Lesson 4 of Insurance: Social Security

Question 1

Social Security

Answer 1

• These benefits are paid from taxes
  • collected on wages from employees and employers.
• The Federal Insurance Contributions Act (FICA) and its equivalent for self-employed Self-Employed Contributions Act (SECA), taxes are imposed as follows, paid by both the employee and employer:
  • 6.2% on wages up to the wage base of $160,200 in 2023.
  • 1.45% on all wages
  • Paid by the employee only: 0.9% Medicare surtax on wages and self-employment income over the thresholds below.
• These taxes do not accumulate per individual but in the general recept of the U.S. Government.
• Often referred to as OASDI (Old age, Survivor, and Disability Insurance).

Question 2

Taxes on Social Security

Answer 2

• OASDI IS 6.2% (both ER and EE) up to a wage base of $160,200 in 2023.
• Medicare is 1.45% (both ER and EE) on an unlimited amount of wages.
• Additional Medicare Tax of 0.9% (EE) on income IN EXCESS $200,000 if single or $250,000 for MFJ (unlimited amount of wages).

Question 3

Practice Question

Paul earns $180,000 in salary this year. What is the total FICA tax in 2023?

a) 9,932.40
b) 12,542.00
c) 25,084.80
d) 27,084.80

Answer 3

Answer: C

Because it asks for total FICA tax. Employer and Employee have to pay.

Question 4

Those Covered by OASDI!
(Old Age, Survivor, and Disability Insurance)

Answer 4

• 90% of U.S. workers are covered by Social Security and are eligible to receive both Retirement and Disability benefits.
• COVERED:
  
  • Federal employees hired since 1984,
  • U.S. Armed Forces,
  • self-employed persons,
  • employees of nonprofit organizations,
  • hospital interns,
  • domestic workers, and
  • farmer and agriculture workers.
• NOT COVERED:
  • Federal employees hired prior to 1984, Railroad employees, family employment^*, ministers, members of religious orders, student nurses, newspaper delivery persons under age 18, students working for a college or club.
  • ^Family employment rules disallow a child under 18 hired by a parent (not corporation), a child 18-24 employed for work that is not in the parent’s trade or business (i.e. cleaning the office), a spouse employed for work that is not in the spouse’s trade or business, a parent employed for work that is not in the child’s trade or business.

Question 5

Categories of Social Security Benefits!

Answer 5

• Retirement Benefits
• Disability Benefits
• Death Benefit
• Survivor’s Benefits
• Medicare

Question 6

Retirement Benefit!

Answer 6

• Current Normal or Full Retirement Age
• Reduced Benefit For Early Retirement at Age 62
• Requirement Eligibility

Question 7

Current Normal or Full Retirement Age

Answer 7

If born before 1938

• Normal full retirement is 65 years old.

If born between 1938 and 1942

• Add 2 months per year

Between 1943-1954

• Normal retirement is 66 years old.

Between 1955-1959

• Add 2 months per year.

Born in 1960 and Later

• Normal full retirement is 67 years old.

Question 8

Reduced Benefit for Early Retirement at Age 62

Answer 8

• If full retirement is age 65 then age 62 is 80% of full retirement benefits.
  
  • If full retirement is age 66 then age 62 is 75% of full retirement benefits.
  • I full retirement is age 67 then age 62 is 70% of full retirement benefits.

100% of PIA (Primary Insurance Amount) at normal full retirement age.

• PERMANENT REDUCTION in retirement benefit.
• Benefits are reduced by 5/9 of 1% each month, for the first three years that a worker retires early.
• Benefits are then reduced by 5/12 of 1% for each month beyond three years early.

Memorize 5/9 and 5/12 formula.

Question 9

Reduction of Benefits Examples

Answer 9

• Does not always have to be 62.
• Retire too early and benefits are permanently reduced.

Example 1: Wiliams’s full retirement age is 65, but he decides to take retirement benefits at age 62. How much will his benefits be reduced?

• 65-62 = 3 years or 36 months too early.
• 36 x 5/9 = 20% reduction in benefits.
• Receives 80% of PIA at age 62.

Example 2: Jerry’s full retirement age is 67 but he decides to take retirement at age 63. How much of his benefits will be reduced?

• 67-63=4 years, or 48 months too early
• 36 x 5/9 = 20% reduction plus
• 12 x 5/12 =5% reduction
• The total reduction in benefits is 25%.
• Receives 75% of PIA at age 62.

Question 10

Retirement Eligibility

Answer 10

• To qualify for retirement benefits a worker must be “fully insured.”
• Fully insured means a worker must earn 40 quarters of coverage.
• A quarter of coverage is based on a dollar amount of earnings.
• To earn one-quarter of coverage in 2023:
  • 1 Quarter = $1,640 in wages subject to Social Security.
  • Can earn up to 4 quarters a year and can be earned in one day if wages are subject to Social Security 6,560 (4 x 1,640).

Indexed each year.

• Increase in benefits:
  • Depending on the year of birth, retirees gain an additional increase in monthly benefits by delaying the receipt of Social Security each month after reaching their full retirement age (FRA) \
  • until age 70.

