Social security is an important earned benefit for Americans and forms the foundation of many retirees’ retirement income plan. Recent legislation will change those benefits for millions of Americans, likely prompting questions from clients that financial advisors will need to address.

The Social Security Fairness Act (HR 82) was signed by former President Biden on January 5, 2025. It eliminates the reduction of Social Security benefits for those workers who are entitled to public pensions from work not covered by Social Security. More specially, the law eliminates the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which were enacted in 1983 and 1977, respectively.

To better understand what the elimination of the WEP and GPO could mean for clients, it’s helpful to have some background on how these programs worked.

The Windfall Elimination Provision

When in effect, the WEP reduced retirement benefits for workers who earned a pension in any job not covered by Social Security and who also worked in other jobs long enough to qualify for benefits. In many cases, this included employees such as teachers, police officers, fire fighters, and other state and local employees in some states.

For workers affected by the WEP, Social Security benefits were calculated by applying different percentages to a worker’s average indexed monthly earnings, with the total equaling the worker’s monthly benefit at full retirement age. The result was that Social Security replaced a higher percentage of the average earnings for lower-paid employees, resulting in lower benefits.¹

Overall, this provision affects approximately two million or 3% of Social Security beneficiaries.²

The Government Pension Offset

The GPO reduces spousal or survivor benefits by two-thirds if a worker received a pension not covered by Social Security. In many cases, spousal benefits would be reduced to $0 due to this provision. Those affected include teachers, police officers, fire fighters, and other state and local employees in some states whose spouses or deceased spouses worked in covered employment. It also affected Federal employees hired before 1984 whose spouses or deceased spouses worked in covered employment. Overall, this provision affects approximately 750,000 or 1% of beneficiaries.³

Source: Social Security Administration, Office of Research, Evaluation and Statistics, January 2023, unpublished data. Map: National Education Association.

Social Security Fairness Act: Key considerations for advisors and clients

The Social Security Fairness Act introduces several important considerations and action items for financial advisors and their clients.

1. Benefits will increase for those workers who were previously subject to the WEP or GPO. The question, of course, is when will this happen? At the time of writing, the Social Security Administration has said that it is “evaluating how to implement the Act.”⁴ As with any change at the federal level, patience will be key. However, once implementation is sorted out, beneficiaries may see monthly benefit increases range, on average, from $360 to $1,190, with changes in benefits payments retroactive to January 2024.⁵

2. If a worker or spouse started taking Social Security benefits that were affected by the WEP or GPO within the last 12 months – and especially if they did so before reaching full retirement age (FRA)– it may be worth considering whether revoking their application makes sense. Revoking one’s application may allow the beneficiary to delay taking benefits until FRA or later, which would lead to an increased benefit. It is important to remember that by revoking an application, a client would need to repay any Social Security benefits they had already received.

3. As noted above, many beneficiaries in the past would have had their spousal benefits reduced to $0 via the GPO. Faced with this, some beneficiaries may have decided not to file for benefits at all. If that is the case, clients should now go through the process of filing for their benefits.

In addition to these considerations, there are two financial issues advisors and clients should be aware of.

First, while clients will of course be pleased to receive higher benefits from the Social Security Administration, one must not forget about the taxation of benefits. As shown below, taxation is based on provisional income and can result in benefits being subject to up to 85% tax. (Provisional income in this case is calculated as Adjusted Gross Income (AGI) + one-half of Social Security benefit + tax-exempt interest.)

This leads to the second issue, which is that of reviewing and possibly updating a client’s overall financial plan. An increase in monthly Social Security benefits could mean tens if not hundreds of thousands of dollars in lifetime income. This, in addition to the taxation of benefits, could also lead to changes in withdrawal sequencing as well as investment allocations for traditional IRAs and other types of accounts.

Finally, this extra income should lead to a review of a client’s retirement goals, which may open up the opportunity to fund new and different types of goals and help increase one’s overall enjoyment of their retirement years.

The choices clients make about Social Security benefits are specific for each and every client and couple. Providing the details and considerations necessary to make informed decisions and get the most out of the system is a significant value add financial advisors can offer to clients. Now, with the passage of the Social Security Fairness Act, advisors have the opportunity to provide the millions of impacted clients with the education they need to receive the benefits they have earned.

 

¹ Social Security Administration, January 2025.

² Congressional Research Service.

³ Ibid.

⁴ “Social Security Fairness Act: Windfall Elimination Provision and Government Pension Offset update,” ssa.gov, January 6, 2025.

⁵ “New Social Security benefit legislation may worsen insolvency. Broad reform remains elusive, experts say.” CNBC, January 13, 2025.