Social Security - A Complete Glossary Of Terms You Need To Know
Social Security File #1
Social Security File #1
Terms You Need To Know
How Social Security Works
The Retirement Benefit
The Disability Benefit
Spouses' and Ex-Spouses' Benefits
TERMS AND DEFINITIONS YOU NEED TO BE FAMILIAR WITH
Here are some of the common Social Security terms used in this manual and video that you need to be familiar with.
SSA: Social Security Administration.
SS: Social Security
Trust Funds: The US Treasury Fund that receives SS taxes and pays out benefits and operating costs.
SS Taxes: FICA (Federal Insurance Contribution Act) and self-employment taxes.
Worker: Anyone who must pay SS taxes on his or her earnings.
Spouse: The husband or wife of a living worker.
Ex-Spouse: The divorced husband or wife of a living worker.
Surviving Spouse: The husband or wife of a deceased worker.
Surviving Ex-Spouse: The divorced husband or wife of a deceased worker.
Work Record: Social Security's record of a worker's earnings that are subject to SS taxes.
Work Credit: A mechanism by which SSA establishes whether a worker has worked enough to be eligible to draw benefits. You must earn a certain number of these credits to be "insured" for SS benefits. Workers earn these "quarters of coverage" at the maximum rate of four per year.
Insured: You have earned enough work credits so that you and your dependents or survivors are eligible to draw benefits when other requirements -- such as age or disability -- have been met.
Eligible: You have met all the requirements to draw a particular kind of SS benefit, but you have not yet filed an application.
Entitled: You, as an eligible person, have filed an application and benefits have been awarded.
Benefits: Any of the various kinds of SS payments that you, your dependents, or your survivors may be entitled to draw.
Beneficiary: Any person who is entitled to any kind of SS benefit.
Unreduced Benefit: Generally, the full, maximum amount a SS beneficiary can draw at normal retirement age before adjustments are made.
Reduced Benefit: Benefits are most commonly reduced because people draw them before they reach their "normal retirement age."
Normal Retirement Age (NRA): The age at which you are entitled to a full, unreduced benefit. For those of us born before 1938, our NRA is 65. Chart A shows the NRA for those of us born after 1937.
Early Retirement Age: The earliest age at which you may become entitled to a benefit. For retirees and their spouses, this is 62. For widows, it is 60 unless they are disabled. If you draw at this age, your benefit will be "fully reduced".
Full Reduction: This is the maximum percentage your benefit will be reduced if you draw at your early retirement age. Chart B shows typical percentages payable at certain ages.
Annual Earnings Limit: This is the amount of wages or self-employment income you may earn in any year and still get all of SS benefits that are due you.
Family Maximum: On any one worker's record, this is the maximum amount of benefits that can be paid to all beneficiaries except divorced spouses over age 62 and surviving divorced spouses over age 60.
SSI: Supplemental Security Income is a benefit program for people who are over 65, blind, or disabled and have very low income and resources.
HOW SOCIAL SECURITY WORKS
About 95% of all workers in America pay SS taxes on their earnings: Employees pay a percentage of gross wages up to a maximum and employers match that amount. Self-employed individuals pay both shares of this tax based on net profits with half of the tax being deductible as a business expense.
Since either the SS tax rate or the maximum earnings subject to SS taxes increases each year, we have significant investments in SS. Hundreds of billions of dollars are paid in each year from all sources. What happens to all this money?
Well, Social Security operates like an insurance program. Today's workers are paying the benefits being drawn by today's beneficiaries. In turn, when today's workers draw benefits, tomorrow's workers will pick up the tab.
The Trust Funds have been accumulating reserve funds of tens of billions each year. These reserves are intended to avoid a significant tax increase on future generations when the "baby boomers" begin to retire in the Twenty-first Century. By law, these reserves are required to be invested in U.S. Government securities. This means, of course, that the funds are on loan to the Government and are earning interest. In other words, our government has spent the reserves and owes the trust fund lots of money.
And if all this money is on loan to Uncle Sam, how will he repay it to SSA when it is needed without raising other taxes to fund the repayment? Good question. We pay into Social Security and we deserve an answer. But I sure can't tell you. Only the U.S. Congress can.
We've covered some of the basics about Social Security. Now, let's move on to some specific topics we can do something about. The video and manual should cover many of the questions you may have about benefits. But they may also raise some other questions. If you are unclear about any information when you complete this program, I will tell you at the end how you can get the right answer.
