Regulatory & Compliance | 05.14.25
The Impact of the Social Security Fairness Act on Financial Planning
by: Tyler De Haan
The Social Security Fairness Act (SSFA) eliminated two provisions of Social Security — the Windfall Elimination Provision and the Government Pension Offset. These two provisions significantly reduced or eliminated Social Security benefits for individuals receiving public sector pensions and mainly affected government employees such as teachers, police officers and firefighters. According to the Social Security Administration, these provisions would affect 28% of public sector employees or former employees.¹ The Congressional Budget Office believes this will affect 2.1 million retirees.¹ Let’s explore how the SSFA could affect retirement planning for current and future retirees.
The Windfall Elimination Provision was added to Social Security in 1983 to prevent individuals who receive a public pension from non-covered employment (jobs that do not pay into Social Security) from receiving disproportionately higher benefits. The Government Pension Offset applies to spouses and widows who qualify for spouse or survivor benefits but also receive a government pension based on non-covered Social Security employment. The SSFA eliminates these two provisions, which may impact an individual's financial plan.
Increased Retirement Income
The elimination of these programs will restore full Social Security benefits to affected individuals. The restoration of these benefits began this year. The restoration is retroactive, so the affected individuals will see an increase in their monthly Social Security amount, which is estimated to be around $360 to $1,100. The increase in monthly income may create a windfall for retirees, leading to a reevaluation of their current financial plan.
Strategies for Claiming Social Security and Pensions
Historically, many public sector workers may have delayed claiming Social Security to compensate for their reduced benefits. However, with the repeal of these programs, they should review their decisions. In addition, individuals may want to reassess how they take their pension income streams. If a client hasn’t yet selected their pension distribution, have them consider evaluating their monthly income options in relation to a potentially larger Social Security amount.
Impact on Spousal and Survivor Benefits
One of the biggest challenges of the Government Pension Offset has been the loss of spousal and survivor benefits for public sector employees. By eliminating the offset, the SSFA allows public retirees to receive the same spousal and survivor benefits as private sector workers. This change greatly benefits surviving spouses who may have planned for significantly reduced income. Financial planning strategies could now incorporate spousal benefits as a more reliable source of income, reducing the pressure on personal savings and retirement accounts.
Tax Implications of Higher Social Security Benefits
With higher Social Security benefits, public sector retirees may face different tax obligations. Social Security income is taxable depending on total retirement income levels. When the SSFA was enacted, individuals who were previously in a lower tax bracket due to reduced benefits could find themselves subject to a higher tax on benefits. Financial professionals may need to assess new tax-efficient withdrawal strategies to ensure clients don’t unintentionally increase their tax burden. Strategies such as Roth IRA conversions, managing required minimum distributions and careful withdrawal sequencing from taxable accounts may become more critical.
The Due Date for Social Security Bankruptcy Moves Up
While there is the positive possibility that millions of Social Security beneficiaries will see an increase in their benefits, the SSFA could speed up the timetable for potential insolvency. The estimated cost of the bill is $196 billion over 10 years.² This increase in expenditures coupled with a demographic tidal wave of baby boomers beginning to take Social Security puts more strain on the system. In addition, the increase in expenditures and the retroactive nature of the legislation will stress the Social Security Administration as it implements the SSFA. The law requires the Social Security Administration to adjust benefits for three million people, and it may take up to a year to adjust and pay all the retroactive benefits.3
The SSFA offers an opportunity to discuss how Social Security and a client's government pension plan are implemented into a financial plan. Millions of Americans may feel like they are getting a pay raise — a raise which could impact other aspects of their financial plan. However, keep in mind that the increase in expenditures is not without cost. The due date for further reform may be needed sooner rather than later for the Social Security Administration to meet all its promises.
References
1 LeValley, Donna. (2025, February 21). Social Security Fairness Act Checklist: Seven Things to Know. Kiplinger. https://www.kiplinger.com/retirement/social-security/social-security-fairness-act-checklist
2 Croucher, Shane. (2025, January 8). Will the Social Security Fairness Act Bankrupt SSA Trust Funds? Newsweek. https://www.newsweek.com/will-social-security-fairness-act-bankrupt-ssa-trust-funds-2010922
3 Social Security Administration. (2025). Social Security Fairness Act: Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) Update. https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
Tyler De Haan is the director of advanced sales at Sammons Institutional Group.
Disclaimer:
Past performance does not guarantee future results.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed and/or Registered Representatives will be paid a commission on the sale of products distributed by Sammons Financial Network®, LLC.
Sammons Institutional Group®, Inc. and Sammons Financial Network®, LLC., member FINRA, do not give tax, legal, or investment advice. Please consult with and rely on your own tax, legal, or investment professional(s). Taxes are payable upon withdrawal of funds, and a 10% IRS penalty may apply to withdrawals prior to age 59½.
Securities distributed by Sammons Financial Network®, LLC., member FINRA. Insurance products are issued by Midland National® Life Insurance Company (West Des Moines, IA). Sammons Institutional Group®, Inc. provides administrative services. Sammons Financial Network®, LLC., Midland National® Life Insurance Company, and Sammons Institutional Group®, Inc. are wholly owned subsidiaries of Sammons® Financial Group, Inc. Sammons Retirement Solutions® and Midland Retirement Distributors® are divisions of Sammons Institutional Group®, Inc.
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