Month: April 2023

Social Security Overview

Posted on April 26, 2023 by fsykes - Social Security Benefits

What is it?

Social Security is a federal system of programs designed to protect individuals and families against economic hardship. Most Americans work in occupations covered by the Social Security system, and they will at some point in their lives receive Social Security benefits. The system is administered by the Social Security Administration and financed mainly by Social Security tax (FICA) withholding on wages and by taxes on self-employment income.

How does it work?

Social Security is a compulsory system

Social Security is a compulsory system. Employers, employees, and self-employed individuals are required to participate and pay taxes that finance Social Security benefits. As an employee, you pay a Social Security tax of 6.2 percent of your pay (matched by your employer) each pay period and you pay a Medicare tax of 1.45 percent of your pay (matched by your employer). If you are self-employed, you pay a 12.4 percent self-employment tax on your earnings to finance Social Security programs and you pay a 2.9 percent tax to finance Medicare.

The Social Security tax on your earnings applies only to earnings under the maximum earnings limit ($160,200 in 2023). No limit applies, however, to the Medicare tax on your earnings.

Your earnings are tracked by the Social Security Administration

Your employer reports your annual Social Security earnings to the Social Security Administration. If you are self-employed, the IRS reports your earnings. They are compiled on a record known as a Social Security earnings record, which is identified by your nine-digit Social Security number. This earnings record is eventually used to calculate the amount of your Social Security benefit.

You receive benefits after meeting certain eligibility criteria

To be eligible to receive Social Security benefits, you must be insured under the system. To become insured, you have to work for a certain amount of time in an occupation covered under Social Security or be the spouse, ex-spouse, widow or widower, or parent of someone who has. You also have to meet the eligibility requirements specific to the benefit.

Social Security benefits

Retirement benefits

Providing retirement benefits was a key provision of the Social Security Act of 1935. Older Americans were especially financially vulnerable during the Great Depression, and Social Security was enacted partly to provide them with some continuing income after retirement. Today, although the scope of the program has been widened through amendments to include survivor, disability, and medical insurance benefits, Social Security remains synonymous with retirement benefits.

When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.”

Normal (full) retirement age is the age at which you can retire and receive full (unreduced) Social Security benefits. However, many people choose to receive Social Security retirement benefits early at age 62 (early retirement age). You can also retire and begin receiving benefits after full retirement age. If so, you are considered to be electing delayed retirement benefits. Electing early retirement benefits means that you will receive a reduced benefit, while electing delayed retirement benefits means that you will receive a delayed retirement credit and thus a higher benefit.

Disability benefits

Most people don’t expect to become disabled and are unprepared when they are unable to work due to illness or injury. The fact is that you are much more likely to become disabled than to die during your earning years. Because eligibility standards are strict, Social Security disability benefits may not offer the comprehensive protection you need. However, these benefits can help protect you and your family from financial devastation when you can’t work for a year or more. In general, to receive Social Security disability benefits, you must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to last for at least 12 months or result in your death.

Benefits for family members

Some of your family members may be eligible for benefits based on your earnings record if you are receiving Social Security retirement or disability benefits. Benefits are generally paid to family members who relied upon your income for support. Benefits paid to family members are based upon your primary insurance amount (PIA) and are paid in addition to the benefit you receive. The following chart outlines who these family members might be, what benefits they may be entitled to receive, and the basic conditions they must meet to be eligible for those benefits:

Beneficiary	Minimum Age	Insured Status	Conditions	Amount of Benefit
Spouse of retired worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Worker must be fully insured. Spouse does not have to be insured	Worker must be receiving retirement benefits before spouse is eligible	50% of the worker’s PIA, subject to early retirement reduction, if applicable
Divorced spouse of worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Marriage must have lasted at least ten years before final divorce date. Remarriage may affect benefit	Worker does not have to be receiving retirement benefits but must be 62 or older	Usually 50% of the worker’s PIA, subject to early retirement reduction, if applicable
Child of retired worker	No minimum age but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22	Worker must be fully insured	Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried	Each child receives 50% of worker’s PIA. Family maximum, however, may limit this benefit

Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor benefits.

Survivor benefits

If you die and you were currently or fully insured under Social Security, your surviving spouse, ex-spouse, children, or dependent parents may be eligible to receive Social Security benefits based on your earnings record. The following chart outlines those who may be eligible for benefits and under what conditions.