When you are ready to file a claim for benefits, or if you need an official answer about a Social Security issue, always contact your nearest Social Security office.
YOUR RETIREMENT BENEFIT
This is the benefit most often associated with Social Security. More than 70% of all SS benefits are paid to retired workers (61%) and their dependents (9%). Retirement benefits first become available when you reach age 62, but then at reduced rates.
What does "insured" under Social Security mean?
Most workers in the United States pay SS taxes and are therefore insured for SS benefits. Employees of a few state and local governments do not pay the SS tax, but pay into a state pension fund instead. All federal workers, including those of us in the military service, now pay all or part of SS taxes. Self-employed people also pay these taxes.
Bottom line: If you work for ten years under SS with average annual earnings, you will be permanently insured for SS retirement benefits.
How do you qualify for retirement benefits?
In order to qualify, you must meet two basic requirements...
1) Earn enough Social Security work credits
You can earn a maximum of 4 per year.
The amount of earnings required to receive one work credit increases slightly each year.
With 10 years of nominal earnings, you can earn 40 work credits, the number needed for you to be insured.
2) Be at least age 62.
How is your retirement benefit computed?
Social Security uses a complex set of regulations and formulae to determine your retirement benefit. Obviously, the more you contribute in FICA and self-employment taxes, the more your benefits will be. Here's how it works:
SSA compiles all of your yearly earnings that are subject to SS taxes under your SS number.
Your earnings are then converted to their value in "current" dollars by a SS formula.
If you were born after 01/01/29, your highest 35 years of earnings are added together and then divided by 35 to get a yearly average.
If you were born before 01/01/29, the number of years of your earnings that will be used is your year of birth + 6 (Example: 1926 + 6 = 32).
This sum is then divided by 12 to get a monthly average.
SS applies a formula to your monthly average to compute your full unreduced benefit.
You will get a percentage of this full benefit based on your age at the time you begin to draw benefits. In other words, your full benefit will be reduced if you begin to draw benefits before you reach your normal retirement age (NRA)...and, as we will discover, your full benefit can increase if you either begin drawing benefits after your NRA or continue working after your NRA.
How is the amount of your retirement benefit determined?
You will be docked 5/9 of 1% (.556%) for each month you draw benefits before age 65. If your Normal Retirement Age is after you reach age 65, SSA will deduct an additional 5/12 of 1% (.417%) for each month between age 65 and your NRA.
The initial amount of your benefit is based on the number of months between your initial entitlement and your Normal Retirement Age.
The permanent amount of your benefit depends on how many reduced checks you get before your NRA. It is set after you reach your NRA. The permanent reduction will never change.
If you wait until after you reach your NRA to draw or if you forfeit part of your benefits due to continued work after you reach your NRA, you will be given bonuses called "delayed retirement credits" that are added for the number of months after your NRA that you receive no benefit checks. See Chart C.
Let's look at some examples:
If your normal retirement age is 65 and you begin drawing benefits nine months before your 65th birthday, your benefit will be reduced by 5% (.556% times 9 months equals 5%). If you begin drawing at age 63, your monthly benefit will be reduced by just over 13% (.556% times 24 months equals 13.3%).
Bottom Line: SS benefits will provide not more than one-half the income most of us will need in retirement. So, we can't count on SS as our primary source of retirement income. The closer you are to your normal retirement age when you begin drawing, the higher your monthly benefit will be. And if you wait until after your NRA, you will get bonuses. But there may be drawbacks to waiting to draw higher benefits. So look at your options after you have been fully informed.
When should you contact SSA?
Retirement benefits can start any month after age 62. There is no "best" time or hard and fast rules that tell us when we should start drawing. Some basic practices should help you plan.
If you stop working at or before age 62, start drawing at age 62. You can either use the money to meet expenses or invest it. But Remember to expect reductions in your benefits for each month you draw before your NRA.
If you plan to work full time after age 62, contact SSA 3 months before age 62 and in January of each year after you reach age 62. "Partial" benefits may be payable, and this may be especially beneficial if you have an eligible spouse or child.
If you will retire in mid-year any time after you reach age 62, contact SSA in January of the year you plan to retire to be sure you get the most benefits available.
At age 65, apply for Medicare, even if you will keep working full time. See the Medicare section of this manual.
