Social Security Claiming: The Case of the Public Pension

This is the latest in a series of biweekly articles featuring Social Security claiming case studies drawn from the ALM publication “2024 Social Security & Medicare Facts,” by Michael Thomas with support from Jim Blair, a former Social Security administrator, and Marc Kiner, a planning expert with extensive experience in public accounting.

The Scenario: Married, Dual Earnings and Non-Covered Pension Income

Shaun and JoAnn are a married couple about four months apart in age. Shaun is a high earner whose work earnings in the public sector were entirely covered by Social Security. JoAnn, though, has work under both Social Security covered earnings and as a public employee covered under the Public Employees Retirement System. JoAnn’s PERS pension is $440 per month.

As explained on the Social Security Administration’s website, benefits can be reduced if a person in JoAnn’s shoes receives a pension from an employer who wasn’t required to withhold Social Security taxes. This reduction, called the “windfall elimination provision,” most commonly affects government work or work in other countries.

Under the law, JoAnn’s pension from work not covered by Social Security not only will reduce her own Social Security benefit but also any spousal or survivor benefit she may be entitled to receive. Since her non-covered pension is low, the effect is lessened, but it is still an important factor in the claiming process.

Shaun has an actuarially expected death age of 85, while JoAnn is expected to die past age 87. Under the assumed set of conditions, both spouses have a full retirement age of 67, at which time Shaun’s full monthly benefit would be $2,510 and JoAnn’s would be $790.

What the Numbers Say

According to the authors, Shaun and JoAnn have as many as six potential claiming scenarios to consider. The difference between the most and least optimal approaches equates to about $100,000 in lifetime benefits.

The least effective choice would be for JoAnn to file for her worker benefit at age 62, when she would get a monthly benefit of $556. Shaun would file several months later at age 62, when he would receive a monthly benefit of $1,767. At that time, JoAnn could file for spousal benefits valued at $164, and she would eventually expect to get a widow benefit of $1,547. With this approach, the lifetime benefit for the couple would be $723,277.

A slightly better approach would be for Shaun to again file at age 62 for his worker benefits ($1,767), while JoAnn would wait to file in 2029 at age 67 for her full worker benefits of $790. JoAnn would then file for her full spousal benefit of $245 in January 2029, and she would later become entitled to a widow benefit of $1,547. This approach would deliver about $27,000 in additional lifetime benefits, for a projected total of $750,753.

A bigger jump in benefits of about $55,000 comes from assuming that Shaun waits for his full retirement age in 2029 to file for his worker benefit of $2,510. In this scenario, JoAnn files first for her own worker benefit of $556 at age 62. Later, in May 2029, JoAnn files for her full spousal benefit of $245 at age 67, and she becomes entitled to a widow benefit of $2,290. The total collected in this scenario is $805,164.