Mod 3

Spouse's benefit

A person is entitled to spouse's benefits based on a worker's SS record if the worker is entitled to retirement or disability benefits and the spouse is either age 62 or over, or is caring for a child under age 16 or disabled, who is entitled to benefits under the worker's SS record. The spouse of the worker must also meet one of the following conditions: the spouse must have been married to the worker for a minimum of one year before filing an application for benefits; the spouse must be the natural mother or father of the worker's biological child; the spouse was entitled, or potentially entitled to spouse's, widow(er)'s, parent's, or childhood disability benefits in the month before the month of marriage to the worker; or the spouse was entitled to or potentially entitled to a widow(er)'s parent's or child's (over 18) annuity under the Railroad Retirement Act in the month before the month of marriage to the worker.

Average indexed monthly earnings (AIME)

Used in computing Social Security benefits. AIME expresses a worker's earnings in terms of current dollar value.

Describe, in general terms, the Social Security benefits that are available to covered workers who start collecting retirement benefits before they reach their FRA

While benefits can begin as early as age 62, if you collect Social Security before your FRA, you will receive a permanently reduced benefit. The reduction is calculated as follows: Payment is reduced 5/9 of 1% for each month filed before FRA, up to 36 months, Payment is reduced 5/12 of 1% for each month filed early in excess of 36 months.

How does one qualify for Social Security retirement benefits?

You must be age 62 or older and have earned at least 40 Social Security credits over your working lifetime. If you become disabled before reaching age 62 you can qualify for Social Security benefits with fewer than 40 credits. You can earn up to four credits per year to qualify for Social Security benefits. For 2019, you must earn at least $1,360 to earn one credit, or $5,440 to earn four credits.

What does "breakeven age" mean as it relates to Social Security retirement benefits?

Your breakeven age is the age at which the total value of the higher benefits you will receive from delaying benefits starts to exceed the total value of the lower benefits you will receive if you start early.

Carl is going to reach FRA later in the current year. He has begun Social Security benefits but is still working. His Social Security benefits will(LO 3-3)

be reduced $1 for every $3 earned above the earnings cap. Compensation for work received in the year you obtain FRA will be reduced $1 for every $3 earned above the earnings cap until the first of the month in which you will obtain your FRA.

Which one of the following counts as "earnings" for the Social Security earnings test?(LO 3-3)

self-employment net earnings Earned income is defined as wages and net earnings from self-employment; investment income, pensions, capital gains, inheritances, alimony are not.

Ann, who was born in 1953, has reached her full retirement age (FRA): age 66 in 2019. She can elect to receive $1,000 now, or delay receipt by two years. She expects to live until age 90. Ignoring outside factors, when should she begin her benefits?(LO 3-3)

two years from now By delaying two years, her benefit will increase 16%, to $1,160. Forfeiting: $1,000 × 24 months = $24,000 Gaining: $160/month 24,000 / $160 = 150 months or 12.5 years Ann would need to live until 78½ to "break even." Because she is expecting to live until age 90, she should opt to delay receipt of benefits.

Michael, a 62-year-old single man, is considering beginning his Social Security benefits to supplement his income of $14,000 per year. How much will he lose in Social Security benefits due to the earned income restrictions?(LO 3-4)

$0 Because his earned income is below the $17,640 (2019) earnings cap for singles, he will not be impacted by the earned income benefit reduction.

Maximum family benefit

A maximum amount of Social Security retirement and disability benefits that can be paid based on one Social Security account.

Discuss the factors that one should consider when deciding whether to file for their Social Security retirement benefit.

Current resources life-expectancy breakeven age whether you are still employed (earnings test reduction).

Full retirement age (FRA)

Generally, the age at which full Social Security old age benefits are available. Full retirement age is now linked to date of birth. The current maximum FRA is age 67, for those born in 1960 and later.

What are the earned income restrictions?

In 2019, if you are under your FRA and working, you will lose $1 in Social Security benefits for every $2 earned above the earnings cap of $17,640 (indexed to inflation). In the year in which you reach your FRA this reduction is reduced to $1 for every $3 earned above the earnings cap of $46,920 for 2019. Once you obtain your FRA you may continue to work and earn money without it impacting your Social Security benefit.

Explain the COLA associated with Social Security.

Once you begin receiving your Social Security retirement benefit, widow/widower's benefit, or disability related benefit, you may be given a yearly cost-of-living increase in the month of December (which will actually appear in your January check). Consequently, the check that you receive in the month of January will reflect any applicable cost-of-living increase for the year.