SOME FINAL FACTS AND REMINDERS ABOUT RETIREMENT
You do not need to fully retire to draw a monthly retirement check. If you work after you become entitled, your benefit payments will be affected by the annual earnings limit, but partial benefits can often be paid. See Appendix 1.
Contact SSA 3 months before you want benefits to start to allow plenty of time for processing.
Your normal retirement age (NRA) will be after age 65 if you were born after 1937.
You will always be able to get reduced benefits at age 62.
You must be age 62 through the entire month to get a check.
SSA does not pay retroactive reduced benefits.
Benefits payable to others on your record -- like to ex-spouses, wives, and children - - do not affect the amount of your retirement check.
For example, if the requirements are met, three ex-spouses may each draw their full benefits from the work record of one wage earner without reducing the benefits of each other or the worker.
Earnings and military service before 1951 are rarely used in computing benefits, but will be used if needed. Active duty military pay from 1951 through 1956 was not subject to SS taxes, but you will receive gratuitous credit for your military service.
Check SSA's record of your earnings every 3 years. Call SSA and request Form #7004. It will be mailed to you. Fill it out and mail it in for a free status report and estimate of your future benefits.
THE WORKER'S DISABILITY BENEFIT
If the breadwinner is unable to work because of illness or accident, the Social Security disability benefit becomes very important. About 11% of all SSA benefits are paid to disabled workers and their dependent spouses and children.
The SSA disability medical requirements are very different from those of private insurance, veteran's benefits, and company pension purposes. Here we consider disability benefits payable to the worker based on his or her own SS work record.
To qualify for disabled worker's benefits, you must meet both medical and work credit requirements:
You must be "disabled" based on SSA standards, and
You must be "insured" according to SSA work requirements.
I. THE MEDICAL REQUIREMENT: What does SSA mean by "disabled"?
To be disabled under SS rules, you must have a physical or mental impairment that is both.....
so severe that you cannot work
either at your regular job, or at any other job you might qualify for with minimal training, and
long-term - meaning it has already kept you from working for at least 12 months or is expected to, or
The medical requirements are strict, but do not mean that you must be totally unable to function, as some people seem to think. Remember: SS does not pay a short- term disability benefit. Workers compensation, other disability, and sick pay plans provide short-term help. And SSI may also help in the short term.
Typical disabling conditions may include:
a back injury that caused nerve damage or required surgery;
heart disease or heart failure;
a serious nervous breakdown;
a broken leg that is not healing properly;
The two requirements for SSA disability are severity of condition and longevity. Both must be met to collect. About 75% of all initial disability claims are denied because the applicant does not meet one of the medical requirements. The most common reasons claims are denied are....
the condition is not severe enough to prevent some kind of work
the condition is expected to improve enough within 12 months that the worker should be able to return to work.
The medical decision is made by a division of your State's Vocational Rehabilitation Department based on "objective medical evidence" that includes....
your doctor's records (not just his or her opinion that you are disabled)
results of clinical tests
your education, training and work experience.
II. THE WORK CREDIT REQUIREMENT: What "disability insured" means.
As you remember, "Insured" was explained in the definitions section. With this in mind, assuming the medical requirements are met, there are two separate work requirements that every disabled worker over age 31 must meet:
1) You must have earned 1 SS work credit for each year after you turned 21; and
2) You must have earned at least 20 work credits during the 10 years before you became disabled.
The rules change if the disability occurs before age 31:
If you are age 31 or younger, the first rule is the same except that you must have earned a minimum of 6 work credits. How the second rule works depends on the worker's age at disability. The basic idea is that you must have earned at least two work credits for every year after age 21 up to when the disability begins.
If you are under age 25 when you become disabled, other special rules may apply, but you still must have earned a minimum 6 work credits.
What is SSI and how might it apply to you?
If you find that you don't have enough work credits under SS, you might be eligible for SSI benefits. SSI -- Supplemental Security Income -- is a program for people who 1) have very low income and resources and 2) are disabled, blind, or over age 65. And in some instances, disabled minor children with low income and resources and with little income and resources imputed to them from their parents, might qualify.
Bottom Line: If you meet both the medical and work credit criteria, disability can be paid to you at any age up to your NRA at which time the disability benefit converts to retirement. Anyone who has worked consistently over the years should have no trouble meeting the special work requirement described here. To be sure you stay insured for disability benefits, don't allow any significant "gaps" (years in which you have earned no work credits) to exist in your work record.
A pitfall that older workers must avoid.
