An Update on the Social Security Problem with GPO Benefits

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Last month, Advisor Perspectives published my article warning advisors about a quirk in the Social Security benefits formula that has short changed seniors subject to the Government Provision Offset (GPO) by as much as $25,000 in lifetime benefits.

The issue is that Social Security applies a substantially higher penalty on people subject to GPO for claiming widow(er) and spousal benefits prior to normal retirement age.

The latest news is not good for advisors who may have clients subject to the GPO. While the GPO affects a relatively small number of clients, the potential losses are substantial and at times life changing for your clients. The size of the losses means that advisers dealing with those in or approaching retirement must understand how the rule works.

Who is affected?

The GPO applies widow(er) or spousal benefits claimed by people who have earned a pension working for employers that do not participate in Social Security. Generally, clients who have worked as state or local employees, such as teachers, police, or firemen, are more likely to be affected. (Learn about the GPO here.)

The problem is simple. If one of those clients claims spousal or widow(er) benefits prior to normal retirement age, the system generates an outsized GPO offset that is completely inconsistent with the intent of the GPO.

This aspect of the GPO is well known by the Social Security administration, and there is no plan to fix the formula. As a result, advisors need to think about this quirk in terms of both past and future clients.