Question: R.K. from Hamilton: I’ve been a teacher for almost 30 years and I’m starting to think about retirement. I’ve also had some side jobs through the years. Will I be able to claim Social Security and my teacher’s pension?
A: The short is answer is yes. But assuming you’re a teacher in Ohio, you might not be able to claim your full Social Security benefit. And the reason why has to do with something called the ‘Windfall Elimination Provision’ (WEP).
Here’s the gist. As an Ohio public employee with a pension, you’re in what’s called a ‘non-covered’ job in the eyes of the Social Security Administration since you don’t pay into Social Security. Because of this, any Social Security benefits from work for which you did pay Social Security taxes could be reduced (though not completely eliminated). WEP essentially tweaks how your Social Security benefit is calculated, though there are some circumstances in which WEP does not apply (the most common being you have 30 or more years of ‘substantial earnings’ as defined by the Social Security Administration).
According to the Center for Retirement Research at Boston College, about 25% of all state and local government employees in the U.S. (about 6.5 million) are not covered by Social Security, but the impact is concentrated in just a handful of states – and, as of 2018, Ohio just happens to be one of the few states in which 100% of these workers are not covered (it’s just 29% in Kentucky). In fact, the Ohio Public Employees Retirement System reports that Ohio has the largest percentage of non-covered public employees in the entire country (as of 2019).
Here’s The Allworth Advice: The Windfall Elimination Provision should be on the radar of any Ohio public worker who is nearing retirement and who has also earned an income in the private sector. Because what you’re expecting from Social Security might not be what you actually receive. To get a better idea of how your benefit could be reduced, check out the Social Security Administration’s WEP calculator at ssa.gov. And if you need more guidance, consider consulting a fiduciary financial advisor who can help you navigate these tricky – and often confusing – waters.
Q: Steve in Terrace Park: What’s an acceptable 401(k) fee? How do I know if I’m paying too much?
A Here’s the rub. It’s difficult to quote one number and tell you, “This is what you should be paying – and no more.” Because there are many variables, including the size of the company you work for, the investment selections, and administration fees, just to name a few.
Likewise, it’s also difficult to compare plans since it’s not always apples-to-apples. Because it really comes down to what are you getting for the fee? For instance, you may be paying a higher fee than, say, your neighbor is in her 401(k) plan. But if you’re getting additional services (such as on-going planning guidance) and she’s not, then your higher fee could be justified.
But here’s what we can tell you. According to the latest edition of the 401(k) Averages Book, average 401(k) fees are on the decline for both small and large plans; they now stand at 1.2% and 0.9%, respectively.
The Allworth Advice is that you should always stay aware of the 401(k) fees you’re paying. You should be able to find them on your plan’s website in Form 404(a)(5). If you can’t find the number or you’re concerned about the number you do see, consult your Human Resources Department. They should be able to point you in the right direction and/or give you more plan details.
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to email@example.com.
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com.