Quarters of coverage

Pertaining to Social Security, this is a measurement used to determine a worker's insured status (fully or currently) and, therefore, the amount and type of benefits available under Social Security.

Spouse's disability benefit

The spouse of a worker entitled to SS disability benefits is entitled to a spouse's disability benefit under the same conditions cited under Spouse's benefit immediately above.

Jeff and Betsy both attained age 66, their FRA in 2019. Jeff's monthly benefit is $2,000 and Betsy's is $1,200. If they employ the "restricted application for spouses" strategy, Betsy will begin receiving $_____ per month.(LO 3-3)

$1,200 Betsy, the spouse with the lower Social Security benefit, will take her own $1,200 benefit. Jeff, the spouse with the higher Social Security benefit, will receive a $600 spousal benefit, deferring receipt of his own benefit until age 70. The 'restricted application for spousal benefits only' is available to them because they were born on or before Jan 1, 1954. They both hit their FRAs of 66 in 2019. 2019 - 66 = 1953.

Carla is collecting $600 per month from a government pension and is also eligible to receive a Social Security spousal benefit of $500 per month. Due to the GPO, her Social Security spousal benefit will be reduced to ____________.(LO 3-4)

$100 Due to the GPO, her Social Security spousal benefit will be reduced by 2/3 of her state government pension amount, or $400. $500 - $400 = $100.

Fred makes $100,000 working for the ABC Corporation. How much FICA does he pay as an employee?

$100,000 x 0.0765 = $7,650

The Social Security wage base is in 2019.

$132,900

Sarah makes $150,000 in 2019 working for the XYZ Corporation. What is her share of FICA?

$132,900 x 0.0765 = $10,166.85 $150,000 - $132,900 x 0.01.45 = $247.95 $10,166.85 + $247.95 = $10,414.80

Gary reached FRA this year (2019) and filed for his Social Security benefits. His wife, Mary, is 62 and wishes to file for spousal benefits when she turns 63 later in 2019. If Gary's full benefit is $2,000, what will Mary's benefit be?

$733.30 The first thing to do is to determine Mary's FRA. She will turn 63 in 2019. Thus, she was born in 1956. FRA for someone born in 1956 is 66 + 4 months. Mary is entitled to 50% of Gary's full benefit amount as her full spousal benefit at her FRA. By filing early, Mary will receive a reduced benefit. If she files at age 63, she will be 3 years and four months early. This is 40 months early. The reduction for the first 36 months is 25/36 of 1%, which equates to a 25% reduction. The remaining four months are reduced by 5/12 of 1% per month. This is an additional 1.67% (4 × 5/12% = 1.67%). Thus, the total reduction will be 26.67% for starting at age 63 (40 months prior to age 66 + 4 months). So, her reduction will be 26.67% of Mary's spousal benefit of $1,000. $1,000 × 0.2667 = $266.70. Thus her final spousal benefit for starting at 63 will be $733.30 ($1,000 - $266.70).

The total FICA tax is %. The employer and employee each pay% for old-age, survivors and disability insurance (OASDI) and % each for hospital insurance.

. The total FICA tax is 15.3 %. The employer and employee each pay 6.2 % for old-age, survivors and disability insurance (OASDI) and 1.45% each for hospital insurance.

On average, Social Security represents ______ of the income of the elderly.(LO 3-1)

33% On average, Social Security represents 33% of the income of seniors according to ssa.gov's Fast Facts for the most recent year reported (2015). See page 6 of the Module for the graph.

Brent and Carol have an AGI of $40,000 and they receive a combined Social Security benefit of $15,000. They have no tax-exempt income. What percentage of their Social Security benefit will be subject to taxation?(LO 3-3)

85% Provisional income = $47,500. This is over the $44,000 threshold so 85% of their Social Security benefit will be subject to taxation.

John is single and he had an AGI of $60,000, and was receiving $30,000 in Social Security benefits. How much of his Social Security benefit will be subject to taxation?

85% of John's Social Security benefit will be subject to taxation.

Child's benefit

A child is entitled to a SS child's benefit if the parent is entitled to retirement or disability benefits, the child is dependent upon the parent, the child is under age 18, or between the ages of 18 and 19, and a full-time elementary or high school student, or 18 or over and under a disability that began before age 22, the child is unmarried, and an application for the child's benefit has been filed.

Explain when the windfall elimination provision might come into play.

