The Teacher Retirement System of Texas (TRS) and Social Security are both areas of confusion for many. In this article I hope to clarify how these work together and set the record straight. I have often heard from those in the TRS system that they believe they aren’t eligible for Social Security at all. Most teachers in the TRS system don’t pay in to social security while teaching after all, so this makes sense. Very often, however, social security benefits and spousal benefits are available for teachers. However, there are special provisions that are important to understand if these systems apply to you.
Windfall Elimination Provision
Social security works on a tiered system, where workers with lower incomes have higher percentages of their income replaced and workers with higher incomes have lower percentages of their income replaced. In 1983, Congress passed the Windfall Elimination Provision which would reduce, but not eliminate, social security benefits for many teachers. The WEP changes the first social security “bend point” by lowering the percentage of income that social security replaces for the first $1,024 in monthly earnings for teachers. While I don’t agree that this was a fair shake to reduce benefits for a profession that is already underpaid and overworked, I wasn’t consulted in the decision (I also wasn’t born yet). For teachers, it is important to note that your Social Security statement may not reflect what you will actually receive when you file for benefits due to the WEP. The social security website offers a calculator so you can see how the WEP will affect you. Social Security will never reduce your benefits by more than half of your TRS pension, and the maximum reduction of Social Security benefits due to WEP in 2022 is $512.
Government Pension Offset
There is one additional provision to be aware of called the “Government Pension Offset”, or GPO. The GPO can reduce the social security spousal benefits a teacher could receive by up to two thirds of their TRS pension amount. For example, a teacher with a TRS pension of $600 will result in a $400 reduction of the Social Security spousal benefit (2/3 of $600=$400). The GPO only affects spousal benefits, not a worker’s primary benefit.
No work and no spouse
In the worst case scenario, a teacher and their spouse may have never paid into social security. In this case, they would not be eligible for social security benefits. However, there are options available to supplement retirement if this is the case. One option is by saving in an IRA or Roth IRA. In 2022, the contribution limit is $6,000 with a $1,000 catch up for those over age 50. Additionally, many teachers have a 403(b) available where they can save up to $20,500 per year for retirement.
For most teachers, social security benefits will be reduced due to the WEP and GPO. The benefit amount will usually not be reduced to zero, but planning for the reductions that may apply is important. Don’t leave social security benefits on the table that you worked hard for. Consult a CERTIFIED FINANCIAL PLANNER® professional today to talk about how you can maximize both your TRS benefits and Social Security benefits, and plan for a successful and secure retirement today.
Published in the Victoria Advocate
David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.