Since many older workers may have an early retirement option, here's one problem early-outers must avoid:
Consider the second work rule for people over 31: they must earn at least 20 work credits during the 10 years before disability begins. In order to meet this rule until you reach age 62, be sure that you have earned at least 20 work credits between ages 52 and 62.
For example: If you retire at age 55 and work no more, you will be insured for SS disability benefits only through age 60.
What if your disability claim is denied?
You may request a review of SSA's decision. The law provides a 4-step appeals process that you can use to try to get your claim approved. Your letter of decision from SSA will explain....
the reasons your claim is denied, and
how you can appeal the determination.
If you claim is approved.
Even if you get SS disability, you're still not finished. There are periodic medical review, work incentives, and other things you need to be familiar with:
You will not get checks for the first five full months you are disabled. SSA calls this the "waiting period."
Be sure you have short-term disability coverage from some other source. If you do not, SSI may help during the 5-month waiting period.
By law your medical condition must be reviewed periodically to see if you are still disabled. The award letter you get will tell you when to expect this review.
As long as you continue to be disabled, the law provides work incentives for you to try to get back to work.
A 9-month trial work period (TWP) during which you can work and earn any amount of money and still get your benefits.
Three months' benefits after the TWP has been used up, even though you continue working.
During the 36 months after the TWP, your benefits will be reinstated for any month you are unable to earn over $500 per month, without a new application.
If you are entitled to Medicare, it will continue for 39 months after the trial work period. After that, you may purchase Medicare coverage with no qualifying medical exam.
A reminder or two....
The work incentives continue to apply to disabled beneficiaries until they reach normal retirement age (NRA) -- even after age 62. As long as you get disability benefits, there will be several events you must report to SSA until you reach NRA:
Any improvement in your medical condition that may enable you to return to work;
Any work that you do, even if you do not think it is significant. Self-employed people must report any business activity, even if they are not making a net profit.
One mistake many people make is to think that filing their tax return fulfills this second responsibility. It does not. It is your responsibility to make the required reports to SSA and to avoid using benefits that are not due. SSA will expect repayment if benefits are not stopped properly and you use any erroneous payments.
Remember: SS disability benefits are not meant to be an early retirement program. You must really be disabled to get these benefits in the first place. And you must continue to be disabled to continue to be entitled.
THE SPOUSE'S AND EX-SPOUSE'S BENEFIT
Some spouses do not work outside of the home and therefore do not have SS insured status on their own work records. Other spouses work part-time or at lower wages and therefore do not have enough contributions to secure high SS benefits. This section deals with benefits available for the spouse and ex-spouse of a living worker who is drawing retirement or disability benefits, or in some cases to the ex- spouse of a worker who is eligible for, but not drawing, retirement benefits.
When you may qualify for these benefits.
You may qualify for these benefits if you are 62 years of age or older and, in some instances, if you are under age 62.
I. At age 62 or older, you may be eligible to draw a benefit as either....
the legal spouse of a living worker who is drawing retirement or disability benefits if you have been married for at least 12 months; or
the divorced spouse of a living worker who is drawing retirement or disability benefits. or
the divorced spouse of a living worker who is eligible for, but not drawing, retirement benefits if you have been divorced at least two years. This is called the "independently entitled divorced spouse benefit."
To be eligible as a divorced spouse in either case, 1) you must have been married to the worker 10 full years before the divorce and 2) you must not be remarried when you apply for benefits.
In any of the three cases, you will qualify for a spouse's benefit only if your own retirement benefit is less than your benefit as a spouse would be. The divorced spouse's benefit will generally terminate upon remarriage.
II. Under age 62, you may qualify as the legal spouse if you are married to a worker who is drawing benefits and you have in your care a child of the worker who is both....
under age 16 or over age 18 and disabled, and
entitled to SS benefits on the same worker's record.
For example, if both your spouse and a young or disabled child are drawing benefits on your spouse's work record, you can also draw benefits.
This benefit is not available to you as a young divorced spouse, even though one or more children in your care may qualify for benefits.
How is the benefit figured?
If you are over age 62 and a spouse or divorced spouse who has met the requirements described above, then you can......
Start with 1/2 the worker's unreduced benefit;
Subtract your unreduced retirement benefit, if any.
Reduce the remainder according to the your age when you are first entitled.
Materials in Social Security File #3 show typical percentages you might receive and an example of how a benefit is figured.
If you are younger than age 62 and a spouse who has met the requirements described, your benefit amount will depend on the number of entitled children involved because of the family maximum.
