SOCIAL SECURITY AND

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CHAPTER 7 SOCIAL SECURITY AND OTHER GOVERNMENT
PROGRAMS
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WORKERS WHO ARE NOT COVERED BY SS Railroad
workers Civilian employees of the federal
government employed before 1984 Some state and
local employees Some American citizens working
abroad Ministers who elect out of
coverage Student nurses, newspaper carriers
under age 18, and some student jobs Some family
employment
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• Social Security Facts
• 96 of all workers are covered under Social
  Security
• - 53 of workforce has no private pension
  coverage
• - 32 of workforce has no savings set aside
• specifically for retirement
• More than 9 in 10 of those aged 65 and older
  receive
• Social Security benefits
• - for 2/3 it is more than 50 of retirement
  income
• - for 22 it is ONLY source of income
• Source Social Security Administration
  http//www.ssa.gov

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TAX RATES AND WAGE BASES In 2008, the rate is
6.2 on the first 102,000. This amount is
paid by the employer and employee (each).
Self-employed pay 12.4 of the first 102,000.
In addition, 1.45 is added for the hospital
portion of Medicare. The 1.45 is applied to
total earnings. 6.2 1.45 7.65 7.65 of
102,000 is 7,803 or 650 per month.
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HISTORY OF THE OASDI CONTRIBUTION AND BENEFIT
BASE (Selected years)

• YEAR BASE RATE TAX
• 1937 3,000 1 30.00
• 1958 4,200 2.25 94.50
• 1971 7,800 5.20 405.60
• 1980 25,900 6.13 1,587.67
• 1990 51,300 7.65 3,924.45
• 76,200 7.65 5,829.30
• 2006 94,200 7.65 7,206.30
• 2008 102,000 7.65 7,803.00

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SOCIAL SECURITY TAXES EARNINGS
OF EMPLOYEE SELF-EMPLOYED 40,000 3,060 4,
800 90,000 6,885 11,160 300,000 7,803 1
4,918 2,871 4,350 10,674
19,268 These taxes on the employee are paid
with after-tax dollars. Employer contributions
to social security and Medicare are tax
deductible. Self-employed individuals can
deduct ½ of their Social Security and Medicare
taxes as business expenses.
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ELIGIBILITY FOR BENEFITS In 2008, a person earns
one credit (1 quarter of coverage) for each
1,050 in annual earnings. A person who earns
4,200 (4 x 1,050) in the year will receive 4
quarters of crediteven if earned in one week.
A person cannot earn more than 4 quarters in any
one calendar year. 3 TYPES OF INSURED
STATUS 1. Fully Insured 2. Currently
Insured 3. Disability Insured
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Fully Insured 40 quarters of coverage will be
fully insured for life OR has a minimum of 6
quarters and has ¼ of the quarters between one
year after he/she reaches age 21 and the year
before he/she dies, becomes disabled, or reaches
age 62. Currently Insured Has 6 of the last 13
quarters ending with the quarter in which
his/her death occurs. Disability Insured Be
fully insured and has a minimum amount of work
under SS in a recent time period.
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TYPES OF BENEFITS 1. Retirement (must be
fully insured)

