Social Security

Hi - I have posted this under taxes...but its not specifically a tax question, just seemed like the most appropriate place to post it...

I am trying to look ahead and do some retirement planning.....and have a few questions about [US] Social Security.

I am a UK citizen, I paid into US SS for 10 years when I was a resident (greed card holder) in the USA...so I have paid in sufficient quarters to qualify for SS. But I have now moved back to the UK and so I am a non resident alien. Once I reach the retirement age for SS will I be eligible to receive it while living outside the USA? [I understand that if I am eligible it may be reduced due to other income due to WEP...is it correct that regardless of WEP it won't be reduced by more than 50%?]

My wife is in a similar position but is a USA citizen (resident in UK now). I assume that she will be eligible for US SS but again subject to up to 50% WEP...is that correct?

Thanks

Both of you will be subject to WEP on your SS income once you start receiving it, depending on the amount of your foreign pensions. It does not matter if you are a USC or not, you are entitled to SS based on the number of years and how much you have paid in. My wife will be applying for her SS next year and will be doing so through the Federal Benefit Unit in the US Embassy in London. You complete an online request and then they will contact you and set a date a for an interview. The payments can go directly into a UK bank account which is what we intend to do.

Thanks - that's good news.

Am I right that WEP would reduce SS by no more than 50%....?

Thanks

Thanks - that's good news.

Am I right that WEP would reduce SS by no more than 50%....?

Thanks

Not quite.

SS is calculated using “bend points” which favors the lower earning  folks. WEP will be reduced by up to 50% of the amount payable at the first bend point. For my purposes I budgeted for the max  WEP which would be ~$500/month with 20 years or less of service. I expect to receive over $30k at age 70, reduced by a maximum of $6k through WEP .

This article describes the calculation

https://www.fedweek.com/issue-briefs/crs-reviews-gpo-wep-reductions/

Thanks - helpful again.

Reading that the max reduction would be for someone whose income was just at the first bend point (~$900)...they would get 40% of that amount instead of 90% (i.e. ~$360 instead of $810....so a bit more than 50% reduction in what they would get)?

But the amount of the reduction is also limited to 50% of the non covered pension income. So if that person had a UK pension of say $400/month then the WEP reduction would by limited to $200 ... giving them $610 SS?

Its very tricky trying to work out whether it's better to pay voluntary NIC's to increase OAP or pay into a pension etc. and what the implications are. I guess any additional UK pension income over ~$900* has no further impact on WEP as at that point the max reduction is in effect already?

[*or if their income had been < 1st bend point then any uk pension income over that amount]
Thanks

I am reliably informed that the OAP portion that is based on voluntary NICs does not count towards the WEP calculation. When talking with a person from the FBU earlier this year he said to be sure to have all the OAP documentation on hand when applying.  If I look at my record of contributions online it is very clear which years were funded by NICs.

I’ll find out for sure end of next year when my wife applies for OAP. My private UK pensions will max me out on WEP reduction so OAP won’t be an issue for me.

Eg
30 years of contributions gives £X/year. 10 years from voluntary contributions means that 2/3rds of £X is used in the WEP calculation.

I am reliably informed that the OAP portion that is based on voluntary NICs does not count towards the WEP calculation. When talking with a person from the FBU earlier this year he said to be sure to have all the OAP documentation on hand when applying.  If I look at my record of contributions online it is very clear which years were funded by NICs.

I’ll find out for sure end of next year when my wife applies for OAP. My private UK pensions will max me out on WEP reduction so OAP won’t be an issue for me.

Eg
30 years of contributions gives £X/year. 10 years from voluntary contributions means that 2/3rds of £X is used in the WEP calculation.

Interesting again, thanks.
So far all my qualifying years are from work, though I might eventually make some voluntary contributions.
But working part time / variable hours means my wife has some years where she made a partial "top -up" voluntary contribution to make the year count.
I wonder how those years would be counted?

