Social Security Benefits

2006Presented by:

Bruce W. Schultz

Public Affairs Specialist

Social Security Administrationmaterial presented based on laws in effect October 1, 2006

Retired Workers Benefits

• Both members of a couple may qualify as a worker , provided they have enough work credits.

• Must have 40 Work Credits (10 years), can earn a max. of four credits per year, 1 credit per $970 (2007, 1 credit/$1,000)

• May qualify for benefits as a worker and a spouse

Retirement Benefits

• Unreduced benefit based on highest 35 years of FICA covered earnings indexed to inflation

• Full retirement age increasing from 65 to 67 - see chart on next slide

• Early retirement benefits at 62 regardless of full retirement age

• Benefits reduced by the number of months you take it early

Full Retirement Age - Workeryear of age for unreduced % of reductionbirth benefit payment at age 62Pre-1938 age 65 20%1938 age 65 and 2 months 20.8%1939 age 65 and 4 months 21.7%1940 age 65 and 6 months 22.5%1941 age 65 and 8 months 23.3%1942 age 65 and 10 months 24.2%

1943 through 1954 age 66 25%1955 age 66 and 2 months 25.8%1956 age 66 and 4 months 26.7%1957 age 66 and 6 months 27.5%1958 age 66 and 8 months 28.3%1959 age 66 and 10 months 29.2%

1960 or later age 67 30%

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What You’ll Get at Full Retirement AgeMost Financial Planners estimate you need 60% to 80% of your pre-retirement take home pay to maintain your lifestyle in retirement

Chart assumes lifetime earnings at specific earnings levels

56%

42%28%

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10%

20%

30%

40%

50%

60%

LowEarner($15,000)

Average Earner($34,000)

Max. Earner($90,000)

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How pre-age 62 retirement may impact Social Security benefits

• Assuming an individual works at maximum wage levels from age 22 (1965) through Age 55 (last work Dec. 1999), at Age 62 (January 2006) their Social Security benefit would be $1,367.

• Assuming an individual works at maximum wage levels from age 22 (1964) through Age 62 (last work Dec. 2005), at Age 62 (January 2006) their Social Security benefit would be $1,444.

• Result: a $77 loss at age 62 by stopping work at age 55. Reduction is less dramatic for average wage earners.

Dependent Benefits(of Retired or Disabled Worker)

• Unmarried children: – under age 18, – age 18 to age 19 if full-time high school student,

or – any age if disabled before age 22 (disabled adult

child)

• Spouse: – any age with eligible child under age 16, or– disabled adult child in care, or

– as early as age 62.

• Maximum payment, 50% of unreduced rate• These Dependent benefits payable only

when benefits payable to the Worker.

Spouse’s Retirement Benefits

• Not payable if benefit on own record is higher

• Full retirement benefit age, if born:– prior to 1938, Age 65– 1943 through 1954, Age 66– after 1959, Age 67

• Reduced benefits at Age 62 regardless of year of birth, BUT Worker must be receiving benefits for spouse to have benefits due (one exception, divorced spouse)

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Full Retirement Age - Spouseyear of age for unreduced % of reduction

birth benefit payment at age 62

Pre-1938 age 65 25%

1938 age 65 and 2 months 25.8%

1939 age 65 and 4 months 26.7%

1940 age 65 and 6 months 27.5%

1941 age 65 and 8 months 28.3%

1942 age 65 and 10 months 29.2%

1943 through 1954 age 66 30%

1955 age 66 and 2 months 30.8%

1956 age 66 and 4 months 31.7%

1957 age 66 and 6 months 32.5%

1958 age 66 and 8 months 33.3%

1959 age 66 and 10 months 34.2%

1960 or later age 67 35%

Spouse’s Benefit ExampleExample based on a 1943 – 1954 birthday age 66 full retirement age

Husband unreduced benefit on own record $1,400

Wife (on own record) unreduced benefit $ 600

50% of husbands unreduced benefit $ 700

Subtract wife's unreduced benefit - $ 600

Difference is maximum payable from husband $ 100

Wife’s total benefit at 62:75% of $600 (own record) = $ 450

70% of $100 (husbands record) = $ 70total payable $ 520

Survivors Benefits

• Three ways of qualifying your family:– receiving benefits as a Worker at your time of death, or– having earned 40 work credits prior to your death

($970 = one credit), or – earning 6 credits within the 3 year period ending with

your death

• Benefit computation based on current benefit amount or lifetime earnings, indexed to inflation

Survivors Benefits (Young Family)

• Unmarried children of the deceased that are:– under age 18, or– age 18 to 19 if full-time high school student, or– any age if disabled before age 22 (disabled adult child)

• Mother/father (young widow/widower): – any age with eligible child under age 16 or– caring for a disabled adult child in care

• Maximum payment, 75% of workers unreduced benefit rate subject to a family maximum

Widow and Widower’s Benefits

• Unreduced benefits are 100% of Workers monthly benefit amount or based on deceased workers lifetime earnings.

