Chapter Twelve

Social Security

Average Indexed Monthly Earnings (AIME)

the calculation used to determine SS benefits, based on a worker’s highest indexed 35 years of earnings adjusted for inflation - forms the basis for calculation the Primary Insurance Amount (PIA)

Benefit Period

a specific time frame used to track Medicare hospital benefits. Unlike annual insurance policies, a new benefit period begins with each hospital admission and ends when no hospital or skilled nursing care has been received for 60 consecutive days

Credits (Quarters of Coverage)

units that determine SS eligibility. Workers can earn up to four credits annually, with 40 credits (10 years of work) typically required for full benefits. These credits determine whether someone is fully or currently insured

Currently Insured

having earned at least six credits (1.5 years) in the last 13 quarters (3.25 years), qualifying for limited survivor benefits

Federal Insurance Contributions Act (FICA)

the law requiring payroll tax contributions that fund SS and MC programs - both employers and employees contribute 7.65% (6.2% for SS + 1.45% for MC) while self-employed individuals pay 15.3%

Full Retirement Age (FRA)

the age at which a person becomes eligible for 100% of their SS retirement benefits - for those born in 1960 or later, the FRA is 67 - benefits can be claimed earlier (with a reduction) or later (with an increase)

Fully Insured

Having earned 40 credits (quarters) (10 Years of paying SS Taxes), qualifying for retirement, survivor benefits, and MC - required to receive disability benefits also -

Old Age, Survivors, and Disability (OASDI)

the official name for SS - this federal insurance program provides retirement, disability, and survivor benefits to eligible workers and their dependents

Primary Insurance Amount (PIA)

the basic benefit amount a person receives at FRA, before any adjustments for early or delayed retirement - this serves as the foundation for calculating all SS benefits

Social Security Disability Insurance (SSDI)

benefits paid to workers who meet SS’s strict definition of disability - being unable to engage in substantial gainful activity due to a medical condition expected to last at least 12 months or result in death - can only receive benefits if fully insured at time of disability - 5 month waiting period, benefits begin to accrue in the 6th month and are paid at end of that month - must have 20 of 40 quarters immediately before disability - must last 12 months or result in death

Survivor Benefits

benefits paid to eligible family members of a deceased worker, including a one-time death benefit of $255 and monthly benefits for surviving spouses, dependent children, and, in some cases, dependent parents

Employers and Employees: 7.65% (6.2% SS & 1.45% MC)

The rate for which Employers and Employees are taxed through FICA Payroll taxes for SS and MC

Self-Employed Individual: 15.3% (12.4% SS & 2.9% MC)

The rate at which Self-employed individuals are taxed for SS through FICA Payroll taxes - they essentially pay both the Employer and Employee portions of the tax

20/40 Rule

according to this rule, a worker age 31 or older must earn 20 quarters (5years) of work credits within the 40 calendar quarters (10 years) ending with the quarter in which they became disabled - individuals under 31 have even less restrictive qualification requirements - if they meet this rule, younger workers qualify for disability and survivor benefits

A Quarter

any 3 months ending on Mar 31, Jun 30, Sept 30, or Dec 30

Early Retirement (Ages 62-66)

can claim SS at age 62 with a maximum reduction of 30% of PIA - reduction is based on the number of months before Full Retirement Age

Full Retirement (age 67)

receives 100% of PIA - no reduction or increase in benefits - benefits begin on the first day of the month reaching Full Retirement Age

Delayed Retirement (ages 67-70)

benefits increase 8% per year (2/3 of 1% monthly) - max benefit at age 70 is 124% of PIA - no increases after age 70

Earnings Test

• Below FRA for entire year - benefits reduced $1 for every $2 over limit

• Reaching FRA within the year - benefits reduced $1 for every $3 over different limit - only earnings up to month before they reach FRA count, not earnings for entire year

• benefits collected at FRA have no reduction or offset

Lump-Sum Death Benefit ($255)

Requirements:

• surviving spouse who was living with deceased at time of death. or

• surviving spouse or child who is eligible for monthly benefits based on deceased’s record

Survivor Benefits

• Surviving Spouse

  • 100% of deceased worker’s PIA if start as FRA

  • 71.5% of PIA if start at 60

  • can receive benefits at any age if caring for children of the deceased who are under the age of 16

• Children: 75% of deceased workers PIA

  • under age 18

  • under age 19 if a full-time high school student

  • any age if disabled before age 22 and remains disabled

• Dependent Parents

  • must be age 62 or older

  • must have received at least 50% support from deceased worker

  • each eligible parent receives 75% of PIA

  • if only one is eligible, increases to 82.5% of PIA

Blackout Period

describes the period following the worker’s death during which the surviving spouse is ineligible for survivor benefits - benefits are paid while caring for minor children, but when youngest child turns 16, this period begins - it ends when the spouse turns at least 60 and can apply for their own monthly survivor benefit - REMEMBER: Children continue receiving benefits until 18