I am likely going to be hit with a partial WEP penalty (if I can get anyone at SSA to acknowledge their Modified Benefit Formula Questionnaire worksheet exists and correctly interpret it). My question is: Do they redo the WEP every year to make sure to take away the cost of living increase you got from the state pension? I have a chance to take the cost of living in a lump sum buyout which might be worth it if SSA will simply take an equal amount away from my SS check to match the increase in my state check. In other words, why take the annual 3% cost of living increase if SSA will simply remove an equal amount from my SSA check?

Hi. No. When the Windfall Elimination Provision (WEP) applies, the amount of reduction in a person's Social Security benefit rate is based on one of two different calculation methods. The first of those methods is a different, less generous, benefit calculation formula. Social Security calculates a person's primary insurance amount (PIA) using their average monthly earnings adjusted for average wage growth. The person's average monthly earnings are separated into up to three tiers, and a different percentage is applied to each of the three tiers. The person's PIA is equal to the sum of the the percentage amounts of the three tiers of their average earnings.

For example, for a worker who turns 62 in 2022, the first $1,024 of average monthly earnings is multiplied by 90%;
earnings between $1,024 and $6,172 are multiplied by 32%; and the balance by 15%. The sum of the three
amounts equals the PIA, which is then decreased or increased depending on whether the worker starts benefits before or after full retirement age (FRA).

However, when WEP is involved the percentage applied to the first $1,024 of average monthly earnings is 40% rather than 90%. That of course results in a lower PIA and monthly benefit rate. But, if the resulting WEP reduction amounts to more than 50% of the person's non-covered pension amount, the WEP guarantee provision limits the reduction in the person's PIA to 50% of their non-covered pension amount. The WEP guarantee provision is the second of the two calculation provisions I referred to above.

If the first calculation method is used, the exact amount of the person's monthly non-covered pension amount isn't important. In other words, the amount of WEP reduction would be the same regardless of whether the person's monthly non-covered pension amounts to $1,500, or $3,000, or $5,000. But, if the WEP guarantee method is used, then the amount of WEP reduction is calculated based on the non-covered pension amount effective with the first month that the person is entitled to BOTH their Social Security benefit and their non-covered pension. Therefore, cost of living (COLA) increases applied to a person's non-covered pension amount after WEP is initially calculated do not affect the amount of reduction caused by WEP regardless of which of the two WEP calculation methods apply.

Our software (https://maximizemysocialsecurity.com/purchase) is programmed to handle WEP calcuations, so it sounds like you should strongly consider using the software to fully analyze all of your options so that you can determine your best strategy for maximizing your benefits.

Best, Jerry