Beneficiary	Age	Insured Status of Worker	Conditions
Spouse of worker (no dependent child)	60 or over (or if disabled, 50 or over)	Fully insured	Must have been married to the worker for nine months before worker died (unless death was accidental or military-related) or be parent of worker’s natural or adopted child
Spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(er)’s benefits
Divorced spouse of worker (no dependent child)	Age 60 or over (if disabled, age 50-59)	Fully insured	Must have been married to the worker for at least ten years
Divorced spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(ER)’s benefits as a divorced spouse
Dependent child of worker	Age 18 or under, or 19 if full-time elementary or secondary school student. If child is disabled, can be over 18 if disability began before age 22	Fully or currently insured	Must be unmarried
Dependent parent(s) of worker	Age 62 or above	Fully insured	50% or more of the parent’s support must have been furnished by worker

How much will you receive from Social Security?

The amount of Social Security benefit you receive is based on your Social Security earnings record. Your earnings are averaged according to a formula and then indexed. The resulting figure is called your primary insurance amount (PIA). Once your PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
Your widow or widower is full retirement age
You are disabled

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you retire early, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Mr. Jones retired at his full retirement age after working for many years. His PIA is determined to be $1,176. He will receive the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check will be $1,176. His wife also plans on retiring when she reaches her full retirement age. Since her own PIA is less, when she retires she will be entitled to 50 percent of his PIA, so her monthly benefit check will be $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Benefit	Requirements	Amount
Retirement	Full retirement age	100% of PIA
Retirement	62 or above, but less than full retirement age	PIA reduced by 5/9 of 1% for each month under full retirement age, and by 5/12 of 1% thereafter
Disability	None	100% of PIA
Spouse’s Benefit	Caring for dependent child	50% of PIA
	Full retirement age	50% of PIA
	Age 62 or above, but less than full retirement age	50% of PIA further reduced by 25/36 of 1% for each of the first 36 months under full retirement age, and by 5/12 of 1% thereafter
Child’s Benefit	Child of retired or disabled worker	50% of PIA
Child’s Benefit	Child of deceased worker	75% of PIA
Mother’s or Father’s Benefit	Child must be under 16 or disabled	75% of PIA
Widow(er)’s Benefit	Full retirement age	100% of PIA
Widow(er)’s Benefit	Age 60 or above, but less than full retirement age	Reduced; 71½% of PIA or more
Disabled Widow(er)’s Benefit	Starting at age 50-60	71½% of PIA
Parent’s Benefit	One dependent parent; two dependent parents	82½% of PIA; 75% of PIA (each)

Getting the most from the Social Security system

To get the most out of Social Security, you have to make some decisions. Deciding when to retire and begin receiving benefits is important because the age at which you elect to begin receiving benefits can greatly affect your monthly benefit and your overall lifetime benefit. You’ll also need to decide whether you want to work after you begin receiving benefits, and if so, determine how your wages will affect your benefit. Finally, if you are a business owner or a self-employed individual, you need to consider how you can minimize your Social Security payroll taxes.

Several benefit calculators are available on the Social Security website (ssa.gov) that can help you estimate your future retirement, disability, and survivor benefits. You can also visit the website to sign up for a my Social Security account that gives you access to your Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You may also call the Social Security Administration at (800) 772-1213 if you have questions.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Minimizing Your Social Security Payroll Tax/Self-Employment Tax

Posted on April 24, 2023 by fsykes - Business Owners, Social Security Benefits

What is it?

If you work in a job covered by Social Security, you pay Social Security payroll taxes on your earnings (your tax is matched by your employer). If you are self-employed, you pay a self-employment tax. These taxes finance Social Security benefits, including retirement, survivor’s, disability, and Medicare. Like many people, you might get more back in benefits than you pay in Social Security taxes, but not necessarily. For example, you may never need to use all of the benefits you’re entitled to, or you may be entitled to a greater benefit based on someone else’s earnings record. If you think that you will contribute much more in payroll taxes than you will receive in benefits, you can try to minimize the Social Security taxes you pay.

Understanding how Social Security payroll taxes and self-employment taxes finance your benefits

If you work in covered employment, Social Security payroll taxes are paid by both you and your employer

When you work for an employer, you pay a tax to finance Social Security benefit programs. This tax is called FICA (Federal Insurance Contributions Act), and your employer deducts the tax directly from your paycheck. For each contribution you make, your employer contributes an equal amount.