Applies when an individual is eligible for Social Security due to their work in a "covered position" but is also receiving a pension from work at a "noncovered position." Due to the WEP, any pension they received based on their government work may reduce their Social Security benefits. For 2019, the maximum reduction under the provision is $463.00 per month, or one-half of the monthly pension benefit, whichever is less. The amount of reduction will depend on how many years he worked in the covered position and earned "substantial earnings." WEP's impact is reduced for each year (over 20) of "substantial earnings" you have in a covered position. Its impact is completely phased out for individuals who have 30+ years of "substantial earnings" in a covered position.

Fully insured status

As it pertains to Social Security, a person is considered to have fully insured status if they have earned 40 quarters of coverage under Social Security. A fully insured person is eligible for survivors' benefits for a qualified spouse, child, and/or dependent parent; a death benefit payment; and retirement benefits for himself or herself, a qualified spouse, and a qualified child.

It is January 15, 2019. Bill and Mary both attained age 66 in 2018. They want to employ the restricted application strategy. Bill is the higher income earner. What can be said about their options?(LO 3-4)

Bill should file a restricted application for spousal benefits because he is the higher income earner. Because they were 62 by December 31, 2015 (or were born on or before Jan 1, 1954), Bill and Mary are eligible to use the restricted application strategy when they claim their benefits. Bill should file a restricted application for spousal benefits because he is the higher income earner. Mary will need to file an application for her own benefits in order to trigger Bill's spousal benefit. Bill's own benefit will accrue at 8% per year until age 70.

Describe, in general terms, the Social Security benefits that are available to covered workers who start collecting retirement benefits at their full retirement age (FRA)

By starting your Social Security benefits at full retirement age, you will receive 100% of your primary insurance amount (PIA).

What is the effect of being "fully insured" versus "currently insured"?

Fully insured status is determined by having 10 years of employment covered by Social Security, expressed as "40 quarters of coverage." Generally, all Social Security benefits are available if a worker is fully insured—retirement, disability, and survivor benefits. One must be fully insured in order to be eligible for retirement benefits. Benefits for a widow(er) age 60 or over, and benefits for a dependent parent, are also only payable if the worker was fully insured at death. To be currently insured, an individual must have at least six quarters of coverage in the 13-quarter period preceding the event for which eligibility is sought. Child's benefits, mother or father's benefits, and the lump sum death benefit are available if a worker is only currently insured at death.

Tom, 59, is a widower and is receiving a widower's benefit on his deceased spouse's record. Tom is considering getting remarried. As a planner, you should suggest which one of the following?(LO 3-3)

He should wait until age 60 to remarry. If you remarry before the age of 60, your widower's benefit will be terminated. If you are over the age of 60 when you remarry, your marriage will not affect your Social Security widower's benefit.

Bob and Helen Jones just won the lottery. The benefit this year will be $50,000, and it will increase over the next 19 years. Bob's monthly Social Security benefit is $1,800; Helen's monthly Social Security benefit is $1,200. Bob is age 68, and Helen is age 69. Which one of the following is a correct statement about Bob and Helen's old-age Social Security benefits?(LO 3-4)

If they file jointly, up to 85% of their Social Security benefit must be included in gross income. Since Bob and Helen are married, filing jointly, and their gross income exceeds the base amount of $44,000, then up to 85% of their Social Security benefit must be included in gross income, regardless of age. Since Bob and Helen are over Social Security's full retirement age, the Social Security benefit would not be reduced because of additional earned income. Lottery winnings are not earned income, but they are taxable income. With $50,000/year of income, they are over the $44,000 limit even before including half their Social Security, so up to 85% of their Social Security benefits will be subject to income taxes.

Describe, in general terms, the Social Security benefits that are available to covered workers who start collecting retirement benefits after they reach their FRA

If you delay receipt of benefits until after your FRA, you will receive a payment in excess of that which you would have otherwise received. For those just reaching full retirement age, this increase equates to an 8% of PIA raise per year for each year you delay filing after your FRA, up until a maximum of age 70. Social Security refers to this raise as a delayed retirement credit.

Identify reforms that are being considered to address the Social Security shortfall.

Many reforms are now being considered to address the projected 23% Social Security shortfall. These include cutting benefit payments, raising Social Security payroll taxes, further increasing full retirement age, changing how excess funds are invested, privatizing Social Security, and providing direct government subsidies to the program.

Explain when the government pension offset might come into play.

The GPO will apply in cases where an individual qualifies for a pension based on their own non-Social Security covered employment and a Social Security spousal benefit based on a spouse's work in Social Security-covered employment. The GPO provision will reduce the spousal or survivor benefit by two-thirds of the amount of the pension.

