Is Social Security’s Windfall Elimination Provision (WEP) Fair?

This article aims to provide you with the rationale for the Windfall Elimination Provision (WEP). There has always been a debate about whether this provision is fair or not. Share your comments below and describe your thoughts.

For years there has been much talk about removing the Windfall Elimination Provision (WEP) for those pensioners who receive another state pension. It is estimated that about 3% of all social security recipients are affected by the WEP. There is support for a House vote in Congress on a bill called the Social Security Fairness Act to eliminate this provision.

The two main goals of Social Security were to replace some of your earned income in your retirement years and to provide greater replacement income to those at the lower end of the income scale. So if you were a low earner during your working years, you would receive a higher percentage of Social Security benefits than a higher earner would receive during their working years.

Social Security uses a calculation called Average Indexed Monthly Earnings (AIME). This calculation takes into account your highest 35 years of earnings, adjusts for inflation, and calculates your monthly Social Security benefit at your full retirement age. Below is a chart showing your monthly benefit at full retirement age based on your AIME. As you can see, as your annual income increases, the replacement benefit percentage decreases. This is the social aspect of social security.

Now let’s assume you receive what’s called an “unfunded” pension, which is a job where no Social Security tax is withheld. These pensions include teachers, public sector workers such as firefighters, police officers, and state, local or county employees. Let’s also assume that you make $84,000 at this job and have a side job that benefits from Social Security and make $12,000. When you apply for Social Security benefits, you look like a “low earner” to Social Security, but you are not. Social Security does not have access to information about your “unfunded” pension. For this reason, you have a replacement share of 90% when calculating your social security benefit. If your Social Security benefit were calculated as if your total Social Security income was $96,000, your replacement rate would be 40%, not 90%. Since you are truly not a low earner since your total income is $96,000, Social Security will reduce your monthly Social Security benefit by the Windfall Elimination Provision (WEP) to compensate for the higher replacement percentage you would not be entitled to if you were collecting your entire income would be in the social security system.

The maximum WEP reduction for 2025 is $613 if you have less than 20 years of significant income in the Social Security system. If you have had significant income in the Social Security system for more than 30 years, there is no reduction in the Windfall Elimination Provision. Between ages 20 and 30 with significant income, there is a sliding scale for the reduction, generally 10% per year from year 20 to year 30, or $61 per year. The windfall elimination percentage will never exceed 50% of your Social Security benefit. If your Social Security benefit at full retirement age is $500, the maximum reduction for the WEP is $250.

So you see there is logic as to why the Windfall Elimination Provision was enacted. Is it fair? – You decide.

Remember to use the wrong advantage at the wrong time, it is always smaller and forever.