EXAM TIP:

• Just know that a retiree’s benefits may increase by 8% (simple interest) each year the retiree delays their benefits.
• 8% for 1943 and greater.

Question 11

Practice Question

Jeanette’s full retirement age is 67. Her expected monthly benefit is $1,000. If She waits until turning 70 years old to receive SS, what wull be her monthly retirement received.

a) $1,000
b) $1,080
c) $1,240
d) $1,360

Answer 11

Answer: C

1000 x ( 1+ .24) = $1,240

.08 x 3 = .24

Question 12

Important Social Security Beneficiaries!

Most Commonly Tested

Answer 12

• A disabled insured worker under age 65.
• A retired insured worker age 62 or older.
• A spouse of a retired or disabled worker
  
  • who is at least 62 OR
  • is carrying for a child under age 16 or disabled child.
• A divorced spouse of a retired or disabled worker,
  
  • if the ex-spouse is age 62 and
  • married to the worker for at least 10 years and
  • did not remarry by age 60.
• A widow at age 60.
  
  • Care of child under 16.

Question 13

Part of Reduction of Benefits

Benefits can be TEMPORARILY reduced if you earn too much (2023)

Answer 13

• Early Retirement
• Full Retirement Age
• Taxation of Social Security Benefit

EXAM TIP:

• Know the ways the retirement benefits can be reduced or taxed.

Question 14

Early Retirement

Answer 14

• The benefit is reduced by $1 for every $2 above the earnings threshold for persons below full retirement age.
• Threshold: $21,240 (Annual Limit, monthly test)

Working and taking Social Security.

Question 15

Full Retirement Age

Answer 15

• In the year in which you reach the age of retirement, the benefit is reduced $1 for every $3 above the earnings threshold.
• Threshold: $56,520 (Annual limit, monthly test).
• Earnings-based reduction ends at full retirement age.

Only is in affect when you hit the age of retirement. Does not take in affect for after. Elimianted when you reach the full retirement age.

Question 16

Practice Question

Which of the following person’s Social Security retirement benefits may be reduced the most for working and collecting benefits for 2023?

a) 71 year old business owner earning $300,000
b) A 62 year old who earned $24,000 through June and benefits began in July
c) A 64 year old earning $25,000 a year at Sunglass Market in the mall.
d) a 63 year old receiving $40,000 a year from his company’s defined benefit pension plan.

Answer 16

Answer: C

a - past retirement age
b - taking benefit after making $$
c - 25,000 above 21,000 threshold
d - defined benefit pension plan

Question 17

Taxation of Social Security Benefits

Answer 17

• Up to 85% of the threshold may be taxed.
• Thresholds are based on the “Combined Income.”
• Combined Income Includes:
  
  • AGI
  • Nontaxable Interest
  • Foreign Earned Income
  • 1/2 of retirement benefits
• If Below 32,000 and 44,000 then taxed 0%.
• If between 32,000 and 44,000 taxed 50%
• If above 25,000 and 34,000 taxed at 85%
• Same Would apply to Single. Above if MFJ.

Question 18

Disability Benefit!

Answer 18

Social Security Definition

Question 19

Social Security Definition

Answer 19

Definition: Disability is expected to last for 12 months or disability will result in your death AND cannot perform the duties of any occupation.

• There is a severe physical or mental impairment for 5 months that is expected to prevent the worker from performing substantial work for at least one year or result in death.
• Benefits would begin in the 6th month following the 5-month waiting period.
• How much of a benefit is paid depends on the CREDITS earned and the AGE of the worker when disabled.

Question 20

Disability Eligibility!

Answer 20

A worker is covered for disability if:

• Age 31 and greater, the worker is full insured (40 quarters)
  
  • and earned 20 quarters in the last 40 quarters.
• Between ages 24-30: a worker has earned 1/2 of quarters available since age 21 to disability.
• If ages 21-24: a worker has earned 6 quarters in the last 12 quarters.

Currently Insured has no spousal benefits.

On Exam, they would give you someone who is over 31 years of age. Just know 20 quarters in the last 40 quarters.

Question 21

Survivorship Eligibility!

Answer 21

• A worker must be either fully insured (40 quarters)
  OR
• Currently insured:
  
  • Is at least 6 quarters of coverage in the last 13 quarters.
• A child under age 18, under 19 if in high school (aka secondary school), or disabled prior to age 22, is entitled to survivorship benefits whether a worker is currently or fully insured.
• A spouse with a child age 16 is entitled to survivorship benefits for the care of the child, whether a worker is currently or fully insured.
• There is no coverage for the spouse of a currently insured worker.
• There is spousal coverage, if worker was fully insured. Survivor benefits would start when the surviving spouse has reached age 60.
• There is a one lump sum payment of $225 to the beneficiary of a deceased covered worker.
• Dependent parents age 62 or older if a worker is fully insured.

Exam Tip:

• Children under 18 (under 19 if in secondary school) are always covered as
• are caretakers of children under 16.

