Module 1 C10 Insurance - Social Security
3 Benefits available from Social Security other than retirement benefits? p.392
1) Disability - payable at any age to workers who have sufficient credits under the Social Security system. Recipients must have a severe physical or mental impairment that is expected to prevent them from performing "substantial" work for at least a year or result in death. - payable at any age to people who have enough Social Security credits and who have a severe physical or mental impairment that is expected to prevent them from doing "substantial" work for a year or more or who have a condition that is expected to result in death. Workers are insured for disability if they are fully insured and, except for persons who are blind or disabled before age 31, have a total of at least 20 quarters of coverage during the 40-quarter period ending with the quarter in which the worker became disabled. Workers who are disabled before age 31 must have total quarters of coverage equal to half the calendar quarters that have elapsed since the worker reached age 21 ending in the quarter in which the worker became disabled. However, a minimum of six quarters is required. 2) Family - provided to certain family members of workers eligible for retirement or disability benefits. Such family members include spouses age 62 or older, spouses under age 62 but caring for a child under age 16, unmarried children under 18, unmarried children under age 19 and full-time students, and unmarried children of any age who were disabled before age 22. Family benefits may be available to members of the individual's family if the individual is eligible for retirement or disability benefits. Family members who may receive benefits include the following: • A spouse, if the spouse is age 62 or older, caring for a child under age 16, or caring for a child who was disabled before age 22. • A child, if the child is unmarried and under age 18, under age 19 but still in school, or age 18 or older but disabled. • For those workers who are entitled to retirement or disability benefits, an ex-spouse could also be eligible for benefits on the worker's record. 4) Survivor's - apply to certain members of the deceased worker's family if the worker earned sufficient Social Security credits. Survivor Benefits may be available to certain members of a worker's family when the worker dies if the worker earned enough Social Security credits during his lifetime. The family members of the deceased worker who may be entitled to survivors' benefits include: • A widow or widower age 60 or older, age 50 if disabled, or any age if caring for a child under age 16 or a disabled child. • A child of the deceased worker if the child is unmarried and under age 18, under age 19 but still in school, or age 18 or older but disabled. • Parents of the deceased worker if the deceased worker was their primary means of support.
Six major categories of benefits administered by the Social Security Association. p.363 RDFSMS
1) Retirement - most well known benefit. Full retirement benefits are payable at"full retirement age" (reduced benefits as early as age 62) to anyone who has obtained at least a minimum amount (40 quarters) of Social Security credits. 2) Disability - payable at any age to workers who have sufficient credits under the Social Security system. Recipients must have a severe physical or mental impairment that is expected to prevent them from performing "substantial" work for at least a year or result in death. 3) Family - provided to certain family members of workers eligible for retirement or disability benefits. Such family members include spouses age 62 or older, spouses under age 62 but caring for a child under age 16, unmarried children under 18, unmarried children under age 19 and full-time students, and unmarried children of any age who were disabled before age 22. 4) Survivor's - apply to certain members of the deceased worker's family if the worker earned sufficient Social Security credits. 5) Medicare - provides hospital and medical insurance. Those who have attained the full retirement age or those who receive disability benefits for at least 2 years automatically qualify for Medicare. 6) Social Security Income (SSI) - arre not funded by Social Security taxes but are funded by the general Treasury. SSI is another benefit that provides monthly payments to those disabled or at full retirement age who have a low income and few assets. Generally, those who receive SSI also qualify for Medic- aid, food stamps, and other government assistance.
Which individuals are covered workers under the Social Security system? p.370
Contributing workers become "covered" workers, meaning that they will fall under the Social Security umbrella of benefits after contributing for approximately 10 years and they will receive retirement benefits based on those contributions.
How is a person's Social Security retirement benefit calculated? p.374
Determining a worker's retirement benefit requires specific, detailed information pertaining to age, earnings history, and the worker's retirement date. Social Security benefits are based on earnings averaged over most of a worker's lifetime. Actual earnings are first adjusted or "indexed" to current dollars to account for changes in average wages since the year the earnings were received. Then, the Social Security Administration calculates average indexed monthly earnings ("AIME") during the 35 years in which the applicant earned the most income. The Social Security Administration applies a formula to these earnings and arrives at a basic benefit, which is referred to as the primary insurance amount or PIA. The Social Security retirement benefit is based on the worker's PIA. The PIA determines the amount the applicant will receive at his full retirement age, but the amount of the benefit depends on the year in which the retiree turns age 62. The PIA is indexed to the consumer price index (CPI) annually.
How are Social Security funds collected? p.365
Employees, employers, and self-employed individuals pay Social Security taxes, known as FICA taxes, during their working years. FICA stands for the Federal Insurance Contributions Act and is the law allowing Social Security taxes, including Medicare taxes, to be deducted from paychecks. These payments are pooled in special trust funds. A portion of these FICA taxes pays part of the Medicare coverage. Separate and apart from Social Security taxes, general tax revenues are used to finance Supplemental Security Income, commonly referred to as "SSI."
How does marriage or divorce affect Social Security benefits? p.406
Marriage or divorce may affect one's Social Security benefits depending on the kind of benefits received. If a worker receives retirement benefits based on his own earnings record, the worker's retirement benefits will continue whether married or divorced. If an individual receives benefits based on his spouse's record, the individual's benefits will cease upon divorce unless the individual is age 62 or older and was married at least 10 years. Widows and widowers, whether divorced or not, will continue to receive survivors' benefits upon remarriage if the widow or widower is age 60 or older. Disabled widows and widowers, whether divorced or not, will continue to receive survivors' benefits upon remarriage if the disabled widow or widower is age 50 or older.
