SS at 62.

I would no longer feel comfortable commenting on WEP beyond two simple statements. If one has a foreign pension(s), WEP will likely be applied, and the only certain way to escape WEP is to have attained 30 substantial years of contributions by the time one reaches age 62.
That is how I read it also. The way I read it, is that if you immigrate to the US after age 32, your SS will have WEP applied , even if you work more than 30 years.
Immigrate age 38, you need to work 30 years to get full retirement, but you will only get 60% of that full retirement.
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Old Mar 17th 2018, 10:41 pm
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Default Re: UK state pension and USA social security

Originally Posted by mrken30 View Post
That is how I read it also. The way I read it, is that if you immigrate to the US after age 32, your SS will have WEP applied , even if you work more than 30 years.
Immigrate age 38, you need to work 30 years to get full retirement, but you will only get 60% of that full retirement.
Also remember that the best 35 years are used to calculate your SS amount. So in order to maximize your SS you would need to immigrate by 32 and work until 67. That both avoids WEP and gives you 35 contribution years. Every year below that 32 means you can retire that many years before 67 and still achieve both of the above. I feel fortunate that I will both avoid WEP and have 35 years of contributions at the earnings limit, thus making me one of the small percentage of people that get the max SS payment. Others - especially immigrants - are going to be way less fortunate because of WEP.
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Old Mar 18th 2018, 2:50 pm
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Default Re: UK state pension and USA social security

The most that the WEP formula can reduce a person's benefit amount is by 50% of the first 'bend point' that applies for their year of birth. A person's benefit rate is calculated based on 1 to 3 different percentage rates applied to their average indexed monthly earnings (AIME). Under the normal computation formula, a person receives 90% of the first tier of their AIME as part of their benefit rate, a person can receive as little as 40% of the first tier of their AIME. The percentages applied to the higher tiers of a person's AIME are the same under both the normal and WEP formulas, so 50% of the first tier is the maximum WEP 'loss'.
The tiers in the calculation formula are divided by bend points, that vary by year of birth. The first bend point for a person born in 1955 is $885, so the most that their full retirement age benefit rate (PIA) could be reduced under the WEP formula is $442.50 (i.e. .5 x $885). But, the actual dollar difference can vary somewhat depending on at what age the person starts drawing their benefits, and after the application of cost of living adjustments.

The first "bend point" is tied to year in which you turn 62.

There is no requirement to have 30 years significant earnings by age 62 to avoid WEP unless you want to retire at age 62. For example if you retire at age 65 and attain 30 years significant earnings by age 64, then fine, no WEP.
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Old Mar 18th 2018, 3:06 pm
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Default Re: UK state pension and USA social security

Originally Posted by retman View Post
The most that the WEP formula can reduce a person's benefit amount is by 50% of the first 'bend point' that applies for their year of birth. A person's benefit rate is calculated based on 1 to 3 different percentage rates applied to their average indexed monthly earnings (AIME). Under the normal computation formula, a person receives 90% of the first tier of their AIME as part of their benefit rate, a person can receive as little as 40% of the first tier of their AIME. The percentages applied to the higher tiers of a person's AIME are the same under both the normal and WEP formulas, so 50% of the first tier is the maximum WEP 'loss'.
The tiers in the calculation formula are divided by bend points, that vary by year of birth. The first bend point for a person born in 1955 is $885, so the most that their full retirement age benefit rate (PIA) could be reduced under the WEP formula is $442.50 (i.e. .5 x $885). But, the actual dollar difference can vary somewhat depending on at what age the person starts drawing their benefits, and after the application of cost of living adjustments.

The first "bend point" is tied to year in which you turn 62.

