Getting ready for retirement requires evaluation of all your sources of retirement income. Even if you worked for the government and didn’t pay the FICA tax on your earnings, you may be eligible for benefits from your spouse’s work under Social Security.
However, when you receive both your own non-covered government pension and a Social Security spousal benefit, your Social Security benefit may be reduced. The Government Pension Offset reduces your Social Security benefit by two-thirds of your government pension.
Why are benefits reduced? Law requires any beneficiary’s spouse, widow or widower benefit be reduced by the dollar amount of their own retirement benefit. For example, if a woman worked and earned her own $900 monthly Social Security benefit, but was due a $500 wife’s benefit on her husband’s record, she wouldn’t receive the $500 benefit because two-thirds of the government pension (2/3 of $900 equals $600) is more than the wife’s benefit ($500).
The offset ensures that benefits of government employees who don’t pay Social Security taxes are calculated the same way as workers in the private sector who pay Social Security taxes.
If you take your government pension annuity in a lump sum, Social Security will treat the annuity as if you chose to get monthly benefit payments from your government work. Payments from a defined benefit plan or defined contribution plan (e.g., 401(k), 403(b), or 457) based on earnings from non-covered government employment are considered pensions subject to offset, if it is the employee’s primary retirement plan. For more information, visit socialsecurity.gov/pubs/EN-05-10007.pdf or ssa.gov/planners/retire/gpo.html.