If you’re self-employed, you pay a self-employment tax on your earnings

If you’re self-employed, you’re both the employer and the employee of your business, so you’re required to pay a self-employment tax equal to the combined amount of payroll taxes employers and employees pay. You pay this tax when you file your annual tax return with the IRS or in estimated tax payments throughout the year.

The Social Security Administration (SSA) distributes your taxes to three funds

The taxes you pay are distributed to the three trust funds that pay benefits: the Old-Age and Survivors Insurance Trust Fund (OAS), the Federal Disability Insurance Trust Fund (DI), and the Federal Hospital Insurance Trust Fund (HI). Even though you contribute to three funds, the OAS and the DI are combined for taxation purposes. The resulting OASDI tax pays retirement (old-age), survivor’s, and disability benefits, while the HI pays Medicare benefits.

How much tax do you pay?

When you work for an employer–If you’re an employee who works in a job covered by Social Security, you pay a total tax of 7.65 percent to Social Security. Of this tax, 6.20 percent goes to the OASDI fund that pays retirement, survivor’s, and disability benefits, and 1.45 percent goes to the HI (Medicare) fund. However, not all of your earnings are subject to Social Security taxes; any income you earn over the maximum earnings limit (in 2023, $160,200) is exempt from the OASDI tax. This means that in 2023, the maximum OASDI tax you will pay (no matter what your income) is $9,932.40 (assuming a tax rate of 6.20 percent). The amount of HI tax you might pay is unlimited, because no portion of your income is excluded from this tax.

If you work for more than one employer during the year and earn more than the maximum earnings limit for the year, it’s possible that more than the maximum OASDI tax will be paid, because each employer is responsible for withholding the employee’s tax and paying the employer’s tax up to the maximum earnings base. If so, you’re entitled to a refund of your overpayment.

When you’re self-employed–If you’re self-employed, you pay a 15.3 percent self-employment tax on your self-employment income. Since 1990, 92.35 percent of all net earnings from self-employment has been taxable, unless the profession is not covered by the Social Security Act or unless the net income from self-employment is less than $400. Like wages from an employer, any income you earn over the maximum earnings limit is exempt, and no portion of your net earnings from self-employment is exempt from HI tax.
When you’re the employer–If you’re an employer who pays the wages of individuals covered by Social Security, you must contribute an amount equal to 6.20 percent of your employee’s salary to the OASDI fund (up to the maximum limit) and an amount equal to 1.45 percent of your employee’s salary to the HI fund.

You may also owe an additional Medicare payroll tax of 0.9% if your earnings (together with your spouse’s earnings if you file jointly) and/or net self-employment income exceed a certain threshold amount for your filing status.

Who may benefit from minimizing Social Security payroll taxes?

Business owners–If you own a business, you may benefit from minimizing payroll taxes for two reasons:

Business owners must pay the employer share of the FICA tax (7.65 percent of the wages of each covered employee).
Business owners often have higher than average earnings (and thus may fall into the category of people who do not collect as much in benefits as they pay in Social Security taxes).

A person eligible to receive simultaneous Social Security retirement benefits

You may be eligible for both a worker’s retirement benefit based on your own earnings (a benefit equal to 100 percent of your primary insurance amount, PIA) and a spousal retirement benefit based on your spouse’s earnings (a benefit equal to 50 percent of his or her PIA). When you elect to receive retirement benefits, you must apply for both types of benefits at the same time. You will receive a combination of your own benefit and your spousal benefit that equals the higher of the two. Your own benefit is always paid first.

Mary and Larry want to begin receiving retirement benefits. Mary is eligible to receive a worker’s retirement benefit based on 100 percent of her PIA. Her benefit will be $1,000. Larry is also eligible to receive a worker’s retirement benefit equal to 100 percent of his PIA. His benefit will be $450. However, Larry’s spousal benefit, based on Mary’s PIA (50 percent of her PIA, or $500), is more than the benefit he would receive based on his own PIA. So Larry will receive his own $450 benefit plus $50 of his spousal benefit. All the payroll taxes he’s paid over the years will not affect his own Social Security retirement benefit.

A person who has maximum earnings in each of the earnings years that will be used to calculate his or her Social Security retirement benefit

Usually, your 35 years of highest earnings are used to calculate your Social Security retirement benefit. If you have worked at least 35 years and earned as much as the maximum earnings amount in each of those years, you won’t be able to increase your Social Security benefit by working longer. However, if you do work longer (and you may have to, if you’re not yet eligible to receive retirement benefits), you must still pay Social Security taxes on your earnings.

