What the WEP
On January 5, 2025, President Biden signed the Social Security Fairness Act (legislation that repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)), marking the first expansion of Social Security benefits in decades.
We will discuss the Social Security Fairness Act in more detail below, but this is a good opportunity to review Social Security and its functions.
The origins of Social Security in the United States date back to the Great Depression in the 1930s. The economic crisis left millions of Americans unemployed and impoverished, leading to a growing recognition of the need for a social safety net. In response, President Franklin D. Roosevelt proposed the Social Security Act of 1935, which was signed into law on August 14, 1935.
Social Security was designed to provide financial assistance to the elderly, unemployed, and disabled. It established a system of old-age benefits for workers, funded through payroll taxes collected from employers and employees. The program aimed to reduce poverty among older adults and support those unable to work due to various circumstances.
Over the years, Social Security has evolved to include different programs and benefits, such as Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). Today, Social Security remains a crucial part of the social safety net in the U.S., providing critical financial support for millions of Americans who rely on it for their livelihood in retirement or during periods of disability or hardship.
Source: https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
Here's a breakdown of the key components of Social Security:
- Retirement Benefits: This is the most well-known part of Social Security. If you've worked and paid into the system for at least 40 quarters (about 10 years), you become eligible to start receiving retirement benefits when you reach the age of 62. However, full benefits are typically available at your "full retirement age," which depends on when you were born. The longer you wait to claim (up to age 70), the higher your monthly benefit.
- Disability Benefits: Social Security also provides financial assistance to individuals who cannot work due to a qualifying disability. To qualify, you must have worked a certain number of years and paid into the system, just like retirement benefits.
- Survivor Benefits: If a worker dies, their surviving spouse, children, or sometimes parents can receive some of the deceased person’s Social Security benefits. This is meant to help the surviving family members financially after the loss.
The amount you receive from Social Security depends on your earnings history and when you decide to start receiving benefits. Generally, you get a reduction of about 8% each year if you take social security early, and you gain 8% each year you wait after your full retirement age (FRA). There is no additional increase after you reach age 70.
Sources: https://www.ssa.gov/OACT/quickcalc/earlyretire.html
Social Security also includes an annual cost-of-living adjustment (COLA). The increase for 2025 was 2.5%; in 2024, it was 3.2%; in 2023, it was 8.7% - due to inflation in the economy coming out of COVID-19. We know how much fun it was going to the grocery store then, almost like trying to find eggs today due to bird flu!
Social Security Fairness Act
The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) date back to 1977. Social Security has had an asterisk for certain people – specifically, those who spent at least part of their careers in jobs where they didn't pay Social Security tax, for which they now receive payments from a pension plan. This most often includes certain state and local employees like teachers, police officers, firefighters, and those who worked in a foreign country where they didn't contribute to the U.S. Social Security system.
When these workers are eligible for Social Security benefits, either under their name or as a spouse or survivor of another worker, one of two provisions often reduces or even eliminates their benefits.
Congress spent almost 40 years debating the fairness of these provisions. After much bipartisan work, the bill was agreed upon. And on January 5, 2025, President Biden signed the Social Security Fairness Act into law, which fully repeals both the WEP and the GPO. The result of the Act is to increase Social Security benefits by hundreds or even thousands of dollars per month for millions of retirees who receive pension payments from state, local, and/or foreign governments. The act is retroactive to January 2024, so individuals impacted will receive payments for 2024 as well.
For those impacted by the WEP and GPO, please contact your Charter Oak Financial Advisor for assistance or the Social Security Administration directly.
Social Security as a Whole
We know there are many nuances and items to social security that we did not cover here, such as:
- How do taxes work on social security?
- When should I begin taking Social Security?
- What will my spousal benefits be, and when should I collect them?
- Do I take it as early as possible or wait until 70?
Please know that your Charter Oak team is here to advise and guide you through the process. There is a science to maximizing your Social Security benefits, but there is also an art to it, as everyone is different in when they want to collect and how they want to use their benefit. As one of our senior advisors says, most clients will only go through the process once in their lifetime, but we have had the privilege to go through the process hundreds of times for our clients.
As always, please reach out with any questions or concerns. And if your family members or friends need advice and guidance on Social Security benefits, we would also be glad to speak with them.
Wishing you all a wonderful winter season.