It’s not uncommon for a client come into your office and tell you that they have a pension from the military, or a government or teaching job. If you ask them if the pension is covered under Social Security or not you’ll likely get a blank stare. 

So, is this pension from work covered under Social Security? It’s simple yes-or-no question. Although the answer may be a simple one. You have a 50% chance selecting the wrong answer that could cost your client tens of thousands of dollars. If this client does have a non-covered pension they may be subject to the Windfall Elimination Provision or the Government Pension Offset. How do you ensure you make the right choice?

Start by collecting a little more information about their pension. The first thing you would collect from your client(s) is their Social Security statement. They can get this by creating an account online at You will want to know when the pension goes into effect, if  there is a cost of living associated with the pension, and the monthly benefit amount of the pension.

Start by looking at “Your Earnings Record” from page three of the Social Security statement. Pay attention to the two columns labeled “Your Taxed Social Security Earnings” and “Your Taxed Medicare Earnings.” Normally these columns would be the same, indicating that they did in fact pay into Social Security (covered). In the event you see zeros in the “Your Taxed Social Security Earnings” and values in the “Your Taxed Medicare Earnings” this would indicate the client did not pay into Social Security (not covered). One slight variation would be low numbers in the first column relative to the second, suggesting that this was a part-time job. If your client has a high net worth, the Medicare column does not cap as the Social Security does, and could exceed the Social Security column.

Looking at the earnings statement may not enough. An advisor must determine what is the employment for which the pension was received and determine if tax under FICA or SECA was paid on the earnings derived from that employment.

If the pension is a foreign pension which paid on the basis of citizenship and age, and not on earnings, then the pension is not a non-covered pension.

Having answered the “covered or not covered” question correctly for a  pension will enable you using the Social Security Timing software to produce the actionable reports your clients will need to make sound financial decisions regarding their Social Security benefits.

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