When do state pension plans reduce Social Security benefits?

Q: My wife is a first-grade teacher in California. I work in the automotive-parts Industry. I have a friend and his wife is also a teacher and he just retired from the auto-parts business. He has told me that since his wife retired from the California teaching system, she cannot receive any Social Security benefits, even though she paid into it for a few years before teaching. He also told me that she is not entitled to any spousal survivor's benefits. Is this true?

– Walt Reed, California

A: So the information your friend provided you is not 100% accurate. “While this may be true for him, it is not true for all couples in the same situation,” says Brian Vosberg, a certified financial planner with Vosberg & Associates and author of The Complete Retiree's Guide to Social Security: Powerful Strategies to Maximize Retirement Benefits and Get the Most from Your Money.

First, your wife is eligible for benefits against her own earnings if she has earned 40 credits paying into Social Security, says Vosberg. “I would find out how many credits she has and what her benefit would be,” he says. “If she does have her own benefit, then the windfall elimination provision (WEP) would apply.”

This, he says, is a calculation that can affect her Social Security benefit because she has a California State Teachers' Retirement System (CalSTRS) pension. This calculation will reduce her Social Security based on the number of years she worked paying into Social Security at a certain level. “If she works 20 years or less in a Social Security paying job, the maximum reduction is $428,” Vosberg says. You can read more about WEP here.

Regarding your second question, Vosberg says your wife is entitled to survivor’s benefits. “However, since she has a CalSTRS pension, a different calculation would apply,” he says. “The government pension offset or GPO reduces widow's benefits by two-thirds of her CalSTRS pension.”