Essential Insights for 3M Employees: Navigating Retirement with a Pension and Social Security

Those planning retirement with a pension and Social Security supplemented by savings may want to consider how much spending money they have to work with, and whether or not it will cover necessary expenses.

When planning your retirement budget with unanswered questions about income streams, you may be left wondering how much Social Security you can expect, if your pension affects Social Security, or how taxes are going to work. Here's what you should know about retiring on your pension and Social Security.

When considering whether you qualify for social security and the amount that's entitled to you, several factors come into play. The first requirement is earning enough income over your career to gain 40  Social Security credits , which render you eligible to receive benefits.

Upon meeting that requirement, the Social Security Administration calculates the  value  of your benefit. Your average monthly earnings for the 35 years when your income was highest is used in the formula, adjusting numbers to account for the change in average wages across the overall economy during that time. The result is your primary insurance amount (PIA).

Depending on your age when  claiming Social Security , the amount received may fluctuate above or below the PIA. Benefits are reduced when taking Social Security before reaching full retirement age. Alternatively, waiting past your retirement date might net you a greater benefit.

Working while you  take Social Security  can also influence the benefit amount. When under full retirement age, earning income above a set yearly limit lowers the benefit. On the other hand, earning income while receiving Social Security can increase your benefit if pay is high compared to previous years.

Benefits may also increase over time as the cost of living rises.

When married with fewer than 40 credits, you may be  eligible  for a spousal benefit of up to half your spouse's amount at full retirement age. In the event you have enough credits but your earnings record based benefit is less than the spousal benefit, you may be entitled to your benefit plus an additional amount that will match the spousal benefit when added.

If you're divorced and you meet some conditions, you may be eligible for a spousal benefit that's up to half your former spouse's benefit at their full retirement age.

If your spouse has died, you may be eligible for a  survivor's benefit  as large as the full amount of your spouse's benefit if you've reached full retirement age, or a smaller amount if you're taking the benefit early.

Receiving a pension doesn't change the Social Security benefits you're eligible for if your employer withheld FICA taxes.

In the event that your employer didn't take FICA taxes out of your paycheck, then the pension received from that employer is considered a noncovered pension. Income from a noncovered pension can reduce your Social Security benefits.

If you have a noncovered pension but you still qualify for Social Security, the  Windfall Elimination Provision (WEP)  may apply to you. For this provision, the Social Security Administration uses a smaller percentage of your earnings in its formula for calculating the PIA, resulting in a smaller benefit. The WEP can cut your benefit by as much as half of your pension amount.

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When qualifying for a spousal benefit or survivor's benefit, a noncovered pension can reduce that benefit under the  Government Pension Offset (GPO) . This provision cuts your benefit by two-thirds of your pension amount, and you can end up with a $0 benefit if your pension is large enough.

• You work for the federal government and were hired in 1984 or later.

• You work for a nonprofit that was exempt from Social Security on December 31, 1983, and meets some other conditions.

• You only have a railroad pension.

• Your earnings that weren't covered by FICA taxes were from before 1957.

• You have at least 30 years of substantial earnings on which FICA taxes were paid.

• You get a government pension that isn't based on your earnings.

• You're a government employee, you have a government pension from work that was covered by FICA taxes, and you meet one of a few other requirements.

• You work for the federal government, you switched from the Civil Service Retirement System to the Federal Employees' Retirement System after December 31, 1987, and you meet one of a few other requirements.

• You received or were eligible for a government pension before December 1982, and you qualified for spousal benefits under the rules in place in January 1977.

• You received or were eligible for a government pension before July 1, 1983, and you had one-half support from a spouse.

The Social Security Administration doesn't view a pension as  earned income . So you don't pay FICA taxes on your pension, and it doesn't add to your earnings record. Essentially, a pension can't add to your Social Security credits, and it doesn't enter into the PIA formula or affect your benefit amount.

When taking Social Security before full retirement age, a pension won't count toward earned income limit.

It may prove beneficial to open an  online account  with the Social Security Administration to view a statement of your earnings history. The statement relays how much of your income was subject to FICA taxes for each year you've worked, letting you know if you have enough credits to be eligible for Social Security. Your full retirement age and estimates of what your benefit amount could be under different Social Security age scenarios is also shown.

The Social Security Administration offers a  WEP calculator  that shows how a noncovered pension may affect your Social Security benefit amount. You can enter your monthly income from the noncovered pension, your earnings from each year of your Social Security record, and the income you expect to earn in the future to calculate an estimate of your monthly benefit. A  GPO calculator  is also available and can help you establish how much your spouse's or survivor's benefits may be cut.

With Social Security regulations being so complex, you may benefit from reaching out to a  knowledgeable expert.