Social Security Fairness Act

In early 2025, Congress passed the Social Security Fairness Act.  The new law has a significant impact on Massachusetts clients eligible for both a public pension and social security, including teachers, municipal employees and public safety officials.  The law repealed the Windfall Elimination Provision and Government Pension Offset, which had significantly reduced benefits to these individuals.  It is easiest to explain how social security works for the general population, as these rules will now be the same for everyone.

You are eligible for social security if you have worked 40 quarters (10 years) in the private sector.  Everyone has a full retirement age, based on when you were born (age 67 for most).  You can begin collecting social security as early as age 62.  Each month you defer social security, the benefit increases, until age 70, when it stops increasing outside of COLA adjustments.  There can be significant penalties if you begin collecting social security before your full retirement age if still working and earning over $23,400.  When you begin collecting social security, you are generally eligible for the greater of 100% of your personal benefit or 50% of your spouse’s benefit (this applies to divorced spouses after 10 years of marriage as well).  When you or your spouse pass away, the survivor receives the HIGHER of the benefits (not both).  You can download your social security statement from ssa.gov. 

Prior to the Social Security Fairness Act, if you were receiving a Massachusetts pension and social security, your social security income was reduced by as much as $600 per month.  In addition, you were generally NOT eligible for 50% of your spouse’s social security benefit while s/he was alive, or your spouse’s social security at his/her death.  All of these negatives are going away fortunately.  For clients that have been receiving a reduced social security benefit, this change will be retroactive to 1/1/2024, so there should be a repayment of lost benefits.  In other words, this law significantly impacts these clients and their planning opportunities.

One common question is, “When should I begin taking social security?”  Of course, this depends on a number of factors.  If you are still working, it generally makes sense to defer social security until age 70.  Once you stop working, you will need to create retirement income.  Social security is one of your options.  One benefit of taking social security is that it takes “pressure” off of your retirement portfolio.  For example, if your expenses are $6,000 per month and can get $3,000 per month from social security, you would only need to draw $3,000 per month from your portfolio.  However, once you start taking social security, you lock into the lower benefit for the rest of your life.  The longer you plan to live, the more advantageous it is to defer social security.  There is typically a breakeven point between age 78 and 82, meaning if you live beyond this age, you will collect more over your lifetime by deferring until age 70.  A common strategy is for one spouse to take social security right at retirement and then have the second spouse defer until age 70.  Obviously, you need to look at your overall finances and cash flow needs.

There is a complicated formula to determine how much of your social security is taxed.  It is often 85%.  It is best to be doing tax planning each year, where you look at your overall income, cash flow needs, taxation and options to determine the best place to draw income from.  For example, it might make sense to draw money from non-retirement savings or Roth IRAs early in retirement, so less of your social security is taxed. 

As you can imagine, social security planning is quite complex and only one piece of your overall retirement plan.  I am happy to offer a consultation to discuss your specific situation.

Lars Lambrecht, Rehoboth resident and Certified Financial Planner, is available to answer questions or meet for a consultation.  617-947-6428