Trap No. 5: Windfall elimination provision
If you work for multiple employers in your career, including both employers that don't withhold Social Security taxes from your salary (for example, a government agency) and employers that do, the pension you receive based on the noncovered work may reduce your Social Security benefits.
"Many people are not aware that their actual Social Security benefit may be lower than the amount shown on their statements or online because the windfall elimination provision reduction does not occur until the person applies for their benefits and (the Social Security Administration) finds out they are entitled to a pension," says Charles Scott, president of Pelleton Capital Management in Scottsdale, Arizona.
Social Security applies a formula to determine the reduction. In 2015, the maximum WEP reduction is $413. There is a limit to the WEP reduction for people with very small pensions.
If you have worked for both noncovered and covered employers, don't let the windfall elimination provision catch you by surprise.