Who may not benefit from minimizing Social Security payroll taxes?

Not everyone should consider using a strategy to minimize Social Security payroll taxes. In particular, the following people will likely not benefit from minimizing payroll taxes:

Individuals who have low lifetime earnings

The Social Security benefit formula favors individuals with low lifetime earnings, and they’re more likely to receive a large Social Security retirement benefit in proportion to the amount they contributed to the system through payroll taxes. In addition, if they want to increase their benefit, they may need to earn more and pay more taxes in order to increase their average indexed monthly earnings (AIME) on which their benefit is based.

Workers covered by Social Security whose spouses are not

If you’re covered by Social Security and elect to begin receiving benefits, your spouse may receive a spousal retirement benefit equal to 50 percent of your retirement benefit (at normal retirement age), even if he or she has never worked outside the home or in Social Security covered employment. This means that the return on your payroll taxes is increased by 50 percent. It’s likely that you will receive back in benefits what you have contributed through payroll taxes. In addition, even if you did attempt to minimize your payroll taxes, you may affect not only your benefit but your spouse’s benefit as well.

Strategies that may be used to minimize payroll taxes

The following table lists strategies that can be used to minimize payroll taxes and who might be able to use each strategy:

	Who Might Benefit from Using This Strategy
Strategy	Business Owner	Person Eligible to Receive Simultaneous Benefits	Person with 35 Years of Maximum Earnings
Reduce spousal compensation	Yes	Yes	No
Bunch earnings	Yes	No	No
Replace compensation with nontaxable fringe benefits	Yes	No	Yes
Reduce earnings in excess of the maximum earnings base	Yes	No	Yes
Create exempt family employment	Yes	Yes	No
Restructure business entity	Yes	No	Yes

Strengths

The money saved in payroll taxes can be invested elsewhere–If you save money in payroll taxes, you can take that money and invest it in another retirement plan.

Tradeoffs

When you minimize the amount of Social Security taxes that you pay, you may also limit the benefit you receive

Minimizing your Social Security taxes may limit your Social Security benefits or the benefits paid to your family members. For example, when you own a business and limit compensation paid to a spouse, he or she may not be eligible to receive Social Security disability benefits in the future. In addition, if you and your spouse divorce before 10 years of marriage, your spouse won’t be eligible for any benefits based on your earnings record. Any strategy you use to minimize Social Security payroll taxes should take into account your whole financial picture. Because this is complicated, you may want to consult a financial professional before undertaking the strategy.

Business planning strategies may raise the ire of the SSA or the IRS

The SSA and the IRS may closely scrutinize any questionable business reorganization. For example, if you decide you want to create exempt family employment, you must ensure that the family members you pay are doing real work for you and that you’re paying them a reasonable wage. Otherwise, the SSA or the IRS may disallow your business arrangement.

Tax considerations

Self-employment tax is deductible

When you file your federal income tax return, you can deduct one-half of the self-employment tax you paid that tax year. (Note, though, that you won’t be able to deduct any portion of the additional Medicare payroll tax if you’re subject to it.)

Strategies to minimize Social Security payroll taxes may affect your income taxes

Certain strategies you use to minimize your payroll taxes (such as restructuring a business entity) may also affect your income taxes. You should consult a tax professional or financial professional before undertaking any tax strategy.

Questions & Answers

If you hire an independent contractor, do you have to deduct Social Security payroll taxes from his or her wages?

No, but you should be sure he or she is actually working as an independent contractor. Does he or she work for other businesses besides yours? Do you have a contract with him or her? Does he or she set his or her own hours? If you can answer yes to these questions, then he or she may be an independent contractor who has to pay self-employment taxes. If he or she is an independent contractor, you’re not responsible for collecting Social Security taxes from his or her pay or paying the employer’s share of payroll taxes.

Thank you for taking the time to read this article. We hope it has given you some insight into Social Security. If you have any questions or would like more information, please feel free to contact us. We would love to hear from you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Estimating Your Social Security Benefits

Posted on April 19, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is estimating your Social Security benefits?

