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Retirement Savings and Income Planning > Social Security and Medicare > Flashcards

Social Security and Medicare Flashcards

1
Q

What is FICA and contribution amount?

A
  • The Federal Insurance Contributuion Act Tax
    • Combines OASDI and Hospital Insurance (Medicare)
  • FICA is 15.3%
    • 7.65% for employee and 7.65% for employer
  • OASDI - 6.2% (12.4%)
  • Medicare - 1.45% (2.9%)
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2
Q

Describe some proposals for adjusting Social Security System

A
  • Raise Retirement Age
  • Begin Longevity Indexing (reduces monthly payment as life expectancies increase)
  • Change the Cost of Living Adjustment (replace the Urban Wage Earners index to something else)
  • Means test for Social Security Benefits (based on retiree’s income and assets over a certain amount)
  • Increase Payroll Tax
  • Increase or Eliminate Payroll Tax Cap (SS wage base cap)
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3
Q

When does a retiree become eligible for Social Security Benefits?

A
  • Once they reach age 62
  • Must have earned 40 credits of coverage (10 years/40 quarters)
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4
Q

Social Security Disability Income - Definition

A
  • To those people who can’t work because they have a medical condition that is expected to last at LEAST ONE YEAR or RESULT IN DEATH
  • Not able to do any gainful work
  • Very strict definition of disability
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5
Q

Social Security Disability Income - Eligibility

A
  • A worker must have earned AT LEAST 20 credits in the 10 years IMMEDIATELY PRIOR to becoming disabled (5/10 previous years)
  • If worker is disabled before age 24:
    • Must have earned 6 credits in THREE YEARS prior to becoming disabled (1.5/3 previous years)
  • If worker is between age 24 and 30:
    • Must have earned credits equal to 1/2 the time between 21 and the age when they became disabled
    • [(Age of disability - 21) x 4] / 2
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6
Q

Survivor’s Benefit - Eligibilty (For Worker)

A
  • For survivor’s to get benefits:
    • Worker must have earned 40 credits OR
    • If young, if worker earned 6 credits in last THREE years of his/her life
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7
Q

Survivor’s Benefit - Eligibilty (For Family)

A
  • Widow/Widower - Full Benefits at FULL retirement age OR
    • Reduced benefits as early as age 60
  • Disabled Widow/Widower - Eligible for benefits at age 50
  • Widow/Widower (with child)
    • ANY AGE if caring for a child 16 or younger OR
    • Any age if child is receiving SS benefits
  • Unmarried children - under 18 or up to 19 if still in secondary school (high school)
  • Disabled Children - if disabled before age of 22 and still disabled
  • Dependent parents - must be 62 or older
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8
Q

Average Indexed Monthly Earnings (AIME)

A
  • Is calculated by indexing a worker’s earnings to account for wage increases over time, similar to inflation, but only focused on increasing wages over time
  • Worker’s HIGHEST 35 years of INDEXED EARNINGS are SUMMED together and DIVIDED BY number of months in the calculation
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9
Q

Primary Insurance Amount

A
  • Benefit amount that a retiree will receive at FULL retirement age AND is based on AIME
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10
Q

Early benefits/Delayed benefits

A
  • Permanent reduction if before full retirement age
  • Permanent increase if between full retirement age and age 70
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11
Q

Social Security Disability Benefits - Computation

A
  • Based on worker’s AVERAGE MONTHLY EARNINGS
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12
Q

Social Security - Spousal Benefit

A
  • Spouse can elect to receive HIGHER OF:
    • Their own benefit OR
    • 1/2 of other spouse’s benefit based on other spouse’s PIA at FULL RETIREMENT
      • Will get reduced benefits if under full retirement
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13
Q

When can is spousal benefit eligible?

A
  • Other spouse MUST BE already be receiving Social Security Benefits
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14
Q

Spousal Benefits - Other rules

A
  • Only ONE spouse can receive the spousal benefit
  • That ONE spouse has to claim SS BEFORE the other spouse can receive a spousal benefit
    • Except for divorced spouses, who just have to wait until ex-spouse reaches full retirement age
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15
Q

Family Benefit for Social Security

A
  • If retiree has minor dependent children or a dependent disabled child, then his/her children can receive 50% of retiree’s full retirement benefit
  • Max family benefit is 150-180% of retiree’s PIA amount
  • Remember retiree has to be taking SS payments at this time!
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16
Q

What happens when family max benefit is reached?