Question 22

Summary of Beneficiaries Chart

Memorize

Answer 22

Will Not Test over Currently Insured for Survivorship

FRA is FUll Retirement Age

Question 23

EXAM TIP

Answer 23

Children under age 18 (under 19 if in secondary school) are always covered as are children under age 16.

Question 24

Medicare Benefits!

Medicare: Provides hospital and medical insurance.

Answer 24

• Federal health insurance for people 65 or older.
• OR Disabled for two years.
• Spouses can qualify at 65 based on the other spouse’s work record.
• Three parts, Medicare A, B, C & D
• Eligible persons are automatically enrolled
  • if at least receiving retirement benefits, OR
  • any age if receiving social security disability for at least two years.
  • End-stage renal failure.

Question 25

Medicare Part A ( 2023)

Answer 25

• Hospital Insurance
• Benefit period

Question 26

Hospital Insurance (covers places)

Answer 26

• Covers Places:
  • Places include patient hospital care and
  • home health care.
  • Hospice
  • Skilled nursing care facility FOLLOWING a covered hospital stay.
• Covers:
  • Semi-private rooms,
  • meals,
  • operating and recovering room,
  • lab,
  • tests,
  • x-rays.
• Does not cover
  • custodial services.

Paid for by a portion of social security taxes collected.

Question 27

Benefits Period

Answer 27

• They are important because they determine the amount paid by the insured.
• A benefit period begins on the first day the insured is in the hospital and ends after 60 days of no further skilled care.
• The deductible is $1,600 per benefit period.
  
  • The first 60 days is just the deductible.
• Beyond the 60th day, the following coinsurance amounts will apply:
  
  • $400 for days 61-90, per day.
  • $800 for days 91-150 for each lifetime reserve day. There are a total of 60 lifetime reserve days.
  • $200 per day for skilled nursing care days 21-100. The first 20 days following a hospital stay are covered 100%.
  • Custodial care services are NOT provided, including nursing care facilities that provide assistance with activities of daily living.

Medicare Supplemental policy to help mitigate risk with the coinsurance policies.

Exam Tip: Amounts Just Double

Question 28

Medicare Part B (2023)

Answer 28

• Part B provides coverage for
  
  • doctor visits,
  • lab tests,
  • ambulance,
  • outpatient therapy,
  • clinical research,
  • durable medical equipment (wheelchairs, hospital beds, walkers, oxygen),
  • mental health (inpatient, outpatient, partial hospitalization),
  • getting a second opinion before surgery, and
  • home health care.
• The insured is automatically enrolled in Part B, unless an individual opts out.
• The deductible is $226 per year.
• After satisfying the deductible then Part B covers 80%. There is no stop-loss limit.
• Standard premium is $164.90 per month and premiums are deducted from Social Security (higher premiums for individuals with income over $97,000 (single) or $194,000 (MFJ).

Does NOT COVER:

• Dental care, dentures
• Cosmetic surgery
• Hearing aids
• Eye exams
• Routine Physical Exam

No MAX OUT OF POCKET.

Question 29

Medicare Part C- Medicare Advantage

Answer 29

• Must own and pay for Parts A and B.
• Coverage is similar to an HMO, PPO, or POS plan.
• Coverage is regional. Emergency care will be provided outside the coverage area.
• Coverage may includes vision dental, and hearing.
• Only really pay one monthly premium for the services included in a Medicare Advantage plan.

Question 30

Medicare Part D

Answer 30

• Provides prescription drug coverage benefits.
• Wide variation across plans. Most require a premium and have deductible co-pays.

DONUT HOLE: At different levels there is a % prescription drug covers something.

Question 31

Medicare Supplemental Insurance!

Answer 31

• Sold by private insurance companies and
• is designed to offset costs associated with Medicare deductibles and coinsurance.

Question 32

Applying for Medicare!

Answer 32

If an insured is receiving Social Security at 65 then

• he is AUTOMATICALLY enrolled in Medicare.

If an insured is NOT receiving Social Security at 65

• then he MUST enroll.

Question 33

Medicare in Foreign Countries!

Answer 33

In most situations, Medicare does not provide health care coverage for services received outside the US. There are 3 exceptions to this rule:

1. You’re in the U.S. when you have a medical emergency and the foreign hospital is closer than the nearest U.S. hospital.
2. You’re traveling through Canada without unreasonable delay by the most direct route between Alaska and another state when a medical emergency occurs and the Canadian hospital is closer than the nearest U.S. hospital.
3. You live in the U.S. and the foreign hospital is closer to your home than the nearest U.S. hospital, regardless of whether it is an emergency or not.

Question 34

OASDI

Answer 34

IS 6.2% (both ER and EE) up to a wage base of $160,200 in 2023.

Question 35

Medicare ER and EE

Answer 35

Medicare is 1.45% (both ER and EE) on an unlimited amount of wages.

Question 36

Medicare EE Only

Answer 36

Additional Medicare Tax of 0.9% (EE) on income IN EXCESS $200,000 if single or $250,000 for MFJ (unlimited amount of wages).