1. PPA 419 – Aging Services Administration Lecture 4b – Program Characteristics of Social Security

2. Introduction Beneficiaries. People who have already retired. People who are disabled. Survivors of workers who have died. Dependents of beneficiaries. Money not held in personal account. Current taxes are being used right now to pay current beneficiaries.

3. Future of Social Security Funding crisis. Brought on by aging of Baby Boom Generation. In just 14 years, we will pay more in benefits than we take in taxes. In 2042, the fund will zero out. At that point, there will only be enough money coming in to pay 73% of benefits for current beneficiaries. Issues need resolving.

4. Social Security Taxes In 2007, taxable income up to $97,500 If you work for someone else Social Security TaxMedicare Tax Employee pays6.2%1.45% Employer pays6.2%1.45% If you are self- employed Employee/employer pays12.4%2.9%

5. Where Do the Social Security Dollars Go? 85% of your Social Security taxes go into the old age and survivors trust fund. 15% go into the disability trust fund. Less than one percent goes into administrative costs.

6. Eligibility As the employee works and pays taxes, he or she earns Social Security credits. If you make $900 in earnings during a year you receive one credit. You can earn up to four credits per year. The earnings limit is adjusted to inflation. Most people need 40 credits (10 years of work) to qualify for benefits. Younger people need fewer credits to be eligible for disability or for family members to be eligible for survivors benefits if the primary worker dies.

7. Full Retirement Age Year of birthFull retirement age 1937 or earlier65 193865 and 2 months 193965 and 4 months 194065 and 6 months 194165 and 8 months 194265 and 10 months 1943-195466 195566 and 2 months 195666 and 4months 195766 and 6 months 195866 and 8 months 195966 and 10 months 196067

8. Early Retirement Retirement can start as early as 62, but benefits are reduced by one half of one percent for each month before full retirement age that the recipient receives Social Security. If the recipient continues to work from 62 until full retirement and receive early retirement, benefits will be reduced by $1 for every $2 of earnings. During the year of the recipient’s retirement, benefits will be reduced by $1 for every $3 of earnings over an annual limit until the month the recipient reaches retirement age. Retired widows and widowers can switch to their own retirement benefits at 62.

9. Disability Benefits U.S. residents who cannot work because of a physical or mental condition that is expected to last one year or result in death may be eligible for disability benefits. If they meet the needs test, they may also be eligible for SSI benefits.

10. Family Benefits Benefits can be paid to the spouse if: He or she is age 62 or older. At any age if he or she is caring for a child under 16 or disabled and receiving benefits on your record. Benefits can be paid to unmarried children if they are: Younger than 16 Between 18 and 19, but in elementary or secondary school as a full-time student Or age 18 or older and severely disabled (the disability must have started before age 23). Family benefit is up to half of the retirement or disability payment for the primary member. The total for the whole family may not exceed 150 to 180 percent of the retirement benefit.

11. Divorced Recipients Married at least 10 years. Divorced at least 2 years. Be at least 62. Be unmarried Not eligible for an equal or higher benefit based on their own work.

12. Survivors Benefits Widow or widower. 60 or older, or 50 or older and disabled, or Any age if he or she is caring for your child who is younger than 16 or disabled and receiving SS. Children Younger than 18 years. Between 18 and 19, but in elementary or secondary as full-time students. Age 18 or older and severely disabled (since before 22). Survivors get somewhere between 75 and 100 percent of the primary family member’s benefit, but family collectively may not receive more than 150 to 180 percent of total benefit.

13. Benefits Taxable If you file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on 50 percent of your Social Security benefits. If your combined income is above $34,000, up to 85 percent of your Social Security benefits is subject to income tax. If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax. If you are married but file a separate tax return, you probably will pay taxes on your benefits.

14. One-Time Death Benefit One time payment of $255 to widow or minor children upon death.

15. Benefit Calculation How does SSA determine your PIA for first eligibility or death after 1978? Average indexed monthly earnings (AIME): Best 35 years. Your PIA is determined by applying a mathematical formula to the AIME if you either: Become eligible for retirement insurance benefits at age 62; Have a period of disability established; or Become eligible for survivors' insurance benefits on the basis of death in 1979 or later. For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2007, or who dies in 2007 before becoming eligible for benefits, his/her PIA will be the sum of: 90 percent of the first $680 of his/her average indexed monthly earnings, plus 32 percent of his/her average indexed monthly earnings over $680 and through $4,100, plus 15 percent of his/her average indexed monthly earnings over $4,100.