A
  • Then amount is averaged to the family
  • Surviving DIVORCED spouse is eligible for the same benefit, but this benefit DOES NOT count toward family maximum
17
Q

Surviving Divorce Spouse - Benefits

A
  • Surviving divorced spouse must have been:
    • Married to decendent for AT LEAST 10 years AND
    • Cannot remarry before age 60
18
Q

File and Suspend - Although not available anymore

A
  • Where one spouse claims SS benefits but doesn’t receive any cash payments
  • Allows other spouse to receive spousal benefits
19
Q

Restricted Filing

A
  • One spouse is already receiving benefits
  • The other spouse applies for a restricted application at full retirement age
    • Allows them to receive the spousal benefit WHILE allowing his/her own benefit to grow at 8%/year
      • Then the spouse applies for his/her OWN benefit at age 70 after it at grown a lot (then 8% interest growth stops)
20
Q

Windfall Elimination Provision (WEP)

A
  • Workers most likely hit from this are:
    • Nonprofit
    • Government
    • Those who worked in foreign country
  • Pretty much those who did not pay into Social Security
21
Q

WEP Calculation

A
  • Gradually reduces the percentage rate applied to the first tier of averaged indexed monthly income from 90% to 40% based on the Social Security’s Substantial Earnings Test
  • If worker attain 30 substantial years of earnings, SS benefit they receive from SS wages WILL NOT BE REDUCED
22
Q

Government Pension Offset

A
  • Applies to spousal and surviving spouse’s benefits if:
    • The spouse is receiving a pension from a government pension plan AND
    • He/she did NOT pay SS taxes while working at that government job
  • SS benefits are reduced by 2/3 of government pension
23
Q

SSI - Supplemental Security Income Taxation

A
  • Never taxed
24
Q

Social Security - Taxation

A
  • To determine if it is taxable:
    • MAGI + 1/2 of Social Security Income
25
Q

Married filing separately spouses - Taxation of SS benefits

A
  • 85% of Social Security benefits are AUTOMATICALLY included in taxation
26
Q

Earnings test - SS

A
  • ONLY applies to people BELOW full retirement age
  • SS withholds benefits if earnings EXCEED a certain level
27
Q

Medicare - Eligiblity

A
  • A person must:
    • Worked 40 quarters in Medicare-eligible work
    • Be 65 years or older, be disabled, or have end-stage renal disease
    • Be a US citizen, permanent resident, or legal resident of the US for 5 or more years
28
Q

Medicare - Part A

Benefits

Common out-of-pocket costs

A
  • Also known as Hospital Insurance
  • Covers:
    • Hospital
    • Skilled nursing facility care (limited)
    • Nursing home care (in some situations)
    • Hospice
    • Home health services (limited)
  • Costs:
    • No premium cost if fully insured (40 credits)
    • Hospital - coverage per benefit period
      • Benefit period - the day the person entered the hospital/skilled nursing facility to 60 days after leaving
      • Insured pays:
        • Deductible for first 60 days
        • Coinsurnace for next 30 days
        • Coinsurance for next 60 days (more expensive)
        • Full cost after day 150
    • Skilled nursing care
      • Daily coinsurance for days 21-100
      • None for first 20 days
    • Home medical services
      • 20% coinsurance
29
Q

Medicare - Part B

Benefits

Common out-of-pocket costs

A
  • Insurance for:
    • Doctor vists
    • Outpatient surgery
    • Outpatient therapy
    • Ambulance
    • Durable medical equipment
  • Costs:
    • Covers 100% of preventive services
    • 80% of other services
      • Patient covers the remaining 20%
    • Has max annual deductible
    • Has monthly premium based on when patient signed up and his/her income
    • Hold-harmless provision - protects insured from paying premiums that have become unaffordable
30
Q

Medicare - Part C (Medicare Advantage Plans)

Benefits

Common out-of-pocket costs

A
  • Offered by private insurance comapnies
  • Essentially combines Part A, B, and D into one policy
  • May also include benefits not covered by traditional Medicare plans
  • Person CANNOT be enrolled in Medicare Advantage plan and also purchase Medigap policy
31
Q

Medigap

A
  • Medicare supplemental insurance to cover what A and B DO NOT COVER
  • Offered through private insurance companies
  • These plans work with Medicare and cover the gaps in Medicare
  • Goes from A-plan to N-plan…. with each rising letter providing more benefits
  • DOES NOT INCLUDE DRUG COVERAGE
  • CANNOT purchase C plans if you get this coverage
32
Q

Part D

A
  • Prescription drug benefit
  • Monthly premiums, deductible, coinsurnace, and copay
33
Q

Medicare Deadlines

A
  • Initial enrollment period
    • 7-month period beginning three months before the month of the person’s 65th birthday and ending three months after
  • General Enrollment period
    • January 1 - March 31 for Medicare
  • Special Enrollment Period
    • For people over age 65 and losing qualified medical coverage through work/spouse
    • Eight-month period beginning from loss of coverage
  • Open Enrollment Period
    • For Part D and Advantage Plans (C)
      • October 15 - December 7
34
Q

Penalty for Medicare Late Sign Up

A
  • If someone over age 65 does not sign up in time, he/she could face permanent increase in PART B PREMIUM of 10% for each 12-month period when the person could have signed up but didn’t

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