Primary insurance amount (PIA)

The amount of monthly Social Security income at full retirement age equals a worker's PIA.

What is provisional income?

Provisional income is calculated as your adjusted gross income, plus any tax-exempt income (e.g., from municipal bonds) and excluded foreign income, plus one-half of your Social Security benefits.

Margaret is confused about her options and takes a friend's advice to file and begin collecting benefits at age 62. Two years later she attends one of your seminars on Social Security and realizes that this was a mistake, as she has sufficient personal assets to get her through until at least age 70 and her life expectancy is nearly 100. What can you suggest to her?(LO 3-4)

She can voluntarily suspend payments, keep the benefits she has received, and resume payments later at an increased rate. She can suspend payments, keep the benefits she has received, and resume payments later at an increased rate. She would only have the option of paying back benefits if she made the election within one year of beginning benefits.

What are the provisions for receiving an ex-spouse's benefit?

So long as you were married for 10+ years, are currently unmarried, and are age 62 or older you will qualify for benefits based on your ex-spouse's record. The divorced spouse's benefit at FRA equals one-half of the worker's PIA, and will be reduced if taken prior to FRA. Such a benefit will end if you remarry, die, or become entitled to a retirement or disability benefit that equals or exceeds one-half of the worker's PIA.

A husband, who is a fully insured worker, recently died. He and his wife have no children. Is his wife entitled to a spousal benefit?

Survivors can collect benefits based on their deceased spouse's work history and earnings once they turn age 60, even if they have no children. If they're caring for a qualifying child, they can collect benefits before age 60. However, the amount received varies greatly depending on when benefits collection begins. The amount a wife receives in survivor's benefits can be the same as the amount the husband would have received in retirement benefits when he reached full retirement age, based on his earnings during the years that he worked.

Divorced spouse's benefit

The divorced spouse of an insured worker can qualify for SS retirement benefits based on the worker's SS record in three different categories: (1) a spouse's benefit; (2) a mother or father's benefit; and (3) a widow(er)'s benefit. A spouse's benefit is payable if the divorced spouse is at least age 62, the worker is entitled to SS retirement or disability benefit, the divorced spouse has not remarried, and the spouse was married to the worker for at least 10 years before the divorce became final. The widower's benefits are based upon the worker's SS record if the surviving spouse was married to the worker for at least 10 years prior to the date the divorce became final, the divorced spouse is age 60 or over, or is at least age 50 but not age 60 and is disabled, the worker died fully insured, and the divorced spouse is not married. The mother's or father's benefit based on the worker's SS record can be claimed if the worker died fully or currently insured, the divorced spouse is the father or mother of the worker's child or when both of them adopted a child and the child was then under age 18, the divorced spouse is not married, has in care the worker's child who is entitled to child's benefits based on the worker's earnings record, and the child is under age 16 or disabled.

Old Age, Survivors, and Disability Insurance (OASDI)

The portion of the Social Security program that pays retirement and disability benefits. These benefits are financed by a tax of 12.4% of a person's taxable wage base up to a maximum wage base.

Currently insured status

The status of a worker used to determine eligibility for certain Social Security benefits such as child's benefits, mother's or father's benefits, and the lump sum death benefit. Currently insured status requires the worker to have at least six quarters of coverage during the full 13-quarter period ending with the calendar quarter in which he died or most recently became entitled to disability or retirement benefits. More quarters of coverage are required for fully insured status.

Widow(er)'s benefit

The widow(er) of a fully insured worker is entitled to a widow(er)'s Social Security benefit based on the deceased worker's earnings if the widow(er) is age 60 or over, or is at least age 50 but not age 60 and is disabled, the widow(er) is not married (except under special circumstances), and the widow(er) was married to the deceased worker—either at the time of death or in a previous marriage that ended in divorce— for at least nine months immediately prior to the worker's death (unless the death was accidental or occurred in the line of duty while a member of a uniformed service serving on active duty) or the widow(er) and worker had a biological or adopted child together.

Discuss, in general terms, how a Social Security benefit is calculated.

To calculate a Social Security benefit, start with your earnings record and then apply an inflation adjustment to each year of earnings shown, which puts all of your past earnings in today's dollars. Next, determine your "lifetime average earnings," which Social Security defines as your highest 35 years of earnings, as adjusted for inflation. Your highest 35 years of inflation-adjusted wages are then totaled and divided by 420 (the number of months in 35 years) to come up with your average monthly earnings, or your AIME (average indexed monthly earnings). Social Security then applies a formula to your AIME to determine your monthly benefit, or primary insurance amount (PIA).