5 Social Security Flashcards
Another name for SS? Who gets SS?
OASDI (Old Age, Survivors, Disability Insurance)
- Retirement: Workers ≥ 62 yrs old with ≥ 40 credits
- Disability: Adults ≥ 18 yrs old who can’t work due to physical or mental disability expected to last ≥ 12 mos or in death
- Survivors Benefits: For family of deceased workers who qualified for SS
SS tax
6.2% up to wage base™ for OASDI + 1.45% unlimited for Medicare = 7.65%
Social Security flow
- Worker’s credits - You get 1 qtr of coverage for each $1730 earned up to 40
- AIME (Average Indexed Monthly Earnings) - You take each year’s earnings to present-day dollars (via CPI) and take the top 35 years to get a monthly rate
- PIA (Primary Insurance Amount) - Modifies AIME via “bend points” to determine monthly SS benefit at FRA
- Benefit - Adjust PIA depending on when you start taking SS by -30% (if 5 yrs early) to +24% (if 3 yrs after)
- Earnings Test - If you start taking SS early, 50% of income after a threshold is withheld (higher threshold if it’s just months before FRA in the FRA year)
- Taxation - 50% to 85% of benefits are taxable if “provisional income” (which adds back 1/2 of SS and tax-exempt income) exceeds thrshholds
remember “WAP BET…”
How to get “fully insured” status for SS
1 qtr of coverage (aka SS credits or worker credits) earned for each $1730 of earned income subject to SS taxes with a max of 4 credits earned per calendar year (without regard to when in the year the income is earned)… 40 credits = fully insured
(this just gets you insurance… but need 35 years to max it out)
Average Indexed Monthly Earnings (AIME)
For calc’ing SS benefit - indexes each year’s earnings (up to the Social Security taxable wage base of $168.6K™) to present-day dollars (via inflation adjustments) and takes top 35 years (any missing years are $0).. is a monthly rate. Used as precursor to calc’ing PIA (Primary Insurance Amount)
Primary Insurance Amount (PIA)
Monthly SS retirement benefit at FRA. Modifies AIME via “bend points” (as your monthly AIME gets higher, you receive less and less % of your AIME)
Earliest a worker can claim SS & reduction in benefits
Max 60 months (5 yrs) before FRA, typically 62, for 30% reduction in benefits
how much do SS benefits increase if you wait?
8% per year delayed beyond FRA for 3 yrs (24% increase max)
typ. age 70 for age 67 FRA
Adjustments for Early or Delayed SS
How income impacts SS (“Earnings Test”)?
Only applies if you start taking SS early…
- 50% of all EARNED income after threshold is withheld ($22,320™ if before FRA™, $59,520™ if year of FRA™ but before FRA month, no penalty if after)
- In the first year, income earned before claiming benefits is disregarded. You can use monthly basis (1/12 of $22,320™ limit) for this year
(this is just a delay due to Earned Income… you already had benefits reduced bc you started before FRA month, regardless of Earned Income)
3 things to consider with calc’ing SS benefits
Impact of…
1. claiming before/after FRA -> reduce/increase
2. earned income -> delay/withholding
3. taxation
What is max % of SS that can be taxable?
85%
Provisional income for SS
Used in SS taxes:
= 1/2 SS benefits + tax exempt income + AGI
How to calc SS taxes?
not in TTs…
Former spouse SS reqs & bens
- age ≥ 62 (regardless of FRA)
- must’ve been married ≥ 10 yrs
- currently unmarried
- divorced ≥ 2 yrs ago
- note: benes to former spouse don’t count towards family max & worker doesn’t have to be taking benefits yet
- max 50% of spouse bene at FRA, reduced 8.33%/yr + add’l 5% beyond 3 yrs
- if you have your own, take greater of yours or ex’s
Former spouse can start SS at any age if you’re caring for the worker’s unmarried child < age 16 (or disabled < age 22).. no age limit or “married for 10 yrs” rule
Current spouse SS reqs & benefits
- age ≥ 62 (regardless of FRA)
- worker has to already be receiv’g bens
- married for ≥ 1 year & still married
- max 50% of spouse bene at FRA, reduced 8.33%/yr + add’l 5% beyond 3 yrs
- if you have your own, take greater of yours or 50% of spouse’s (not combined total)
- subject to max family benefit rules
Spouse (or widow) can start SS at any age if you’re caring for the worker’s unmarried child < age 16 (or disabled < age 22)
t spous
Government pension offset
If beneficiary claiming spousal benefit receives a government pension benefit for which Social Security taxes were not paid the Social Security spousal retirement benefit will be reduced by two-thirds of the government pension amount
Child SS benefits
Worker must be receiv’g benefits. Benefit subject to reduction under family max rules. < age 18, or < 19 if in high school, or < 22 if disabled adult
Survivor spouse SS benefits
Spousal survivor benefit can start at age 60.
If spouse dies, can get 100% of their PIA.
If survivor is disabled, can claim spousal benefits as early as age 50
