By Jason LaBarge, Financial Advisor and President of LaBarge Financial
When President Biden signed the Social Security Fairness Act on January 5, he finalized a movement that was four decades in the making. Millions of public employees and retirees, including nearly 55,000 Marylanders will see their Social Security benefits increase this year. In short, for Baltimore and the rest of the country, this is huge.
In 1977 the Government Pension Offset (GPO) was signed into law, followed in 1983 by the Windfall Elimination Provision (WEP). These two laws acted together to reduce benefits for government employees who had worked in jobs with pensions not covered by Social Security.
Federal employees, as well as local and state workers such as police officers, teachers and firefighters, are most commonly where these pensions are found. If a worker spent the first part of their career at one of these jobs, then changed to a position covered by Social Security for the remaining 20 years of their career, they could suffer a benefits reduction despite having paid into the system for two decades.
Depending on their income from the non-covered pensions, WEP could reduce retirees’ Social Security benefits by as much as half, while GPO could reduce benefits by two thirds of a spouse’s pension checks.
With the passage of the Fairness Act, retirees will now receive their full Social Security benefits and pensions. As an added bonus, retirees will also receive compensation for the amount they were underpaid in 2024 due to WEP and GPO. It really can’t be overstated: For millions of retirees nationwide, this is huge.
The Congressional Budget Office estimates the average public-sector retiree will see an extra $360 in benefits for 2025, while the average spouse and surviving spouse will see payments increase by $700 and $1,190 respectively. The average Maryland retiree has a monthly income of just under $3,000, meaning the higher benefit payments will improve their financial security by a considerable percentage.
Isn’t Social Security Going Broke?
The latest Social Security annual report shows an estimated trust fund exhaustion date of 2033. This would stretch to 2035 if the trust that funds Social Security Disability were combined with the retiree benefits trust — something that can’t happen without congressional intervention. Experts estimate the Social Security Fairness Act will accelerate the retirement fund’s exhaustion by six months.
It’s important to remember that Social Security is only partially funded by the trusts. Payroll taxes fund the majority of the program, so if the trust became insolvent, retirees would see reduced, not eliminated benefits. Retirees would continue to receive Social Security checks at 79% of the full amount they’re entitled to.
What to do if You’re Impacted
You don’t have to do anything in order to begin receiving the increased benefits. As long as Social Security has your current mailing address and direct deposit information, the increase will be applied automatically.
But for some, the extra money will present both potential benefits and problems. While on the surface, extra income is a guaranteed positive, in reality, the impact unexpected income can have on the rest of your portfolio and the taxes you pay can be significant.
If you are one of the thousands of Marylanders who will begin receiving higher Social Security benefits in 2025, it’s very important to work with a financial professional to understand how this change will impact you and to make sure you’re maximizing this newfound income. When I work with clients who are former government employees, I make sure to structure their retirement income so they only pay the taxes they actually owe rather than overpaying. Make sure your financial advisor is doing the same for you.
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Jason LaBarge, Financial Advisor and President of LaBarge Financial
7 Riggs Avenue, Severna Park, MD 21146 443-647-4321
www.LaBargeFinancial.com
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. MAS and LaBarge Financial are not affiliated entities. 2828887-01/25