The Social Security Fairness Act: What It Means for Your Financial Plan
A new era for Social Security brings both opportunities and challenges – here’s how to stay prepared.
Social Security retirement and survivor benefits form the foundation of financial security for millions of Americans. As of November 2024, over 60 million retirees, eligible dependents, and survivors received Social Security benefits. For beneficiaries aged 65 and older, Social Security provides 50% or more of income for 37% of men and 42% of women. While Social Security planning is a cornerstone of retirement planning, some workers also had to plan for potential benefit reductions – until now.
On January 5th, 2025, President Biden signed into law the Social Security Fairness Act (SSFA), repealing two provisions of social security that affected millions: the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).
The GPO and WEP were enacted decades ago to help control the costs of Social Security by reducing Social Security benefits for certain public employees. These provisions primarily affected:
- State and Local Government Employees, specifically about 28% of state and local government employees who are covered by alternative retirement systems instead of Social Security.
- Certain Federal Employees, specifically most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS) or another alternative retirement plan.
As of December 2023, the impact of the GPO and WEP were significant:
- 745,679 Social Security beneficiaries (about 1% of all beneficiaries), had their benefits reduced by the GPO.
- 2.1 million people (about 3% of all Social Security beneficiaries) were affected by the WEP.
By repealing these provisions, the SSFA provides relief to these groups, but it also raises important considerations for all Social Security beneficiaries.
The SSFA could mean a significant adjustment to your financial plan:
Significant changes to Social Security, like the SSFA, highlight the need for ongoing, holistic financial planning. If you are impacted by this new law, here’s what to consider:
- Retroactive Payments: The law applies retroactively to December 2023, meaning some beneficiaries may receive lump-sum payments for withheld benefits from 2024.
- Tax Implications: A lump-sum payment could increase your 2024 tax liability.
- Medicare Premiums: Changes in income may also affect your 2026 Medicare premiums.
This underscores the importance of reviewing your financial plan to address these potential changes.
Even if you’re not directly impacted by the SSFA, it’s important to understand how the changes might influence the broader landscape of Social Security benefits:
According to the Congressional Budget Office, the SSFA will cost approximately $195.7 billion over ten years and the balance of the Social Security retirement and survivor trust fund could be exhausted roughly half a year earlier than it would have been under previous law. (The agency had estimated the balance of the trust fund would be exhausted during fiscal year 2033.)
Even if the SSFA doesn’t directly impact you, Social Security planning remains a crucial part of your overall financial strategy. Social Security is complex, and the decisions you make can have long-term consequences.
Our team is here to help you navigate questions such as:
- When should I apply for Social Security? We can help with timing your application so that you can maximize your lifetime benefits.
- What if I want to keep working? We can help you understand how your benefits may be affected by continued employment.
- What if I’ve already applied? We can help optimize your strategy or identify potential adjustments.
- How much will my benefit be? We can help you estimate your benefit and explore how to maximize it.
- How can I coordinate spousal benefits? We can help you and your spouse make the most of your combined benefits.
- What’s the best long-term strategy for my situation? Whether you’re planning ahead or already receiving benefits, we can develop a personalized approach that aligns with your goals.
- What do I do next? Our team can provide actionable steps to integrate Social Security into your holistic financial plan.
In Conclusion:
The Social Security Fairness Act brings meaningful changes to the retirement landscape. Whether you’re directly affected by the SSFA or simply planning for the future, we’re here to help you make informed decisions and achieve your financial goals. Please don’t hesitate to contact us with any questions or concerns you may have.