I recently gave a webinar on the subject of the Windfall Elimination Provision (WEP), which generated lots of feedback. Evidently, the WEP affects many American olim. Many American citizens who have made aliya weren’t aware that their moving to Israel and receiving a pension in Israel would affect Social Security payments.
Under the conditions of the WEP, receiving a foreign pension affects the way your retirement benefits are calculated. While this can certainly have a negative impact on cash flow during retirement, there are several moves you can make to minimize WEP’s damage to your bottom line.
Don’t put your eggs in one basket
The good news is that if you plan properly, you don’t need to rely on Social Security payments to fund your retirement.
Instead, if you create multiple income streams by building your personal savings, investing in a diversified portfolio of securities, and building your Israeli pension, you won’t have to rely on a single source of retirement income. Diversification is not only important in terms of asset class, but also in anticipated income stream. A sizeable personal savings account can minimize your dependence on an outside pension, regardless of its source. Remember the recent discussion about Detroit only giving 25 cents on the dollar on its pensions? If your city pension was the sole source of retirement income, your budget would need to be slashed!
Another way to increase retirement income is to shrink your budget. If you budget carefully, you will also be used to living within your means when you finally reach your golden years, when you will no longer be working and will have to rely on the sources of income that you have built up.
If you want to learn more about the WEP, how it may affect you, and get some good advice on how to prepare for retirement, you can still attend my free webinar if you click here.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published September 15, 2014.