Pensions And Social Security, Part 1

Last week I taught several Social Security pre-retirement sessions, always a source of questions. Questions about pensions and Social Security were asked at each session, providing today’s topic. 

The general rule, with one main exception, is that your company pension will not affect your Social Security benefits. 

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. Only earned income, your gross wages or net income from self-employment, is covered by Social Security. You may have to pay income tax on pensions, annuities, interest or dividends, but you do not pay Social Security taxes. Those types of income are not on your Social Security record.

So what pensions can affect Social Security? The main pension involved is from government employment that was not covered by Social Security. Key here is that this government employment was not covered by Social Security, meaning you did not pay Social Security payroll tax on those earnings, you did not earn coverage for SSA benefits and those earnings do not appear on your SSA work record.  

Government employment can be from any level, not only Federal or state levels. For example, local government employment, including school districts, may or may not be covered by Social Security.

If your government employment is covered by both a pension plan and Social Security, you pay Social Security and Medicare taxes just as you would for any other SSA covered job. You earn coverage for the SSA retirement, survivors and disability programs and your earnings will be on your SSA record. This pension will not affect your Social Security benefit.

Federal employment provides an example of when a government pension might affect Social Security benefits, and when it will not. Noted above, key is whether the employment was covered by Social Security.

Until 1984, Federal government employment was covered under the Civil Service Retirement System (CSRS) and not by Social Security. Since this employment was not covered by Social Security, employees did not pay Social Security tax on earnings, did not earn SSA coverage and those earnings are not on their SSA work records. A CSRS pension will generally affect a Social Security benefit, if the person becomes eligible for one. Since CSRS covered work did not provide Social Security coverage, eligibility for a Social Security benefit would be from other work that the person had on their own or through someone else’s record. More about this will be in future posts.

A second Federal retirement system, the Federal Employees Retirement System (FERS), started in 1984. People who began working for the Federal government in 1984 or later are covered by FERS instead of the Civil Service Retirement System (CSRS). Work under FERS is covered by Social Security. Employees pay SSA taxes, earn SSA coverage and their earnings are shown on their Social Security work record. A FERS pension does not affect a Social Security benefit.

The Retirement Planner section of the Social Security website,, has information and calculators to help in your retirement planning. Concerning today’s topic, see “Learn how certain types of earnings and pensions can affect your benefits.”