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Understanding the Social Security System

Understanding Social Security Benefits

I wrote this article for my own personal benefit. It should not be used as an authoritative source as there are much more elaborate and authoritative articles on the subject. That being said, this article describes the basic building blocks of the social security system here in the United States. As an attorney it is important to have a general understanding of the system as it can become relevant in many different contexts. Social security is funded through both the Federal Insurance Contribution Act tax (FICA) and Self Employed Contributions Act Tax (SECA). These are taxes on both employee and self-employed income earners in the United States. Each year the maximum amount of taxable income changes. As of 2014 the mixable amount of taxable income for social security purposes is $117,000. Any income above this figure will not receive a FICA or SECA tax.

The social security Administration in the United States oversees many programs. The larger of these programs consist of the Federal Old-Age (retirement), Survivors, and Disability Insurance (OASDI). Temporary Assistance for Needy Families, TANF, Health Insurance for Aged and Disabled (Medicare). Grants to states for medical assistance programs for low income citizens (Medicaid). State Children's Health Insurance Program for low income citizens, (SCHIP). Supplementary Security Income (SSI)

Of these various programs the only one which brings in more revenue than it expends is the Old Age Survivor Insurance program. All the other programs expend more funds than they bring in. As a result the social security administration is rapidly running out of funds. OASDI consists of both OASI and Disability Insurance (DI). The OASDI rate is 6.2% for workers and employers and 12.4% for the self-employed. These rates include taxes of 1.4% for disability insurance. In addition to these rates employers and employees pay another 1.45% tax on all income and the self-employed pay 2.9% Medicare tax. This includes income exceeding the cap in place on OASDI income, which is currently $117,000.

A workers ultimate social security benefit is dependent on two factors. The first is the earnings record they have paid FICA or SECA taxes on. The second determinant is when the employee choses to retire. To qualify for these benefits a worker must have forty quarters of credit on a specified minimum income. These workers become eligible for reduced retirement benefits at age 62. The worker can receive full benefits at age 65, 66, or 67 depending on their birth year. Generally speaking a worker drawing at 62 will only draw 75% of what they would draw at full retirement. This percentage will become higher with each year closer to full retirement age. Workers born prior to 1942 will be eligible for full retirement at 62. Those born between 1943 and 1959 at age 66. Those born after 1960 will be eligible at age 67

Given the Social Security program's intent of providing for the elderly, impoverished, and unemployed the formula used to determine benefits disproportionately favors lower income works. So that lower income workers receive a larger percentage of their average lifetime salary at retirement while higher income workers receive a smaller percentage of their average lifetime salary.

Spouses and divorced spouses of eligible workers who were married to the worker for over ten years prior to divorce are eligible to receive benefits on behalf of the worker. Such benefits are limited to 50% of the wage earners benefits or the spouses own benefits, whichever are higher. Be advised the non-worker spouse will not be eligible only after the worker spouse applies for the retirement. If the worker spouse is younger than full retirement age then the non-worker spouses share will be correspondingly reduced.

Be advised that spouse or ex-spouse who would otherwise receive a portion of the contributing spouse's benefit will not receive such amount or will otherwise receive a reduced amount if the non-contributing spouse is a beneficiary of a non-FICA taxed pension. Some pensions don't require paying into the social security fund.

A contributing member can delay receiving benefits past full retirement age. Such member will receive an increased retirement percentage in proportion to the amount of delay. However this pro rata increase in retirement benefits only continues to increase up until the worker reaches at 70 years. After 70 there is no longer an increase in value of such retirement. Also know that a worker can return to work after retiring and still receive his or her social security benefits. However if you continue to work and are of retirement age but not full retirement age then your benefit may be further reduced dependent on the income you are receiving. Again, this reduction will cease at full retirement age despite the working status of the contributor.

There are survivor benefits available to surviving spouses. Thus if the worker spouse dies the surviving spouse may receive benefits equal to the full value of the worker spouses retirement. This spouse here is eligible for the full retirement after reaching normal retirement age. Children of deceased workers are also entitled to receive benefits at least until they are 18 years old. Children also receive a benefits on behalf of disabled workers.

Workers who have worked a sufficient amount and also worked recently enough to the date of injury are entitled to disability benefits. Such benefits will not begin until five full months after such injury. In order to qualify the worker must be unable to continue working in his or her current job and unable to work in other positions. Such disability must be long term lasting at least 12 months. The disability benefit will be related to the workers record of earnings and age.

Categories: Family Law