Social Security

Social Security Overview

  • Purpose:

    • Provides a basic floor of protection against financial problems due to death, disability, and aging.

    • Acts as a supplement, not a replacement for personal insurance plans.

    • Many Americans mistakenly expect Social Security to fulfill all financial needs leading to disillusionment.

    • Established during the Great Depression in 1935 by President Roosevelt under the Social Security Act.

Coverage

  • Who is Covered:

    • Virtually all employed or self-employed Americans.

    • Exceptions include:

      • Most federal employees hired before 1984 (covered by Civil Service Retirement).

      • Approximately 25% of state and local government employees (covered by state pension programs).

      • Railroad workers (covered under the Railroad Retirement System).

Benefits Eligibility

  • How Benefits are Determined:

    • Requires insured status under the program for eligibility for survivor, disability, or retirement benefits.

    • Insured Status Types:

      • Fully Insured: 40 quarters of credit (about 10 years of work).

      • Currently Insured: 6 credits in the last 13-quarter period.

Funding and Taxes

  • Social Security Payroll Taxes:

    • Collected from FICA payroll taxes from employers, employees, and self-employed individuals.

    • Applicable on income up to a maximum taxable wage base, indexed annually.

    • Medicare Part A taxes not capped.

  • Taxation of Benefits:

    • Benefits subject to federal income tax if individual income > $25,000; for joint filers > $32,000.

    • Primary Insurance Amount (PIA): Determines benefit amount, equating to full retirement benefit at age 65.

    • Early retirement (age 62) yields 80% of the PIA.

Types of OASDI Benefits

  • Survivors Benefits:

    • Pays lump-sum death benefits or monthly income to survivors of deceased workers.

    • Includes:

      • $255 lump-sum death benefit.

      • Surviving spouse benefits.

      • Child's benefit (75% of PIA for underage children).

      • Parent's benefit.

    • Survivor benefits available to:

      • Spouses (age 60+ or any age if caring for children under 16).

      • Children under 18 (or 19 if full-time students).

      • Disabled children (if disabled before age 22).

  • Disability Benefits:

    • Available only to fully insured workers at time of disability.

    • Paid at PIA after a 5-month waiting period.

    • Eligibility criteria include:

      • Total disability lasting at least 12 months or leading to death.

      • Inability to perform any gainful work due to a qualifying impairment.

    • Does not cover partial or short-term disabilities.

  • Retirement Benefits:

    • Available to fully insured workers upon retirement.

    • Monthly payments based on retirement age:

      • 100% of PIA if retired at normal retirement age.

      • Maximum of 80% of PIA if retired early at age 62.

    • Benefits include monthly payments for retired workers, spouses, and dependent children.

Black-Out Period

  • Refers to benefits paid to a surviving spouse after the death of a Social Security recipient:

    • Begins when survivor benefits cease (when youngest child turns 16).

    • Ends when surviving spouse turns at least 60.