Does the WEP amount vary every year based on (UK) pension income? So SSI could go up or down based on how much is withdrawn from a UK pension account (assuming of course that WEP isn't already maxed by OAP....for example if SSI started some years before OAP)

Interesting again, thanks.
So far all my qualifying years are from work, though I might eventually make some voluntary contributions.
But working part time / variable hours means my wife has some years where she made a partial "top -up" voluntary contribution to make the year count.
I wonder how those years would be counted?

Does the WEP amount vary every year based on (UK) pension income? So SSI could go up or down based on how much is withdrawn from a UK pension account (assuming of course that WEP isn't already maxed by OAP....for example if SSI started some years before OAP)

If you or your wife create an online account with HMRC.gov.uk you can look at your contributions record and projected OAP. I did this several (many?) years ago from the USA . (We have been living in the UK  for 4.5 years now). The record shows which ones were from voluntary contributions, I don’t think it will show partial years.

The WEP calculation is made one time and the reduction to SS is fixed at that point, but  can/should be changed when circumstances change.  e.g. after taking SS you start getting a new foreign pension that would affect WEP

WEP is applied when you have regular defined benefit pensions from jobs that never paid FICA taxes into the SS system , it does not apply to defined contributions pension plans where you build up  a fund of money which you later withdraw from anyway you want.

If you or your wife create an online account with HMRC.gov.uk you can look at your contributions record and projected OAP. I did this several (many?) years ago from the USA . (We have been living in the UK  for 4.5 years now). The record shows which ones were from voluntary contributions, I don’t think it will show partial years.

The WEP calculation is made one time and the reduction to SS is fixed at that point, but  can/should be changed when circumstances change.  e.g. after taking SS you start getting a new foreign pension that would affect WEP

WEP is applied when you have regular defined benefit pensions from jobs that never paid FICA taxes into the SS system , it does not apply to defined contributions pension plans where you build up  a fund of money which you later withdraw from anyway you want.

Yes, I have checked the record before...that's how we knew some years my wife (working part time) hadn't quite paid enough to qualify as a "full year" so we made a voluntary contribution. I just checked again and indeed clicking on the "full year" shows for example:

You have contributions from
Paid employment: £xxx
Voluntary: x weeks

That will be something to find out when it comes to applying....nothing we can do to change it now....those years will count or not or maybe pro-rated.

Are you sure DC plans don't count....that doesn't agree with something I read elsewhere (that I now cannot find ) Is there anything official that defines what is considered a 'foreign pension' for WEP?

Thanks

As far as I know WEP does not mention foreign pensions, just pensions paid by employers from jobs that did not pay into SS. With DC plans you end up with investments that you yourself withdraw from, nothing to do with the employer.

https://www.ssa.gov/policy/docs/program-explainers/windfall-elimination-provision.html

As far as I know WEP does not mention foreign pensions, just pensions paid by employers from jobs that did not pay into SS. With DC plans you end up with investments that you yourself withdraw from, nothing to do with the employer.

https://www.ssa.gov/policy/docs/program-explainers/windfall-elimination-provision.html

I think it hinges on what counts as a "pension from jobs that did not pay into SS". A private DC pension unrelated to any employment I think would not count? But a DC plan that was from employment and had employer and employee contributions might. [in US terms...it's like asking is a 401k a pension? is an IRA? What about an IRA that has 401k funds rolled over into it]. I think I will need to contact someone officially to get an answer. But thanks for the discussion - I am more confident that I will qualify for some SS!

Thanks

FYI: Here is the official calculator SS use for WEP If there voluntary contributions. When I did my own calculation it was essentially the same $ result.