At age 62, the spouse of a living worker who is drawing benefits may be entitled to draw a benefit if married for at least 12 months.
At age 62, a divorced spouse of a worker who is drawing benefits may be entitled to draw a benefit if the marriage lasted 10 full years before the divorce and the spouse is not married at the time of application.
At age 62, a divorced spouse of a worker who is eligible for, but is not drawing benefits, may be entitled to draw a benefit if the marriage lasted 10 full years before the divorce, the spouse is not married at the time of application, and the divorce took place at least two years before the application.
In each instance, the benefit -- based on 1/2 of the worker's unreduced benefit -- is reduced if taken before the spouse's NRA. Drawing this benefit does not reduce the worker's benefit.
Before age 62, a spouse of a worker who is drawing who has a young or disabled child also drawing may be entitled to a benefit that is limited by the family maximum. Drawing this benefit does not reduce the worker's benefit.
BENEFITS FOR CHILDREN
Benefits for children are important when a worker retires, dies, or become disabled.
SSA's definition of "child" is important.
For SSA purposes, a "child" can be the biological child, a step-child, an adopted child, a grandchild under certain circumstances, a child as decreed by a court or as legitimated by the father, or in other ways.
Children may be entitled to draw SS benefits on the work record of....
a parent who is drawing a worker's retirement or disability benefit; or
a deceased parent; or, rarely,
an entitled or deceased grandparent or great-grandparent.
There are 3 ways a child can qualify for SS benefits:
As a minor child, under age 18
As a student if he or she is
between ages 18 and 19, and
a full-time student at the primary or secondary level.
As a disabled child, if he or she
is at least age 18, and
became disabled before age 22.
The same basic disability rules apply for adult children as for disabled workers. Generally, a child must be unmarried to draw benefits...but there are exceptions here too.
An adult disabled child can draw this benefit at any age after age 18. For example, if a child has been mentally retarded since birth -- or has been disabled since an automobile accident at age 16 -- and will be 40 years old when the parent begins drawing retirement at age 62, the disabled adult child can begin to draw this benefit at age 40 because the disability began before age 22.
The amount of a child's benefit
The child's benefit amount will depend on the number of beneficiaries drawing on the same record. But the amount per child can never be more than...
75% of a deceased parent's full unreduced benefit
50% of a living parent's full unreduced benefit
Bottom Line: Children can draw on the work record of a living parent or grandparent who is drawing either retirement or disability benefits. The benefit cannot exceed 75% of the deceased parent's full benefit or 50% of the living parent's full benefit.
If a child becomes disabled before age 22 and is at least 18, the child can collect as a disabled adult child. And don't forget: SSI benefits may also be payable to a disabled child at any age.
YOU CAN RECEIVE THE FOLLOWING INFORMATION FROM SOCIAL
SECURITY FILE #2:
Surviving Spouses' and Ex-Spouses' Benefits
What To Expect When You File
YOU CAN RECEIVE THE FOLLOWING INFORMATION FROM SOCIAL
SECURITY FILE #3:
Normal Retirement Age Chart
Benefit Reduction Percentage Chart
Earnings Needed for Work Credits
Annual Earning Test
Computation of Spouse’s Benefits
Or, by using your VISA, MASTERCARD, AMERICAN EXPRESS, OR DISCOVER card, you can purchase the Social Security Video and Manual by visiting our Resource Library.
You must remember: Because each situation is different, my programs are not intended as the final word about Social Security programs or what you might be entitled to receive. The information contained in these files is accurate, but it is not official. This program is neither sponsored by nor endorsed by the Social Security Administration or any other Federal agency.
All rights reserved. Produced in the United States of America. This file is sold as, without warranty of any kind, either express or implied. No part of this publication may be reproduced, in whole, in part, in any form, or by any means without express written permission. Making copies of this publication for any purpose is prohibited.
A FINAL REMINDER.......
This material was designed to help you learn the basics of Social Security so you will know the questions to ask and some of the answers you should expect. With this information, you should be as informed as anyone about the basics of the system. Since every situation is different, always ask your local Social Security representative about up-to-date changes that might affect you.
This information is not endorsed by the Social Security Administration or any other agency of the United States Government.
© 1991 by Jan L. Warner
Post Office Box 11704
Columbia, South Carolina 29211
© 1997 Flying Solo™. All rights reserved. Legal Notices
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