XCEL Chapter 8: Social Security

Calculating benefits

* Based on the individual's average monthly wage during his working years. * The primary insurance amount (PIA) is used to establish the benefit. It is equal to the worker's full retirement benefit at age 65. * If a worker retires early, for example at age 62, his retirement benefits will be 80% of his PIA and will remain lower for the covered worker's life. * The PIA is based on the average earnings over your lifetime.

Retirement benefits

* Benefits are only available to covered workers who are fully insured upon retirement. * Benefits are paid monthly. * If a covered worker retires at the normal retirement age, he will receive 100% of the PIA. * If a covered worker retires early at the age of 62, the maximum Social Security benefit is 80% of the PIA. This reduction remains all through retirement. * Retirement benefits pay covered retired workers at least 62 years of age, their spouses and other eligible dependents monthly retirement income. * Retirement benefits include monthly retirement payments to the covered worker, spousal benefits, and child's benefits.

Black-out period

* Benefits paid to the surviving spouse of a deceased person who was receiving Social Security. * The "black-out period" begins when Social Security survivorship benefits cease. * This is when the youngest child turns 16 years old, or immediately if there are no children. * The "black-out period" ends when the surviving spouse turns at least 60 years old.

Disability benefits

* Disability income benefits are paid to the covered worker in the amount of the PIA after a 5-month waiting period. * Only available prior to the age of 65 * Does not pay partial disability or short-term disability benefits * Disability must be total and expected to last 12 months or end in death * Benefits include monthly payments to the disabled worker, spousal benefits, and child's benefits.

Social security payroll taxes

* Funding for Social Security is collected from FICA payroll taxes. * Social Security payroll taxes are collected from employers, employees, and self-employed individuals. * FICA tax is applied to an employee's income up to a certain income amount. This amount is called the taxable wage base. * There is a maximum amount of earnings that can be subject to Social Security tax each year. This amount is indexed each year to the national average wage index. This maximum applies to employers, employees, and self-employed individuals. Medicare Part A taxes are not subject to a maximum taxable wage cap.

Taxation of social security benefits

* Social Security benefits are subject to federal income tax if the beneficiary files an individual tax return and his annual income is greater than $25,000. * Joint filers will pay federal income tax on their Social Security benefits if their income is greater than $32,000.

How are social security benefits determined?

A person must be insured under the Social Security program for survivors, disability, or retirement benefits to pay. Social Security benefits are based on how long a covered worker has worked throughout his life.

Purpose of social security?

AKA Old Age, Survivors, and Disability Insurance (OASDI), was signed into law in 1935 by President Roosevelt as part of the Social Security Act which provides a basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging.

Definition of disability

In order to be considered totally disabled, an individual has to qualify according the following requirements: - The inability to engage in any gainful work that exists in the national economy - The disability must result from a medically determinable physical or mental impairment that is expected to result in early death, or has lasted, or is expected to last for a continuous period of 12 months

Insured status

Social Security establishes benefit eligibility based on an "insured" status. There are two types of insured statuses that qualify individuals for Social Security benefits: * To obtain Fully Insured Status, a covered worker must accrue a total of 40 quarters of credit, which is about 10 years of work. * To be considered Currently Insured, and thus eligible for limited survivor benefits, a worker must have earned 6 credits during the last 13-quarter period.

Who is covered by social security?

Social Security extends coverage to virtually every American who is employed or self-employed, with few exceptions. Those not covered include: * Most federal employees hired before 1984 who are covered by Civil Service Retirement or another similar plan * Approximately 25% of state and local government employees who are covered by a state pension program and elect not to participate in the Social Security Program * Railroad workers covered under a separate federal program called the Railroad Retirement System

Survivor's benefits

includes a $255 lump-sum death benefit, surviving spouse benefits, child's benefit, and parent's benefit. * A surviving spouse without dependent children is eligible for Social Security survivor benefits as early as age 60. * Survivor benefits are also available to: - A spouse of any age who is caring for children under age 16 - Children under age 18 - Children under age 19 who are full time students - Children at any age if disabled before age 22 and remain disabled * A Social Security benefit of 75% of the Primary Insurance Amount (PIA) is given to an underage child of a deceased worker.

Social security survivors benefits or death benefits

pay a lump-sum death benefit or monthly income to survivors of deceased covered workers.