E. Procedure - prorating a foreign pension
When it has been determined that a foreign pension is based in part on noncovered earnings and in part on a payment which may not be used to apply WEP (see GN 00307.290C.5.), prorate the foreign pension in order to obtain only that part based on noncovered earnings. Prorate the pension as follows:
multiply the total pension amount (after converting it from a weekly amount to a monthly amount, if necessary) by the ratio of the number of months of noncovered work over the total number of months used in the computation; therefore
multiply the pension amount by the total number of months of noncovered work after 1956, and
 
divide this number by the total number of months used by the foreign country to compute the pension, based on both noncovered work and the pension payment which may not be used to apply WEP.
EXAMPLE: A worker is entitled to a German pension of 400 deutsch marks (DM) based on periods of employment and voluntary contributions in Germany from January 1951 through December 1970 (a total of 240 months). He made voluntary contributions to the German pension plan from January 1968 through December 1970 (a total of 36 months).
Exclude months before 1957, since the WEP Guarantee applies only to noncovered earnings after 1956. This yields 168 months.
Exclude the 36 months from 1968 through 1970 for which the worker made only voluntary contributions; i.e., he did not work in noncovered employment. This leaves 132 months during which the worker actually worked in noncovered employment after 1956.
Multiply 400DM 132/240; i.e., 400DM 132 months = 52,800 divided by 240 months = 220DM. Therefore, for purposes of the WEP Guarantee provision (see GN 00307.290F.), the worker's foreign pension is 220DM.
Treat any month for which there are both noncovered earnings and one of the non-usable payments above (e.g., a month for which voluntary contributions were made) as a month of noncovered earnings."[/b]

FYI: Here is the official calculator SS use for WEP If there voluntary contributions. When I did my own calculation it was essentially the same $ result.


E. Procedure - prorating a foreign pension
When it has been determined that a foreign pension is based in part on noncovered earnings and in part on a payment which may not be used to apply WEP (see GN 00307.290C.5.), prorate the foreign pension in order to obtain only that part based on noncovered earnings. Prorate the pension as follows:
multiply the total pension amount (after converting it from a weekly amount to a monthly amount, if necessary) by the ratio of the number of months of noncovered work over the total number of months used in the computation; therefore
multiply the pension amount by the total number of months of noncovered work after 1956, and
 
divide this number by the total number of months used by the foreign country to compute the pension, based on both noncovered work and the pension payment which may not be used to apply WEP.
EXAMPLE: A worker is entitled to a German pension of 400 deutsch marks (DM) based on periods of employment and voluntary contributions in Germany from January 1951 through December 1970 (a total of 240 months). He made voluntary contributions to the German pension plan from January 1968 through December 1970 (a total of 36 months).
Exclude months before 1957, since the WEP Guarantee applies only to noncovered earnings after 1956. This yields 168 months.
Exclude the 36 months from 1968 through 1970 for which the worker made only voluntary contributions; i.e., he did not work in noncovered employment. This leaves 132 months during which the worker actually worked in noncovered employment after 1956.
Multiply 400DM 132/240; i.e., 400DM 132 months = 52,800 divided by 240 months = 220DM. Therefore, for purposes of the WEP Guarantee provision (see GN 00307.290F.), the worker's foreign pension is 220DM.
Treat any month for which there are both noncovered earnings and one of the non-usable payments above (e.g., a month for which voluntary contributions were made) as a month of noncovered earnings."[/b]

Excellent- thanks for this.

Do you have a link I can bookmark by chance?

durhamlad, I’m not sure how to link ( hopeless at tech) but here is the article on ssa.gov site. I did just search again and it popped up right away. The calculation is found in E. I have not read the whole  article.


Program Operations Manual System (POMS). TN 35 (06-15)
GN 00307.290 Evidence of Foreign Pensions and the Windfall Elimination Provision (WEP)

durhamlad, I’m not sure how to link ( hopeless at tech) but here is the article on ssa.gov site. I did just search again and it popped up right away. The calculation is found in E. I have not read the whole  article.


Program Operations Manual System (POMS). TN 35 (06-15)
GN 00307.290 Evidence of Foreign Pensions and the Windfall Elimination Provision (WEP)

Thanks so much for the info, I did a search and I found the website you quoted from which I have now bookmarked for use later this year.

https://secure.ssa.gov/apps10/POMS.NSF/lnx/0200307290