Estimating your Social Security benefits is particularly important when you are planning for retirement, although you may be interested in estimating survivor benefits or disability benefits as well. When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult, because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.” Estimating your Social Security benefits now will not only help you plan an effective long-term retirement strategy, but it can also help you understand what benefits might protect your family if you were to die or become disabled.

Obtaining a benefits estimate

You can estimate your retirement benefit online based on your actual earnings record using the Retirement Estimator calculator on the Social Security website, ssa.gov. You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Other benefit calculators are also available that can help you estimate disability and survivor benefits. You can also sign up to view your Social Security Statement that contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Understanding how your benefit amount is calculated

Your Social Security benefits will be based on your average lifetime earnings, expressed as your primary insurance amount (PIA). Calculating your PIA is complicated because some factors used in the benefit formula change annually. Instead of calculating it yourself, it’s easiest to obtain a benefit estimate directly from the SSA (see preceding section).

However, knowing how your PIA is calculated may be useful in benefit planning. Currently, the two PIA calculation methods most frequently used are:

The simplified old-start benefit method–This method is used if age 62, disability, or death occurred prior to 1979. It averages actual (not indexed) earnings and uses a table to calculate the PIA.
The wage indexing method–This method has been used since 1979. Indexing earnings is a way of adjusting them to reflect changes in wage levels throughout years of employment. This ensures that your benefits reflect increases in the standard of living. In general, the wage indexing method calculates your PIA by indexing your lifetime earnings up to and including the year you turn 59. Then, your highest earnings for a specific number of years (usually 35) are averaged and a benefit formula is applied to this figure to calculate the PIA.

Two other benefit computation methods are less frequently used:

“Special minimum” benefit tables are used sometimes to compute benefits payable to some individuals who have long periods of low earnings and who have at least 11 years of coverage.
Flat-rate benefits are provided to workers (and to their spouses or surviving spouses) who became age 72 before 1969 and who were not insured under the usual requirements.

How to calculate your PIA using the wage-indexing method

The wage indexing method can be used to calculate retirement, survivor’s, and disability benefits. However, the method used to calculate disability benefits is slightly different. The following discussion applies only to calculating your PIA for retirement and death benefits.

Follow these steps to calculate your PIA:

Count the number of years elapsed between 1951 (or the year you turned 22, if later) and the year you turned 61. If you were born in 1929 or later, this number will be 40.

Example(s): Peter retired from his job in 1992. He was 62. He turned 22 in 1952, so count the number of years between 1952 and 1991 (the year he turned 61). Forty years have elapsed.

Use the number of elapsed years to determine the number of benefit computation years. To do this, subtract five from the number of computation elapsed years. This figure will be used to calculate your average indexed monthly earnings (AIME). If you were born in 1929 or later, this number will be 35.

Example(s): Peter’s computation elapsed year figure is 40. 40-5=35. So, Peter’s benefit computation year figure is 35.

Use your earnings record to calculate your indexed earnings. To do this, use the appropriate table to determine what the indexing average wage was or will be in the year you turn 60. Then, look to see what the indexing average wage was in the year you are indexing. These figures become part of an indexing ratio applied to each year of earnings starting with 1951 and ending with the year you turn 59. (Earnings before 1951 are generally disregarded. Earnings in the year you turn 60 (your indexing year) and earnings in all later years are considered in calculating your PIA, but they are not indexed.) The indexing ratio can be expressed as the actual earnings in the year being indexed multiplied by the indexing average wage in the year you turned 60 divided by the indexing average wage in the year being indexed. The result will equal your indexed earnings for the year being indexed.

Example(s): Peter started working in 1951 and retired in 1992. For each year starting with 1951 and ending with 1989 (the year he turned 59), calculate his indexed earnings. His indexing year is 1990 (the year he turned 60). For example, Peter’s earnings in 1965 were $2,000. In 1965, the indexing average wage was $4,658.72. In 1990, the indexing average wage was $21,027.98. Calculate his 1965 indexed earnings:

$2,000 multiplied by $21,027.98 divided by $ 4,658.72 = $9,027.36

Tip: Actual earnings are earnings credited to an individual’s Social Security record. However, each year’s actual earnings are subject to a maximum earnings limit. If your earnings for the year you are indexing exceed the maximum limit, then you must substitute the maximum earnings limit amount for your actual earnings amount in the ratio.

Example(s): In 1965, the maximum earnings limit was $4,800. Had Peter’s actual earnings exceeded that amount, he would have replaced his actual earnings figure in the ratio with $4,800 to calculate his indexed earnings for 1965.

