Ask Rusty – Computing Benefits When “WEP” Applies

Dear Rusty:   My wife is subject to the Windfall Elimination Provision (WEP) and I’m trying to calculate what her monthly Social Security payment might be. The circular provided by SS says that her earnings will be calculated by multiplying the first $895 of her average monthly earnings by 90 percent. According to the circular, since she doesn’t have 30 or more years of substantial earnings the 90 percent will be reduced to 40 percent. My question is this: How many months do they use to divide into the total earnings to determine the average monthly earnings? If I use the number of total working years, her monthly average is very low and getting lower the longer she works. For example, she has been working since 1973 (46 years/552 months). However, she only paid SS taxes in 20 of those years (240 months). She turned 62 last November, so if she waits to draw SS until her full retirement age she will add another 56 months to the average calculation and reduce her benefit accordingly. I can’t determine when it’s better for her to apply unless I know how many months they will factor into the calculation.  Signed: Confused

Dear Confused:  First, I need to clarify for you the basics of how SS benefits are determined (before the WEP computation). Social Security will look at your wife’s entire lifetime record of SS-covered earnings, adjust each year’s earnings for inflation, and find the 35 years in which she had the highest earnings. If she doesn’t have a full 35 years of SS-covered earnings, they’ll put zeros in to bring the number of years to 35. They’ll then total her earnings for those 35 years and divide by 420 (the number of months in 35 years) to arrive at her “average indexed monthly earnings” (AIME).  

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