Lesson 8: Social Security

Retirement Benefits

Retirement benefits are paid monthly to the worker, spouse, or children. The full retirement benefit is 100% of the workers PIA. Permanently reduced benefits are available at age 62 for those who elect to retire early and draw benefits. More substantial benefits are available for those who delay retirement beyond age 65.

Social Security Eligibility

Social Security covers practically every working American, including the self-employed. There are a few exceptions. Those not covered are: 1. Federal employees who are covered by Civil Service Retirement; 2. Workers covered by the Railroad Retirement System; 3. Employees of state and local government who choose to be covered by a state pension program.

Social Security Funding

Social Security is funded through a special payroll and self-employment tax paid by employees, employers, and the self-employed. This tax is commonly referred to as FICA (Federal Income Contributions Act). Wage-earners pay a tax on wages up to a specified maximum through payroll deduction.

Disability Insured

Social Security pays only for total disability. No benefits are payable for partial or short-term disability. A person is determined to be disabled under Social Security rules if: 1. they cannot do work that they previously did; 2. the SSA decides that they cannot adjust to other work because of their medical condition(s); and 3. the disability has lasted or is expected to last for at least one year or may result in death. A person has disability-insured status when they: 1. have earned at least 20 QCs during the last 10 years; and 2. are fully insured.

Primary Insurance Amount (PIA)

The "primary insurance amount" (PIA) is the benefit an individual would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. Any Social Security benefit is usually expressed as a percentage of this amount.

Blackout Period

The black-out period is the period of time when no benefits are paid to a surviving spouse. The benefits for a widow/widower caring for a non-disabled child stop when the child becomes age 16 and does not start again until the widow/widower reaches age 60 (age 50 if disabled). During this "black-out" period, the need for life insurance to provide income protection is very great. As an example, if the surviving spouse was age 42 when the youngest child reached 16, the blackout period would be 18 years until he or she reached age 60.

Family members eligible to receive disability benefits:

The following family members may be eligible to receive disability benefits as the result of the disabled person's work record: • An unmarried child under the age 18, or age 19 if a full-time student; • An unmarried child if disabled before age 22; • A spouse caring for a child under the age of 16, or disabled; • A spouse age 62 or older; • A disabled widow or widower age 50 or older; • A disabled surviving divorced spouse age 50 or older if the marriage lasted at least 10 years.

Lump Sum Death Benefit

The worker's surviving spouse or children are provided with a small death benefit for the purpose of defraying a portion of the funeral expenses. The amount of the death benefit is equal to three times the workers PIA up to the maximum amount of $255.

Fully Insured

To achieve fully insured status, the maximum number needed is 40 quarters, which gives the worker permanent status.

Currently Insured

To be currently insured a worker must have earned six quarters of coverage to receive some benefits. Having currently insured status provides a deceased worker's children and the children's mother or father, survivor benefits. It also provides a lump-sum benefit in the event of the worker's death.

Quarter of Coverage (QC)

A QC is the basic unit for determining whether a worker is insured under the Social Security program. Regardless of how high an individual's earnings may be, no more than 4 QCs can be earned in one year. One quarter of coverage is granted to the worker after a certain dollar amount of earnings, up to a maximum of four quarters per year. Workers must achieve 40 credits to be fully eligible, which is referred to as 40 quarters of work.

Children's Benefits

A deceased worker's child under 18 years of age or disabled before the age of 22 years can receive a benefit equal to 75% of the worker's PIA until he or she turns age 18 or age 19 if still in high school. If the child marries before 18 years of age, the benefits terminate.

Surviving Spouse Benefit

A fully insured deceased worker's spouse is entitled to, at age 65 and 6 months, a monthly life income equal to the worker's PIA at the time of his or her death. The surviving spouse may elect a reduced benefit at age 60.

Social Security

Enacted in 1935 during the Great Depression to provide a basic retirement income for all working Americans as well as protection against death, disability, and aging. Social Security is administered by the Social Security Administration (SSA), and is also called OASDI (Old Age, Survivors, and Disability Insurance). OASDI provides the following types of benefits: • Monthly retirement benefits for retired workers age 62 or older; • Monthly benefits for spouses of retired workers; • Monthly benefits for the spouse and certain other survivors of deceased workers; • Monthly disability benefits for disabled workers and their dependents; • A small lump-sum death benefit upon the workers death.

Earnings Limit

If at full retirement age, a person can work, earn as much as desired and keep all of their Social Security benefits.