Once you have indexed your earnings for each year you have worked before age 60, you will be able to use those figures to calculate your average indexed monthly earnings (AIME).

Calculate your AIME by selecting your highest earnings for the benefit computation years (including any earnings not subject to indexing). Add these up and divide by the total number of months elapsed during these years.

Example(s): Peter had 39 years of indexed earnings and two years of earnings (1990 and 1991) not indexed but included in the calculation. Select his 35 highest earning years. The earnings for these years total $950,000. Divide this figure by 420 months (35 x 12). His AIME is $2261.90.

Calculate the PIA for the year you attain age 62 by applying percentages to certain dollar amounts of the AIME. The percentages are fixed, but the dollar amounts (called bend points) are adjusted each year for inflation.

Example(s): Peter attained age 62 in 1992. His PIA would be calculated using 1992 bend points–90 percent of the first $387 of his AIME, and adding 32 percent of the AIME in excess of $387 through $2,333, and adding 15 percent of the AIME in excess of $2,333. So, Peter’s PIA is calculated to be the sum of $348.30 (90 percent of $387) plus $599.65 (32 percent of $1,873.90) or $947.95, rounded to the next lower multiple of 10 cents, $947.90.

Bend points make calculating your future PIA difficult because the bend points for each year are only published on or before November 1 of the preceding year. For 2021, the bend points are $996 and $6,002.

Adjust your PIA to account for changes in the cost-of-living allowance (COLA) yearly.

Example(s): If Peter’s PIA was $947.90 when he retired in October 1992, then his PIA was adjusted for COLA in December 1992, and his January 1993 benefit check reflected the change.

Using your PIA to determine your benefit amount

Once the PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
You are a widow or widower who is at least full retirement age
You are a disabled worker

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you elect to receive early retirement benefits, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Example(s): Mr. Jones retired at age 66 (his full retirement age) after working for many years. His PIA was determined to be $1,176. He receives the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check is $1,176. His wife retired at age 66 as well (her full retirement age). Since her own PIA was less, she decided to base her retirement income on her husband’s PIA. She is entitled to 50 percent of his PIA, so she receives a monthly benefit check of $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Factors that can increase or decrease your benefit

Early retirement

If you elect to receive retirement benefits early (before full retirement age), your benefit will be reduced proportionately. You can elect to receive retirement benefits as early as age 62. For each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would at age 66.

Delayed retirement

If you delay receiving retirement benefits past full retirement age, you will receive a higher benefit when you retire. Late retirement may increase your average earnings (which may, in turn, increase your benefit). You will also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is paid in addition to your regular benefit amount. It does not affect your PIA upon which your benefit is based.

This credit varies depending on the year in which you were born and how many months or years after full retirement age you retire (up to the maximum age of 70). For example, if your full retirement age is 67, you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 24 percent greater than it would have been if you began receiving retirement benefits at age 67.

Earnings during retirement

Any income you earn after you retire must be reported to the Social Security Administration and may temporarily reduce your retirement benefit if you have not yet reached full retirement age. However, some of your annual earnings are exempt and won’t affect your benefit.

Simultaneous benefits

Occasionally, you may be entitled to receive benefits based not only on your earnings record, but on someone else’s as well. This often happens when a married couple retires.

Example(s): Mr. Jones is not planning on retiring and receiving Social Security retirement benefits until he is 68. His PIA is $1,176. His wife, who is 63, wants to retire now, but she can’t begin receiving a spouse’s retirement benefit until her husband begins receiving his retirement benefits. However, since she is already over the age of 62, she can receive retirement benefits based on her own PIA. Her benefit, adjusted for early retirement, will be $400. Later, when her husband retires, she can receive her own retirement benefit and a spouse’s benefit of $188, the difference between her own worker’s benefit ($400) and the spouse’s benefit she would have received based on 50 percent of her husband’s PIA ($588).

A family maximum benefit applies

Your family may receive benefits based on your earnings record. There is, however, a limit to the amount of monthly benefit that can be based on an individual’s Social Security record. The limit varies but generally ranges from 150 to 180 percent of your PIA. Benefits to family members may be reduced if they exceed the family maximum. The formula used to compute the family maximum is similar to that used to compute the PIA.