• Full Widow/Widower’s benefit age (different than retirement), if born:– prior to 1940, Age 65– 1945 through 1957, Age 66– after 1962, Age 67

• Reduced benefits - 71.5% - payable at Age 60 or if disabled Age 50, regardless of full benefit age.

Benefits for the Divorced• Not payable if benefit higher on own record• Can be payable even if Worker not retired (Worker must

meet all requirements to payment except earnings limit, at least age 62)

• Requirements:

– married to worker for 10 years, and– meet minimum age requirement

• 62 for divorced spouse,• 60 for surviving divorced spouse

– and– be finally divorced, and– not currently married

• Payment same as married spouse, widow, or widower

Earnings Limits

• Only gross wages and/or net profit from self-employment count in earnings limits.

• Monthly earnings limits apply in first year of retirement only.

• No earnings limit at you full retirement age (currently 65, increasing to 67).

Earnings Limits-for 2006Under Full Retirement Age (65 plus 6 months – 1940, 65 plus 8 months – 1941)

• calendar year limit is $12,480($1,040/month), ($12,960 for 2007)

• for every $2 over yearly limit, lose $1 from benefits (does NOT apply to monthly limit)

• Monthly limit for most self-employed– 45 hours in service to business.

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Earnings Limits if attaining Full Retirement Age in 2006(65 plus 6 months – 1940, 65 plus 8 months – 1941)

no limit for months at or over your full retirement age

limit is $33,240 ($2,770/month) for months before you attain your full retirement age, $34,440 for 2005

for every $3 over yearly limit, lose $1 from benefits (does NOT apply to monthly limit)

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Social Security Disability

• Two programs– Social Security Disability Insurance (SSDI)

• Work history prior to onset required

– Supplemental Security Income (SSI)• Payments based on need

• Decision split– Non-medical factors at local SSA office– Medical decision in Madison at State

Disability Determination Bureau

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Disability Definition

• Used by SSDI and SSI

• Disability is the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical and/or mental impairment(s) which has lasted or is expected to last at least 12 months or will result in death.

• SGA = $860 per month ($900 for 2007) and/or 80 hours per month in self employment

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Disability Benefits continued

• Not payable at or after your full retirement age (65 increasing to 67)

• Advantage of Disability over Retirement– higher benefit, no reduction for age– Medicare after 24 months of disability benefits

• Disadvantage of Disability over Retirement– no disability benefits paid during the first 6 full months

(could receive reduced retirement if age 62+)– processing of application currently averages 84 days

• Dependents benefits same as Retired Worker

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Appeal Process

• Applies if claim is denied or if disagreement with any part of the decision.

• 60 day time limit from date decision letter is received at each appeal step.

• Three administrative appeal steps:– reconsideration,– hearing,– appeals council review.

• Final step: Federal court action.

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Application Process• Apply by phone: 1-800-772-1213, or via internet at

www.ssa.gov or www.socialsecurity.gov• Apply two months in advance or in the fall before the

year you reach your full retirement age.

• Documents needed: – birth record (Birth Certificate or Church record recorded

before age 5)– W-2 and/or tax return, – bank account number for direct deposit, – DD214 (military service), – marriage record (survivors) , – medical treatment sources (disability)

Payment Delivery Day• No partial month benefits (for age 62 must be

born 1st or 2nd day of the month)• Benefits paid the month following the month they

are due. (June’s payment issued in July)• If drawing after May 31, 1997: pay date based on

day of workers birth:

1st through 10th - 2nd Wednesday

11th through 20th - 3rd Wednesday

21st through 31st - 4th Wednesday

• If drawing benefits before June 1, 1997 or eligible to SSI, paid on 3rd day of the month.

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Taxation of Social Security Benefits

• Applies if combined income over $25,000 for individual, $32,000 for couple filing jointly.

