Monday, February 27, 2006
Social Security retirement benefits: General Introduction
The main purpose of the next few blog entries is to address some practical concerns of retirees drawing Social Security benefits, particularly of those who start drawing retirement benefits before full retirement age, which is gradually increasing.
Right here, I’m not going into the ideological debate over the future of social security, or its solvency (I may later).
The Social Security Trust Fund covers a number of programs, such as Retirement Benefits (“Old Age Insurance Benefits” “Retirement Insurance Benefits”); Disability Benefits (“Disability Insurance Benefits” “Disabled Worker Benefits”), and various spousal and dependent child benefits, including parental benefits when parents have been dependents on an adult child who dies. Spousal benefits, of course, trigger ideological debates about marriage that I take up on other web pages. Most of the regulations about spousal and dependent benefits (including the "family maximum") have to do with payments based on one worker's account.
The Social Security Office also administers a welfare program, SSI, or Suplemental Security Income), a welfare program not covered by the Trust Fund, and Black Lung Benefits, and is connected to Medicare, which comes from a separate fund and separate payroll tax. Social Security is regarded as an "entitlement" which means that it is paid regardless of outside income (with the exception of wages limits during early retirement years, as in the next post). The same is true of Medicare. SSI is a welfare payment based on need. (Disability benefits are a bit of a hybrid.)
The main focus here for now is retirement benefits. Generally, one must have worked forty covered quarters (with wages or imcome out of which one paid FICA tax) to receive benefits.
Social Security payments are partially taxable under federal tax law. If your total income (including non-work income and even including taxable distributions) is below a certain level, benefits are not taxed. Within a certain range, the percentage of social security income that is taxable raises from 50% to 85%. It is never more than 85%. Some states do not tax social security benefits. Here is an IRS reference.
You do not have to have taxes withheld, but it is advisable to make estimated tax payments to the IRS, particularly if you would owe more than $1000 at tax time.
Former federal, state or local government employees need to take special care about government pension offsets. An employee who worked for a government for a time and did not make FICA contributions during that employment would not get credit for them in the computation of benefits.
Medicare benefits become available at 65. Apparently social security retirement recipients must enroll for Medicare at 65. Many companies are cutting retirement health insurance benefits, and many may stop them at 65. Thomas Sowell discusses the mandatory participation in these programs (from a libertarian political perspective) in the Baltimore Sun, March 2, 2006, "Boomers may be surprised to find 'something for nothing' doesn't add up."
A good definitive web reference for Social Security is POMS, the Program Operations Manual System, which spells out the rules for claims administration in specific scripts.
A good reference book is Stanley A. Tomkiel III, Attorney at Law, The Social Security Benefits Handbook (4th Edition). Sphinx: Chicago, 2004. ISBN 1572483954, which I review at this link.
Update: Nov. 15, 2007
NBC Today mentioned that when someone divorces before ten years, he or she loses access to the spouse's social security credits. So if near the ten year mark and divorce is contemplated, it's good to wait.