• Normal Retirement Age Is gradually increasing

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Retirement Benefits are paid to 1. Retired
worker 2. Spouse age 62 or older
Available to a divorced spouse if the
marriage lasted at least 10 years. 3.
Spouse of any age if caring for child
under 16 or disabled This is the
Mothers or Fathers Benefit 4.
Childrenmust be under age 18, unmarried and
dependent. The benefit will continue until
age 19 if in school full time (elementary or
secondary school --not college). Also
includes children if disabled before age 22.
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SURVIOR BENEFITS (can be fully or currently
insured). Lump sum benefit of 255 if there is a
surviving spouse or children. Monthly income
benefits are paid to 1. Children (as
defined before under age 18, unmarried, and
dependent and children disabled before age
22) 2. Surviving Spouse who a) has
children younger than age 16. (This includes
a widow, widower, or surviving divorced
spouse) b) is age 60 or older Blackout
periodno benefits from time youngest child is
16 until surviving spouse is 60. A surviving
spouses benefit stops at remarriage unless the
spouse is 60 or older. 3. Parent (only if
the parent is over age 62 and had been
dependent)
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DISABILITY BENEFITS Categories are the same as
retirement benefits. Waiting period of 5
months. The disability must prevent any
substantial gainful employment and must be
expected to last at least 12 months or result in
death. Disability Facts 3/10 of todays
20-yr olds will be disabled before age 67
72 of private sector workforce has no long term
disability coverage Disabled workers and
their dependents account for 17 of total
Social Security Benefits paid
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BENEFIT AMOUNTS Calculating Benefits Based on
a persons employment record. Past covered
earnings are indexed to bring them to current
wage levels, and periods of low or no earnings
are eliminated, An average is calculated and
then a formula that favors low income workers is
applied. This is the PIA.
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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 FIRST 680 OF AIME 90,
plus 680 - 4,100 32, plus Over
4,100 15 EXAMPLE Mr. A has AIME of
650 Mr. B has AIME of 5,000 As PIA will be
585, which is 90 Bs PIA will be 1,841 which
is 37 The PIA is the monthly benefit at full
retirement age. All benefits are based on it.
Maximum PIA in 2007 is about 2,100-2,200 but
the average is about 1,100.
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RETIREMENT BENEFITS Requires fully insured
status Percentage of PIA
Retired Worker 100 Spouse age 62
50 Spouse with child
50 Child 50 SURVIVOR
BENEFITS Child Fully or currently 75
Spouse (with young child) Fully or
currently 75 Spouse age 60 Fully or
currently 100 Parent Fully
insured 82.5
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Early Benefits Retirements benefits are
permanently reduced if taken early. They are
80 if taken 3 years early which almost everyone
does. Example Person could receive 2,000 per
month at age 66 or 1,600 per month if taken at
age 63. Delayed Retirement Benefits are
increased (at an increasing rate) until age 70.
Also, a person might generate a higher PIA.
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COST OF LIVING ADJUSTMENTS Benefits are
increased each year in accordance with CPI
increases. Benefits do not automatically
decrease if the CPI declines.
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Earnings Test The earnings test does not apply to
dividends, interest, and rental income. No
earnings test if beneficiary has attained his/her
full retirement age. If under that age,
beneficiaries are allowed to earn 13,560 with
no reduction in benefits. Earnings above that
amountbenefits are reduced 1 for every 2 of
excess earnings. (Reduced 1 for every 3 in
excess earnings over 36,120) There is no
earnings test for individuals who have reached
the full retirement age.
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• TAXATION OF BENEFITS
• If income is more than a certain amount up to
  50 of social security benefits will be taxed.
  If income is more than another (higher)
  specific amount 85 of the benefits will be
  taxed.
• This higher amount is only about 44,000, so many
  people pay tax on 85 of their social security
  income.
• About ½ the states exempt social security
  benefits from state taxation.

