Social Security

Question 0

T or F - Given the low amount of earnings needed, and the relatively moderate number of credits required, qualifying for SS retirement benefits is relatively easy

Answer 0

True, although the size of the benefits are based on earnings rather than credits, and therefore simply qualifying does not indicate how meaningful the benefit amount will be

Question 1

With regard to SS retirement benefits:

1. ) How many quarters of credits are needed to qualify?
2. ) What covered earnings are needed to earn one credit?

Answer 1

1. ) 40

2. ) In 2012, about $1,300

Question 2

T or F - The SS retirement benefit formula is designed so that low income workers get a larger percentage of their contributions back as benefits.

Answer 2

True

Question 3

What is the role of SS benefits in retirement planning for middle and upper income clients?

Answer 3

They are a foundation for retirement income planning. To preserve standards of living, however, they must be supplemented with savings and other sources of income.

Note - in extreme situation (i.e. loss of savings, etc) they can also serve as a final backstop against poverty.

Question 4

What % of Americans file for SS at age 62?

Is this a rational approach?

Answer 4

About 50%

This is not rational. While some benefit from starting early (need it, are in poor health), most would come our ahead by delaying filing to get a higher lifetime benefit.

Question 5

What are the key rules regarding signing up for Medicare?

Answer 5

If you are signed up for Social Security, you are automatically enrolled in Medicare.

Otherwise, you must enroll in the period 3 months before or after your 65th birthday, or face penalties.

Question 6

What are the penalties for late enrollment in Medicare:

Part

Part D

Answer 6

The Part B premium is increased by 10% for each full 12 month period of delay. For example, if you delayed filing for Medicare for 5 full years, your Part B premium would be 50% higher.

For Part D, the penalty equal to approximately 1% of the average Part D premium for each month without Part D, or creditable drug coverage. The penalty is permanent.

Example: the average 2012 Part D premium was $31. If you delay 5 years, your penalty would be $31 * .01 * 5 = $1.55 per month or $18.60 per year.

Question 7

How does continued employment past 65 affect rules for filing for Medicare?

Answer 7

If you are employed at a company with fewer than 20 employees, then Medicare is considered the primary insurer and the normal rules apply (i.e.), you are penalized if you delay. If your company has more 20+ employees, then any private insurance is primary, and Medicare is secondary, and you can delay. You can then file anytime within 8 months of retiring.

Question 8

For seniors working in companies with 20+ employees, what options are there with regard to Medicare A and B?

Answer 8

You can delay filing for B, which has a premium payment, and on rely on the employer-paid policy for physician services, and use Part A to cover hospital charges. This is a premium cost savings strategy used by many seniors who work late into their sixties.

Question 9

T or F - Those 65 and older with personal or spousal employer coverage may benefit from enrolling in Part A, but not Part B?

Answer 9

True. Part A will provide coverage for hospital services, but doesn’t cost anything. Part B covers physician services, but carries a premium charge. Part B can be covered by the employer insurance.

Question 10

What AGI levels trigger surcharges for Medicare Part B and Part D?

Answer 10

$85,000 for single filers, and $170,000 for joint filers. Some tax planning may be useful to stay under these limits and avoid the surcharges.

Question 11

Is it necessary to notify Medicare if you are delaying enrollment due to be covered by employer coverage?

Answer 11

If you are delaying enrollment in Medicare because you are covered by an employer policy (your employer or your spouses), then you should notify Medicare to avoid any risk of the Part B penalty being assessed. This can be done by checking the correct box on the back of the Medicare card mailed to you, by calling the SSA, or on the SSA website.

Question 12

What is the time limit for correcting earnings record errors with SS? What is the implication for financial planning?

Answer 12

3 years. For this reason, one should review their earnings statement every year.

Question 13

What is the Primary Insurance Amount (PIA)?

Answer 13

It is the dollar amount of ones benefit if collected at FRA.

Question 14

What is Full Retirement Age (FRA)?

Answer 14

It is the age at which a retiree will receive his or her PIA as a benefit.

Each persons FRA is determined by their birthdate.

For those born in 1937 or earlier, FRA is 65

For those born 1938 through 1942, FRA is 65 plus two months for each year. Therefore, if you were born in 1938, FRA is 38 years and 2 months.

For those born from 1943 through 1954, FRA is 66

For those born from 1955 to 1959 FRA increases by 2 months each year.

For those born in 1960 and later,FRA is 67

Question 15

What does FICA stand for?

How is it calculated?

Answer 15

FICA - Federal Insurance Contributions Act

For an employee, Social Security is 6.2% up to 110,000 (2012).

Medicare is 1.45% with no cap

Total FICA = 7.65%

Question 16

What is FUTA?

Answer 16

Federal Unemployment Tax Act - Employees pay into the Federal unemployment program, which is combined with State unemployment programs. Employees typically also pay separately into the State system.