• Combined Income =– adjusted gross income, plus– 1/2 of your Social Security benefits, plus– any non-taxable interest income

• SSA 1099 issued in January with worksheet

• Questions directed to IRS: 1-800-829-1040

• Good explanation in IRS pub. 915

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Questions on Benefits before we move to Medicare?

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Medicare Eligibility

• Medicare is administered by the Centers for Medicare and Medicaid Services (CMS)

• People Age 65 (not increasing)

• People under 65 with 24 months of Social Security disability benefit entitlement

• People (incl. children) with End-Stage Renal Disease (Kidney failure)

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Medicare has several parts

• PART A

Also known as the “Hospital Part”

Premium free, if eligible for monthly benefits

If not eligible for benefit premium is $393/month ($410 for

2007). Effects about 1% of population

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2006 Medicare Deductible Rates Part A, Hospital Insurance

• First 60 days of confinement, $952– $999 for 2007

• 61st day through 90th day, $238 per day– $248 per day for 2007

• 90th day through 150th day, $476 per day– $496 per day for 2007

• First 20 days in covered skilled care, $0• 21st day through 100th day, $129 per day

– $124 per day for 2007

• Benefits renew after 60 days of non-confinement.

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Optional Medicare, Part B

• Medicare “Medical” Insurance, also known as Part B, is optional standard 2006 Part B premium, $88.50 (= 25% of program cost)(2007 cost for 96% of population, $93.50)

• Initial enrollment period 3 months before 65th birth month to 3 months after.

• Premium penalty if not enrolled timely. Exception to penalty, continued “Active Employment” with group coverage.

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2007 Part B, Medical Ins Premiums (75% subsidy ends for some)

Individuals/couples with taxable incomes of:

• Below $80,000 ind. Or

160,000 couple• $80,000 - $100,000 ind.

$160,000 - $200,000 couple• $100,000 - $150,000 ind.

$200,000 - $300,000 couple• $150,000 - $200,000 ind.

$300,000 - $400,000• If over $300,000/$400,000

Will pay a 2007 Part B premium of:

$93.50 per eligible

$105.80 per eligible

$124.40 per eligible

$142.90 per eligible

$161.40 per eligible

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2006 Medicare Part B, Medical Insurance

• If covered by group insurance via active employment, Medicare is secondary payer.

• Yearly deductible, $124– $131 for 2007– Maximum 80% of allowable charges paid

after $124 annual deductible met.

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Medicare Prescription Drug Law – Part D

• Administered by private companies with CMS oversight

• Different rates for different coverage

• Not every company covers every drug

• All people with Medicare eligible – no income or resource limits

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Part D Enrollment

• Initial enrollment period 3 months before 65th birth month to 3 months after (same as Part B)

• Annual right to change plans, November 15 – December 31

• Penalty for late enrollment unless “creditable coverage”, 1% per month

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How to pick a plan?

• www.medicare.gov1-800-MEDICARE (1-800-633-4227)– Will need, list of prescription drugs you take– Your current cost per prescription– The pharmacy you get your drugs at

• Medicare will issue you a “compare” sheet

SOCIAL SECURITY NOT INVOLVED

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Local Help with Part D

• County Commission on Aging, County Aging Department, or Tribal Aging Department– Benefit Specialist

• Wisconsin Prescription Drug helpline:Age 60 or older, 1-866-456-8211

Under age 60, 1-800-926-4862

www.wismedrx.org

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Social Security’s “Extra Help” Program for Part D

• Depending on income and resource level– Premium covered (up to $31.27 per

month)– Deductible covered (up to $250 per

year)– Small co-pay for drugs

• Sign up with Social Security before choosing a plan

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“Extra Help” program limits

• Income limit:

Individual: $14,700 ($1,225 per month)

Couples: $19,800 ($1,650 per month)

AND

• Resource limit:

Individual: $11,500

Couple: $23,000

• Your home and vehicles, are not counted

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If found eligible for Extra Help

• You must still pick a plan for “extra help” to start.

• If no plan chosen, a plan (at random) will be selected for you.

• Plan selected for you may not be the best plan, depending on what and where you get your drugs

• Social Security CANNOT help you select a plan or answer questions about plans.

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For More Information• Social Security and SSI

– Toll-free, 800-772-1213• Business days from 7am to 7pm

– Internet, www.socialsecurity.gov

• Medicare– General, 800-633-4227– Internet, www.medicare.gov