Earning Your Benefits
filed under: Retirement
To earn Social Security benefits, you must register with the Social Security Administration (SSA) and obtain a Social Security card. A Social Security Numberyours for lifecomes with the card. Your number is how the SSA keeps track of your earnings and contributions in order to calculate benefits. The SSA refers to this record as your earnings record.
Your Social Security Statement is an estimate of your expected Social Security benefits. The estimate is based on your expected FICA contributions, earnings record, expected future earnings, and expected retirement age. It's worth noting that the actual benefit amounts may vary from the estimates shown on the Statement.
You can request a Social Security Statement at the Web site of the Social Security Administration. You can also download a request form and mail it to the address on the form.
The amount you receive when you are eligible to receive full basic retirement benefits is called your Primary Insurance Amount (PIA). To calculate your PIA, the SSA takes your 35 highest-earning years and indexes the earnings amounts for inflation. In other words, $10,000 earned 25 years ago is worth much more today when indexed for inflation over the last 25 years. Indexing helps to calculate a benefit in tomorrow's dollars based on yesterday's wages.
To qualify for Social Security benefits, you must earn a minimum of 40 credits. (If you were born before 1929, you need fewer credits.) The maximum number of credits you can earn in one year is four. As a result, you need at least 10 good years to earn full Social Security benefits. To earn one credit in 2008, you need to earn $1,050. As a result, you can earn the maximum of four credits in 2008 by earning as little as $4,200.
Here is an overview of some of the important Social Security and Medicare benefit categories likely to affect you. Information in greater detail is available elsewhere in this educator:
Retirement benefits. Retirement benefits are the foundation of the Social Security program. If you were born before 1938, you are eligible to receive partial benefits at age 62 and full benefits at age 65. Beginning in 2003, the eligible age to receive full benefits is gradually rising to age 67. The following table shows the minimum age, in years and months, to be eligible to receive full Social Security benefits:
|Birth year||Minimum age to receive|
|1937 or earlier||Age 65|
|1938||Age 65 and 2 months|
|1939||Age 65 and 4 months|
|1940||Age 65 and 6 months|
|1941||Age 65 and 8 months|
|1942||Age 65 and 10 months|
|1955||Age 66 and 2 months|
|1956||Age 66 and 4 months|
|1957||Age 66 and 6 months|
|1958||Age 66 and 8 months|
|1959||Age 66 and 10 months|
|1960 or later||Age 67|
Source: Social Security Administration.
Disability insurance.Disability insurance pays a benefit to persons impaired from earning substantial income for a year or longer due to a disease, illness, or mental condition. (The SSA considers substantial income for 2008 to be $940 a month or more for non-blind individuals.) You may also receive disability benefits if you have a condition that is expected to result in your death. In order to be eligible, you must have earned enough Social Security credits. You can be any age to receive disability insurance benefits.
Family benefits. Family benefits may also be paid to eligible family members as long as you are eligible to receive retirement or disability benefits from Social Security. Family benefits are most often paid to your spouse or child. They may also be paid to an ex-spouse or parents that are dependent on your income. The SSA limits the total amount of Social Security that can be paid to all members of a household that receive benefits from your record, however. The maximum allowable household benefit is equal to an amount between 150% and 180% of your benefit.
Family benefits may be paid to your spouse if he or she is at least age 62, or younger than 62 and caring for your child that is under age 16. Your children may also be eligible to receive family benefits. Eligible children are those that are under age 18 and not married, age 18 or older and disabled, or under age 19 and still in elementary or secondary school.
Survivors insurance.Survivors insurance pays a benefit to family members when you die, provided you earned enough Social Security credits. Eligible survivors include a spouse, ex-spouse, child, or parents that were dependent on your income. A widow(er) benefit may be paid to your spouse if he or she is at least age 60, or is at least age 50 and caring for your child that is under age 16.
Your children may also be eligible to receive survivors benefits, including if they are under age 18 and not married, age 18 or older and disabled, or under age 19 and still in elementary or secondary school.
Medicare benefits.Medicare is the federal health insurance program for persons over age 65. The program aims to provide a basic medical service to retirees and other eligible persons. In general, you are automatically eligible for Medicare coverage if over 65 and receiving Social Security benefits. You are also automatically eligible if you have been receiving disability benefits for at least two years. If you are in neither of these categories, you must apply for Medicare benefits.
Medicare benefits consist of two main services: hospital insurance (HI) and medical insurance (MI). These covered services are also called Part A and Part B, respectively. Part A services are funded by the Medicare payments that are part of your regular FICA contributions (the 1.45% of your entire income). Part A services include inpatient hospital and skilled nursing care. Part B services cover outpatient hospital care and fees for physician care. Part B services are funded in part from medical insurance premiums. You may find that you want additional health insurance to reduce your out-of-pocket medical expenses as a senior citizen. This is where Medigap insurance plays a role. Medigap insurance policies "plug the gaps" in coverage that are not paid by Medicare coverage.
You can file for benefits at the Web site of the Social Security Administration or you can call at (800) 772-1213.
Supplemental Security Income (SSI) is additional income that is paid to persons with low income and few assets. SSI is a means-tested Social Security benefit program. To receive SSI, you must be either age 65 or older, disabled, or blind. SSI is not funded from FICA contributions and is not part of basic Social Security retirement benefits.
If you are receiving Social Security benefits, you can still earn some income without losing benefits. For persons who have not reached their full retirement age, you can earn up to $13,560 a year, or $1,130 a month in 2008, without your benefits being reduced. For each additional $2 in earnings, your benefits are reduced by $1.
If you reach full retirement age in 2008, you can earn up to $36,120, or $3,010 a month, in the year up to the date of your birthday without reducing your benefits. Each additional $3 that you earn reduces your benefits by $1. Once you reach your full retirement age, you can earn unlimited income without your benefits being reduced.
The following table shows the income limits for 2008 and the rate for calculating how benefits are reduced at higher incomes:
|Maximum income with|
|Benefit reduction |
($1,130 a month)
|For every $2 earned above maximum,|
benefit reduced by $1.
|Year up to|
($3,010 a month)
| For every $3 earned above maximum,|
benefit reduced by $1.
age or over
Source: Social Security Administration.
If you earn too much income, including Social Security benefits, you may have to pay federal income taxes on your Security benefits. For 2006, if you file a single return and earn a combined income between $25,000 and $34,000, 50% of your Social Security benefits are taxable. For higher incomes, up to 85% of your benefits are taxable.
For persons filing a joint return, 50% of your benefits are taxable if your combined income is between $32,000 and $44,000. For higher incomes, up to 85% of your benefits are taxable. If you are married and file a separate return, you should expect to owe taxes on your benefits.
For more information, see IRS Pub. 915: "Social Security and Equivalent Railroad Retirement Benefits."
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, see the Web site of the Social Security Administration or call (800) 772-1213.