A teacher with split Social Security coverage emails us with a question about how to maximize her retirement:
Here is a little background on my question. I entered teaching later in life than is typical. I worked in the corporate world for over 10 years before pivoting to teaching. Thus, I already had the 40 quarters required for Social Security. I understand that my 10+ years of teaching service do not count towards Social Security, but I don't understand how I can have her 40 quarters taken away by entering teaching. It's almost beginning to feel like it may be in my best retirement interest to go back to the corporate world.
Can you point me in a direction that would give me some sort of clarity?
Hi Career Switcher,
I have two pieces of good news for you. The first is that you will not have all of your Social Security benefit taken away. Given your 40 quarters of contributing toward Social Security, you are entitled to a benefit when you reach the retirement age.
The second piece of good news is that you may be better off than your colleagues in terms of pension benefits. Because you are closer to reaching your state's retirement age, your pension is more valuable than your younger colleagues with the same amount of experience. See here for a longer explanation.
But now for the bad news. Yes, your Social Security benefit may be reduced under what's known as the Windfall Elimination Provision (WEP). The exact answer to your question depends on how long you taught without Social Security coverage, how much money you earned (and thus contributed to Social Security) while there, and the comparison between the value of your pension and your Social Security benefit. For more detail about how the WEP works, see this two-pager from the Social Security Administration with an explanation and the methodology behind the calculation. Although it changes slightly every year, the maximum WEP penalty in 2020 is $480 a month in retirement.
However, the WEP cannot reduce the value of your Social Security by more than half of your pension amount. That provision means that the WEP does not apply to anyone with only a small pension.
To your ultimate question, it's hard to know whether you would be better off going back into the corporate world for a few years. That would depend on the salary in either job, how many years you have until retirement, and how many years you plans to continue working.
You should consult a qualified financial advisor to run the numbers, but from a purely retirement wealth perspective, it's possible you may earn more with the combination of Social Security (even with a WEP penalty) plus a teacher pension benefit rather than trying to maximize your Social Security benefits.
This may be a longer answer than you were looking for, but hopefully it's helpful, and all the best,
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