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MEDICARE Part AHospital insurance Part
BMedical insurance ELIGIBILITY Every person
who is entitled to SS benefits is covered by
Part A at no monthly cost. People over age 65
who are not eligible can enroll in Part A and
they must enroll in Part B and pay a premium for
each.
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Part A Hospital Benefits Covers hospital,
skilled-nursing, hospice and some home health
expenses. No coverage for physicians or
surgeons. Hospital Benefits Up to 90 days in
each benefit period (spell of illness).
Deductible is 992. After 60 days a 25
copayment kicks in. There is a lifetime reserve
of 60 days. Skilled Nursing Facility
Benefits Benefits are paid if full initially, but
after 20 days there is a deductible and
copayment. Custodial care is not covered by any
part of Medicare unless skilled nursing or
rehabilitative services are also needed and
covered. Home Health Care Benefits Pays for the
full cost for an unlimited number of home visits.
Person must be confined to home and under a
plan set up by a physician. Hospice
Benefits Must be certified as terminally ill with
a life expectancy of less than 6 mo. Exclusions
Under Part A Services outside the US, Elective
luxury services (e.g. private room), and
Custodial care or elective cosmetic surgery
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Part B Medical Insurance Covers most medical
expenses not covered under Part A. Exclusions
are some drugs that can be self-administered,
routine exams, foot care, immunizations,
cosmetic surgery, dental care, custodial care,
and eyeglasses and hearing aids. There is a
deductible and coinsurance for most
benefits. Part C Medicare Advantage (Medicare
Choice) Allow people to join HMOs, PPOs, etc.
They must provide all the benefits available
under original Medicare and may include
additional coverages at an extra premium. Have
not been popular. Part D Prescription Drug
Coverage Medicare approved drug discount cards
will be used until the Act becomes effective in
2006. Cards are not available to people who have
prescription drug coverage. Part D is very
controversial and complex. Most people will
have access to at least two drug plans. A list
of approved drugs (a formulary) is expected.
Will have a deductible and coinsurance. A
subsidy is provided to employers who continue
their drug plans.
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TAX TREATMENT OF SS AND MEDICARE Premiums Employe
r contributions to SS and Medicare are
deductible. Self-employed are able to deduct ½
of the taxes. Employee contributions are made
with after-tax dollars. Benefits If modified AGI
for married couples filing jointly is Less than
32,000 Benefits are not taxable 32,000
44,000 Up to 50 of benefits are taxable gt
44,000 Up to 85 are taxable
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OTHER SOCIAL INSURANCE PROGRAMS UNEMPLOYMENT
INSURANCE Jointly financed by federal and state
governments. Purposes of the law are to cover
almost all workers, benefits are paid as a
matter of right, not need, help unemployed
people find jobs and encourage employers to
stabilize employment (by experience
rating). Most states have a base period of 1
year. Person must be willing and able to work
and actively seeking employment. Most states
pay benefits for a maximum of 26 weeks but the
federal government provides an extra 13 weeks.
The benefit is typically 50 but there are
minimums and maximums.
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TEMPORARY DISABILITY LAWS 5 states (CA, Hawaii,
New Jersey, New York and Rhode Island) provide
disability income benefits even if the person
was not employed. Patterned after unemployment
laws.
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WORKERS COMPENSATION LAWS Extreme difficulty in
collecting for losses prior to these laws. WC
is based on liability without fault. Most laws
are compulsory for all employers. Employers can
buy private insurance, buy from a competitive
state fund, buy from a monopolistic state fund,
or qualify as a self-insurer. Employers bear
the entire cost. Most occupations are covered.
Common exclusions are agricultural, domestic,
casual and small firm. Injuries or sickness must
be arising out of and in the course of
employment. Benefits are Medical care, which
is unlimited. Disability incomeusually 2/3 of
prior income with minimums and maximums Death
benefitsboth lump sum and income to
survivors Rehabilitation Benefits are received
free of income tax.
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• DISCUSSION QUESTIONS CH 7
• Explain whether each of the following persons
  would be eligible
• for OASDI retirement benefits based on the
  retired workers
• earnings record. Treat each item separately.
• a) A retired workers unmarried son, age 25,
  who became
• totally disabled at age 15 because of an auto
  accident.
• b) A spouse, age 63, of a retired worker who is
  no longer caring
• for an unmarried child under age 18.
• c) A retired workers spouse, age 45, who is
  caring for the 12 year
• old daughter of the retired worker
• d) A divorced spouse, age 55, who was married
  to a retired
• worker for six years.

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• 2. Explain whether each of the following persons
  would be eligible for
• OASDI survivor benefits based on the
  deceased workers earnings
• record. Treat each item separately.
• a) A surviving spouse, age 35, who is
  caring for an unmarried child
• under age 16.
• b) A son, age 19, who is attending college
  full-time.
• c) A surviving spouse, age 55, who has no
  children under age 16 in
• her care.
• d) A surviving spouse, age 60, who has been
  out of the labor force
• for several years.
• e) A dependent parent, age 80, who was
  receiving financial help
• from the deceased worker.
• Fred, aged 68, is married to Marilyn, also age
  68, and both are fully
• insured under social security. Freds PIA
  is 2,000 and Marilyns is 1,000. They have a
  son, Kevin, who is 12 years old.
• If Fred dies, about how much social security
  income would be paid to Marilyn/Kevin each month?

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• Tom is fully insured and retires at age 67. His
  wife is
• age is age 62. Toms PIA is 2,000. How much
  will he and his
• wife receive as a monthly social security
  benefit?
• 5. For which of the following survivors
  benefits must the
• worker have been fully insured?
• a) Childs benefit
• b) Spouses benefit (with young child)
• c) Spouse age 60
• d) Parents benefit