Chapter 4- Social Security
What do monthly retirement benefits depend on?
earnings record & the age at which the retiree chooses to begin receiving benefits
Contribution & benefit base
limit on wages subject to FICA
Government Pension Offset (GPO)-
may also reduce benefits if the applicant receives a pension from a federal, state, or local gov job where they did not pay SS taxes
What are the original 3 parts to a person's retirement?
SS, pension, investments
What programs are included in U.S. Systems?
-Retirement benefits for contributing workers & spouses & disabled dependent children -survivor benefits of deceased workers -disability insurance for disabled workers, spouses 62+ & children -health insurance for aged & disabled (MEDICARE) -grants to states for medical assistance programs (MEDICAID)
Other benefits outside of OASDI
-Unemployment benefits -Temporary Assistance for Needy Families (TANF) -Supplemental Security Income (SSI) -FERS- Federal Employees Retirement System -Railroad Retirement System- Not part of social security system
Federal definition for disabilities
-expected to last at least one yr -result from a listed condition -be expected to result in death
SSI benefits not available to
-workers who are confined due to commission of a serious crime -those w/warrants for a serious crime
How can retiring later increase future benefits?-
1) Each additional year of work adds an additional year of earnings to the mix in calculating PIA 2) Benefits increase automatically by a certain percentage from the time the worker reaches full retirement age until they start receiving benefits or until they reach age 70.
Length of time a person must be disabled to receive benefits
6 months.
Social Security is portable
A worker can change employers many times & will continue to contribute to & be entitled to payments from the same system.
Windfall Elimination Provision (WEP)-
A worker who is eligible for a pension from any gov agency/nonprofit organization or worked in another country & didn't pay into U.S. SS on those earnings may also have benefits decreased but not completely eliminated.
When is a good time to apply for SS benefits?
About 3 months prior to retirement
Average Wage Index (AWI)-
Adjusts contribution for inflation
What is the earliest age reduced retirement payments are payable?-
Age 62
Totalization Agreements
Agreements w/other countries, concerning people who have worked in 2+ countries
FICA Contributions from current workers
Are used to pay benefits to retired workers
Medicare coverage
Begins after a person has been on disability for 2 yrs
Derivative Benefits
Benefits paid to people other than the worker who contributed. SS covers the majority of American workers & can cover those that do not contribute through dependency.
How are OSADI & Medicare benefits funded?
By payroll taxes on employers & employees called FICA contributions. These are then deposited into dedicated funds.
FICA
Federal Insurance Insurance Contributions Act.
Issues with SS Trust Fund
Its assets are treasury bonds meaning the actual funds are on loan to the federal government
Who does not have to pay FICA?
Many state & federal workers, student workers, members of religious communities, etc.
Common-Law Marriage
Marriage in which neither a religious or civil ceremony was held.
SSDI
Social Security Disability Insurance- pays benefits to people who are younger than retirement age & cannot work bc of a medical condition. Benefits are based on work history
Is a private pension universal?
No. It does not cover all individuals in a workplace or their dependents.
OSADI
Old-Age, Survivors, & Disability Insurance. The U.S. Social Security System.
Representative Payee
Person who acts on behalf of benefit recipient
Cost of Living Adjustment (COLA)-
Prevents erosion of benefits by inflation. It is based on the % increase in the consumer price index.
Pay as you go system
SS is this because benefits have historically been paid almost entirely by using revenue from current payroll taxes.
SSI
Supplemental Security Income- For disabled ppl w/limited/no work history. Does not cover short term/partial disability
What happens if a worker is self-employed?
Then the worker pays the entire tax. Otherwise the employer & employee each pay half of the FICA amount.
What are the social security programs for?
They are for social insurance & are not a form of retirement or pension plans
Primary Insurance Amount (PIA)-
What a worker's retirement income is based on. This is a percentage of the highest 35 yrs of covered earnings before FICA deductions. Limited by the contribution & benefit base. If less than 35 yrs, zeros are used.
Does the SSA recognize common-law marriages?
Yes it does if there is adequate proof such as bank/insurance records, rent receipts, or other docs paid together as a couple
Eligibility for retirement benefits
based on a credit system