Q: I have lived and worked in the United States for the past 15 years. But I was born in Great Britain and worked there for about 30 years before moving to the States. I am 66 years old and about to retire. I get a British Social Security pension and just applied for my American Social Security benefits. Before I did so, the estimates the Social Security Administration mailed me said I would get about $900 per month. But when I filed my claim, the agent at my local SSA office told me I would get only $450. He said this is because I was double dipping, and the law didn’t allow me to do this. I think this is totally unfair. I paid into both social insurance systems and think I should full benefits from both programs. I plan to appeal. Can you help me?
A: You can appeal if you want. But you are not going to win your case. And I will explain why. The Social Security agent misled you by using the term “double dipping.” That is not why your U.S. Social Security benefit will be reduced. It will be reduced because, without the reduction, you would be getting an unintended windfall in retirement benefits. And the law that applies to you is called the windfall elimination provision.
To understand the reasoning behind the law, I’ve got to explain something about our Social Security retirement system. There are social goals that have been built into that system since the program began in 1935. One of those goals is to help raise the standard of living for poorer people when they retire. And the way that is done is with a retirement benefit formula skewed in their favor. That formula gives poorer people a better deal, or more appropriately, a higher rate of return, than is paid to wealthier people. And when I am talking about a “rate of return,” I am talking about comparing their Social Security benefit to their average pre-retirement income.
This formula can best be expressed in terms of percentages. A poor person could potentially get a Social Security benefit that represents up to 90 percent of his or her average wage. A well-to-do person will get significantly less —maybe in the 25 percent range. The rich person is still going to get a much higher Social Security benefit because 25 percent of his or her income is way more than 90 percent of the poor person’s income. But still, the poor person gets a better deal out of Social Security.
The return rate payable to the average person, a typical middle-class worker, is in the 40 percent range. So he or she can expect to get a Social Security retirement check that represents about 40 percent of his or her pre-retirement income.
Now I will get to the “windfall” that you are getting. All Social Security retirement benefits are based on a 35-year base of earnings. You said you worked in this country for only 15 years. So there are 20 years of “zero” earnings on your Social Security record. When your Social Security benefit is initially tallied up, Social Security computers think you are poor because of all those no earning years. So they initially give you a benefit rate intended for a poor person, with something close to the 90 percent return rate.
Those computers don’t know that you are not really poor. They don’t know that you spent all those years working in another country and earning a retirement pension from that country. That’s why the benefit estimate letters you received prior to filing for benefits had the higher benefit rate.
But once you actually filed for benefits and told the Social Security people that you spent all those years working in England and earning a British retirement pension, they then used the windfall elimination provision (WEP) formula to refigure your benefit.
In other words, that $900 monthly benefit rate you were quoted in the letters was based on the 90 percent, or poor person’s rate of return. But again, you are not poor. You are a middle-class person and should get the same rate of return that all middle-class people in this country get. So that $450 monthly benefit you will actually receive was based on the WEP formula that gives you the same 40 percent return rate that all average Americans get.
Q: I am a Canadian citizen who moved to the United States in 2010. About two years ago, I married a woman who is a U.S. citizen. We are both 66. She just filed for Social Security and will get $2,800 per month. My Canadian Social Security pension is $3,200 per month. Am I able to claim husband’s benefits on my wife’s U.S. Social Security record? When my wife filed for her Social Security, the representative she talked to said no. But I know of other Canadians living here who do get spousal benefits from Social Security.
A: Obviously, I don’t know all the facts about your case. So there may be something I am missing. But based on what you told me, the Social Security agent misinformed you. You should be able to collect $1,400 per month in husband’s benefits on your wife’s Social Security record.
Having said that, I will make this point. I think our Social Security laws on this issue are wrong and need to be changed. I’ll use some examples to explain why.
Bill is a U.S. citizen who spent his life paying into Social Security and now collects $2,600 per month in retirement benefits. His wife, Ann, gets her own Social Security check amounting to $1,800 per month. Bill can’t get any husband’s benefits on Ann’s Social Security record because his own retirement benefit offsets any spousal benefits. And for that matter, Ann can’t get any of Bill’s Social Security (at least before he dies) because her retirement benefit offsets any spousal benefits she would be due.
Mary is a retired teacher in California. She never paid into Social Security, but she gets a California teacher’s retirement pension of $3,900 per month. Her husband, Frank, did work and pay into Social Security, and he gets $2,100 per month in retirement benefits. Mary can’t get spousal benefits on Frank’s Social Security record because her teacher’s retirement benefit offsets it.
But for some reason that I can’t explain, there is a loophole in that offset law for foreign pensions. You are going to be able to get your Canadian retirement pension and a full dependent husband’s benefit from the U.S. Social Security system. So go ahead and jump through that big loophole. But I just don’t think it’s right.