Question 17

What % of currently promised payments will Social Security pay from on going payroll taxes, even after the surplus funds are used up in 2036?

Answer 17

75%

This assumes no reform and speaks to the solid underpinning of SS

Question 18

What is the role of SSA in Medicare?

Answer 18

The SSA handles the following:

Medicare applications

Deductions from SS benefits to pay Medicare premiums

Medicare itself is run by The Centers for Medicare and Medicaid Services.

Question 19

When are the longest waiting times at SSA Field Offices? What can be done to reduce waiting?

Answer 19

Early in the month and early in the week.

Other than avoiding the time frames above, make an appointment rather than walking in.

Question 20

With regard to quarterly SS credits:

What is the maximum number can be earned in one year?

T or F -“Quarters” of credits are based entirely on earnings, and not on calendar quarters.

T or F - It is possible earn to four credits in a single month (or week, or quarter, etc) by earning $4,800.

Answer 20

The maximum for one year is 4. Earning 4 credits requires earning $4,800 ($1,200).

True. The term “quarters” of credit refers to the fact that 4 is the maximum that can be earned in one year. One credit is earned for each $1,200 earned, regardless of the time period over which the money is earned.

True - For example, a single pay check of $4,800 of covered wages will earn 4 quarters of credits.

Question 21

T or F - Almost all wage earning Americans must participate in SS

Answer 21

True. However, there are several classes of employees not covered.

Question 22

Which of the following must participate in SS (pay taxes, and are eligible to receive benefits)?

Corporate officers
Common law employees
Statutory employees
Self employed persons
Partners
Limited Partners
Active duty members of the armed forces
Most religious groups
State and Government employees
Household employees

Answer 22

All are required to participate in SS except:

Limited partners
A minority of state or local employees
A minority of religious groups

Question 23

How does the way self employed persons earn SS credits differ from the way employees earn credits?

Answer 23

There is no difference. Self employed earn one credit for each $1,200 earned. The fact that the self employed must pay both halves of the FICA does not change the amount of credits earned (or impact Medicare)

Question 24

What is a common law employee?

Answer 24

A common law employee is any wage earner who meets the definition of an employee under the 20 Factor Common Law Employee test. Most of the employees in America are common law employees. Note that if a wage earner is not employee based on the 20 factor evaluation, then they are self employed by definition.

Question 25

Regarding the 20 Factor Common Law employee test, what is core issue?

Answer 25

The extent to which the employer has legal control over the worker. Control is implied by the ability to determine when, how, and where the wage earner works. This is sometimes summarized by the ability to hire, fire, and supervise. Other factors include where the wage earner works full vs part time, and whether the tools they use are their own or are provided by the employer.

Question 26

Corporate officers are employees. What are directors?

Answer 26

Directors are considered self employed, unless they also perform some functions outside of those of director, in which case they would be an employee for those particular services.

Question 27

What are the three classes of employees for purposes of SS participation?

Answer 27

Common law employees
Statutory employees
Corporate officers

Question 28

What are statutory employees?

Answer 28

They are relatively small group that includes the following:

Agent-drivers (UPS?)
Full time life insurances sales persons
Full time traveling sales persons
Home workers

Question 29

What is the maximum SS benefit for 2013?

Answer 29

$2,533.

Assumes 35 years of employment at the SS wage limit, plus benefit taken at FRA.

A higher monthly benefit would result by waiting past FRA (8% increase per year up 4 years)

Question 30

T or F - The PIA is the starting point for calculating all SS benefits

Answer 30

True

Question 31

T or F - To receive a benefit for a particular age (years and months), you must have been that age for a full month.

Answer 31

True. The benefit for that month, will be payable the following month.

Question 32

What the 3 bend point percentages and dollar amounts for 2014?

Answer 32

90% of the first $816 of AIME, plus
32% of the amount above $816 up through $4,917, plus
15% of any amount over $4,917

Question 33

T of F - When you enroll in SS you are automatically enrolled in Medicare

Answer 33

True

Question 34

T or F - When you sign up for Medicare you are automatically enrolled in SS

Answer 34

False. SS must be applied for separately. This reflects the fact that Medicare must start at 65, while SS can be started at any time between 62 and 70.

Question 35

T or F - If a wage earner is not a common law employee (or statutory employee) then they self employed by definition

Answer 35

True

Question 36

What is the minimum number of years needed to accumulate 40 Social Security credits?

Answer 36

10 years of earning at least four times the covered income necessary for one quarter of credit.

Question 37

How many credit are needed to qualify for:

Social Security retirement benefits

Medicare

Answer 37

SS retirement benefit = 40 credits

Medicare = 40 credits

Question 38

Is someone earns SS credits, but then stops working for a prolonged period, what happens to their previously earned credits?

Answer 38

Nothing they remain on ones record indefinitely.

Question 39

What SS retirement benefit is available to those have accumulated 39 credits?

Answer 39

None. One must have 40 credits to receive SS retirement benefits. No exceptions exist.