There is no requirement to have 30 years significant earnings by age 62 to avoid WEP unless you want to retire at age 62. For example if you retire at age 65 and attain 30 years significant earnings by age 64, then fine, no WEP.
Great information, thanks, particularly since I was born in 1955 so your example is very pertinent to me. I have 23 years of significant earnings, and with a couple of UK private pensions I expected to have maximum WEP.
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Old Mar 18th 2018, 3:47 pm
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Default Re: UK state pension and USA social security

Originally Posted by retman View Post

There is no requirement to have 30 years significant earnings by age 62 to avoid WEP unless you want to retire at age 62. For example if you retire at age 65 and attain 30 years significant earnings by age 64, then fine, no WEP.
That is not the impression the examples give.

https://www.ssa.gov/planners/retire/wep.html

Delaying retirement increased the reduction for WEP from $395.50 to $522.
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Old Mar 18th 2018, 4:14 pm
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Default Re: UK state pension and USA social security

I've been delving into the information given on the new WEP related pages. For reference, those 3 pages are:

The ‘culprit’ page, the main WEP planner page with the Scenarios - https://www.ssa.gov/planners/retire/wep.html

The main Factsheet page (a new 2018 version): https://www.ssa.gov/pubs/EN-05-10045.pdf

And the ELY (Eligibility Year) Chart page: https://www.ssa.gov/planners/retire/wep-chart.html

These are now the only general pages on the SSA site relating to WEP.

First, IMO, all discussions and examples on the above pages are based on an initial assumption the claimant will work until their full retirement age (FRA), and at that point they will claim their Social Security (SS) benefit. In some of the discussions on those pages, it is never made clear the FRA assumption is the starting point. All reductions or increases discussed on those pages relate to the FRA. Start with the chart at the bottom of the Chart page. I understand and agree with the basic premise of how an SS benefit is calculated, including WEP, as detailed in reply #1512 (retman). Nonetheless…..

All figures on the Chart page represent a claimant working until their full retirement age only, and then retiring and claiming SS precisely at their FRA. Their ELY, as per the chart, will then determine the amount of WEP. If they retire earlier than their FRA, or if they stop working at their FRA but postpone claiming SS until a later year, then the figures on the Chart will not reflect the final WEP adjustment without alterations from further calculations. To determine the final WEP figure, ELY will still be used for the basis calculation representing FRA, but is then altered to reflect an SS pension taken at a time different to FRA.

According to the Scenario page, if the claimant retires early and starts claiming SS at 62, 63, 64, or 65, the figures on the ELY Chart will no longer apply as indicative of the final WEP amount. The figures on the chart represent a projected FRA SS pension amount but the projected FRA pension will not be reached, therefore the revised final WEP amount reflects the smaller SS pension amount. It is not clear, at least to me, how the final WEP amount is calculated in relation to ELY if one retires at ELY (logic says the figures on the chart would apply, but they don’t since they represent FRA). The Scenario page seems to indicate that an FRA amount is calculated based on the years of actual substantial contributions, it is then reduced as a percentage due to the early retirement claim, and subsequently, the ELY amount (based on the calculated FRA amount per the ELY chart) is reduced by a corresponding percentage amount. It would be difficult to be displeased with the resulting reduction in WEP.

If the claimant delays their SS claim, say until age 70, BUT stops contributing to SS at/by FRA (and therefore has no additional years of substantial earnings), an FRA calculation is made as if they had, indeed, claimed SS benefits at FRA. The ELY is still used for the basis FRA calculation as if they had retired at FRA. Instead of continuing ~8% growth per year on the projected FRA amount for the remaining years, the reduced WEPed benefit amount is now the basis for the ~8% growth over the remaining years and will be, obviously, less than possibly anticipated. That would be important for someone to know if they were delaying claiming SS in order to increase their final benefit.

What is not discussed, anywhere, is the scenario of someone working beyond their FRA, and what the consequences are. How would WEP be calculated, and do the additional years of substantial earnings contribute to the 30 year exemption if required beyond FRA? Not a clue is given in the above pages.

It is now apparent the only way to have any approximation of an accurate figure is to use the down load Detailed Calculator as found on https://www.ssa.gov/OACT/anypia/anypia.html if the SS pension will be subject to WEP and is to be claimed at any point other than the precise FRA. It is the PIA/AIME formulas that determine the final benefit. In reality, the general pages above may assist in understanding, or they may mislead.

All in my interpretation, and I welcome any corrections.
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