What Social Security benefits does Medicare provide? p.399
Medicare is a federal health insurance plan for people who are 65 and older, whether retired or still working. People who are disabled or have permanent kidney failure can get Medicare at any age. There are two parts to Medicare: Hospital Insurance (sometimes called Part A) and Medical Insurance (sometimes called Part B). Part A helps pay for necessary medical care furnished by Medicare-certified providers, including inpatient hospital care, skilled nursing care, home health care, hospice care, and other care. The number of days that Medicare covers care in hospitals and skilled nursing facilities is measured in benefit periods. A benefit period begins on the first day a patient receives services as a patient in a hospital or skilled nursing facility and ends after 60 consecutive days of no further skilled care. There is no limit to the number of benefit periods a beneficiary may have. Medicare Part B, Medical Insurance, is optional and a premium is charged. Part B is paid for by monthly premiums of those who are enrolled and out of the general revenues from the U.S. Treasury. Medicare Part B is used to pay for doctor's services; ambulance transportation; diagnostic tests; outpatient therapy services; out- patient hospital services including emergency room visits; X-rays and laboratory services; some preventative care; home health care services not covered by Part A; durable medical equipment and supplies; and a variety of other health services. Medicare prescription drug plans, known as the Medicare Part D Subsidy (Part D or Medicare Prescription Drug Plan), became available beginning January 1, 2006, to individuals with Medicare. Part D is intended to save participants money on prescription drug costs and help protect against higher drug costs in the future. Insurance companies and other private companies work with Medicare to offer these drug plans by negotiating discounts on drug prices.
Describe Supplemental Security Income benefits and when they are available. p.404
SSI makes monthly payments to individuals with low incomes and few assets. In order to obtain SSI benefits, an individual must be age 65, disabled, or blind. As its name implies, Supplemental Security Income supplements the beneficiary's income up to various levels depending on where the beneficiary lives. If an otherwise eligible SSI applicant lives in another household and receives support from that person, the federal SSI benefit is reduced by one-third. The federal government pays a basic rate. Some states supply additional funds to qualified individuals. Generally, individuals who receive SSI benefits also qualify for Medicaid, food stamps, and other government assistance.
Beneficiaries of Social Security benefits p.371 Summary Chart of OASDI Benefits (As a percentage of PIA) is found on p.372
Social Security benefits are paid upon retirement, disability, or death if the eligibility requirements are satisfied. The worker's spouse and children may also be eligible to receive benefits when the worker satisfies eligibility requirements. Generally, monthly Social Security benefits can be paid to: • A disabled insured worker under age 65. • A retired insured worker at age 62. • The spouse of a retired or disabled worker entitled to benefits who: - is at least 62 years old or - is caring for a child who is under age 16 or disabled. • The divorced spouse of a retired or disabled worker entitled to benefits if the disabled spouse is age 62 or older and married to the worker for at least 10 years. • The divorced spouse of a fully insured worker who has not yet filed a claim for benefits if both are at least age 62, were married for at least 10 years, and have been finally divorced for at least 2 continuous years. • The dependent, unmarried child of a retired or disabled worker entitled to benefits or of a deceased insured worker if the child is: - under age 18; or - under age 19 and a full-time elementary or secondary school student; or - Age 18 or over but disabled before age 22. • The surviving spouse (including a surviving divorced spouse) of a deceased insured worker if the widow(er) is age 60 or older. • The disabled surviving spouse (including a surviving divorced spouse in some cases) of a deceased insured worker if the widow(er) is age 50 or older. • The surviving spouse (including a surviving divorced spouse) of a deceased insured worker, regardless of age, if caring for an entitled child of the deceased who is either under age 16 or disabled before age 22. • The dependent parents of a deceased insured worker at age 62 or older.
How are Social Security benefits taxed? p.387
The Social Security Administration is concerned with beneficiaries' modified adjusted gross income. Generally, 50 percent of Social Security benefits are subject to federal income taxes for beneficiaries who file a federal tax return as an "individual" and have a modified adjusted gross income between $25,000 and $34,000. For those with a modified adjusted gross income over $34,000, 85% of their Social Security benefits will be subject to federal income taxation. For those beneficiaries that file a joint federal tax return and have a modified adjusted gross income with their spouse between $32,000 and $44,000, 50 percent of their Social Security benefits will be subject to federal income taxes. Finally, if beneficiaries filing a joint tax return have a modified adjusted gross income that exceeds $44,000, 85% of their Social Security benefits will be subject to federal income taxation.
Maximum Family Benefit p.394
When a person dies, the deceased's survivors receive a percentage of the worker's Social Security benefits ranging from 75 percent to 100 percent each. There is a limit on the amount of monthly Social Security benefits that may be paid to a family. This limit is called the maximum family benefit, which is determined through a formula based on the worker's Primary Insurance Amount (PIA). While the limit varies, it is equal to roughly 150 percent to 180 percent of the deceased worker's PIA. If the sum of the family members' benefits exceeds the limit, the family members' benefits are proportionately reduced. For old-age and survivor family benefits, the formula computes the sum of four separate percentages of portions of the worker's PIA.
How does retiring early or retiring late affect the calculation of Social Security benefits? p.380
Workers entitled to retirement benefits can currently take early retirement benefits as early as age 62. The worker will receive a reduced benefit because he will receive more monthly benefit payments than if the worker had waited and retired at full retirement age. The reduction to one's monthly benefit for early retirement is permanent. Conversely, a delayed or postponed retirement will permanently increase the monthly retirement benefit for a worker. For each month of early retirement, a worker will receive a reduction in his monthly retirement benefit of 0.555 percent (5/9 of 1%), or 1/180, up to the first 36 months. For subsequent months of early retirement, the permanent reduction percentage is 0.416 percent (5/12 of 1%), or 1/240, per month. Increase of 8% begins after 65 and stops at 70.