If you are interested in our Social Security planning options, learn more here! We understand that retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Bunch Earnings to Save Social Security Taxes

Posted on April 17, 2023 by fsykes - Business Owners

What is it?

As a business owner, you may save Social Security taxes (self-employment taxes) by postponing or accelerating income so that your earnings are bunched in alternate years. This strategy works if you are self-employed and your annual earnings are at or near the maximum earnings base because your earnings count for Social Security purposes in the year they’re received, not in the year they’re earned. Since earnings over the maximum earnings base are taxed at a lower rate than earnings at or under the maximum earnings base, you can save payroll taxes if you bunch your earnings so that they exceed the maximum earnings base in alternate years.

How does it work?

Understanding self-employment taxes

If you’re self-employed, you pay a self-employment tax equal to 15.3 percent of your earnings to finance Social Security. Of this tax, 12.4 percent goes to OASDI (Old-Age and Survivor’s Insurance Trust Fund and Federal Disability Trust Fund) to finance your retirement, survivor’s, and disability benefits, while 2.9 percent of this tax goes to HI (Federal Hospital Insurance Trust Fund) to finance your Medicare benefits.

Understanding the maximum earnings base

The maximum earnings base is the maximum amount of earnings that are subject to the OASDI tax. This amount is also the maximum amount of earnings credited to your Social Security record. The maximum earnings base (in 2023, $160,200) is determined annually.

How the maximum earnings base affects your self-employment tax

You don’t have to pay the OASDI tax on any earnings you have in excess of the maximum earnings base. However, you do have to pay the HI tax on earnings in excess of the maximum earnings base.

Caution: You may also owe an additional Medicare payroll tax of 0.9% if you have high earnings. If you’re self-employed, this additional tax applies to net self-employment income that exceeds a certain threshold amount for your filing status.

How to do it

Estimate your earnings

Estimate your earnings for the current tax year. If you are able, project your earnings for the next tax year as well. Is it likely that your earnings will approach or exceed the maximum earnings base in either tax year? If the answer is no, bunching your earnings isn’t likely to benefit you in terms of Social Security taxes. If it appears that your earnings may reach or exceed the maximum earnings base in one year but not the other, however, it may make sense to try to shift earnings into the tax year in which you’ll exceed the maximum earnings base.

Accelerate your earnings

Your earnings from self-employment count for Social Security purposes in the year they’re received rather than in the year they’re actually earned. If you believe that your earnings will exceed the maximum earnings base in the current tax year but not the following tax year, you may want to consider accelerating earnings into the current year. Why? Any self-employment earnings you have that exceed the maximum earnings base in the current year will be subject to the HI portion of the self-employment tax, but not the OASDI portion. Since your earnings in the following tax year will likely not exceed the maximum earnings base, and thus will be subject to both the HI portion and the OASDI portion of the self-employment tax, you can benefit from accelerating your earnings into the current year.

Postpone your earnings

If you believe that your earnings will reach or exceed the maximum earnings base in the following tax year but not the current tax year, you may want to consider postponing earnings into the following year. Again, by doing so you could avoid the OASDI portion of the self-employment tax on the earnings deferred.

Consider your overall tax situation

Bunching your earnings from self-employment may help you save Social Security taxes, but you should consider the overall tax implications. For example, if your earnings in one year are high enough, you may be subject to the additional Medicare payroll tax and the Medicare investment income surtax, or even be pushed into a higher income tax bracket, among other things. Consult a tax professional for help with your individual tax situation.

If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Determining Your Retirement Income Needs

Posted on April 12, 2023 by fsykes - Retirement Benefits

What is it?

Determining your retirement income needs is a process that helps you identify your retirement planning needs based on your desired standard of living and the resources you’ll have available. Today, you can typically no longer rely on Social Security benefits and a company pension check to fulfill all your retirement income needs. Social Security benefits will probably satisfy only a fraction of your overall retirement income needs, and generous company pensions have largely been replaced in many cases with employer-sponsored retirement plans that are funded largely with employee dollars. A successful and rewarding retirement requires you to plan ahead in order to help ensure that you have sufficient retirement income to last you for your entire retirement. Determining your retirement income needs requires a discussion of the various stages of retirement planning, including preretirement, the transition into retirement, and retirement.

Preretirement

Your retirement is sometime in the future–maybe 10 years, maybe 30 years down the road. If so, you’ve got a little breathing room. The single biggest mistake that you can make right now is to put off thinking about your retirement. The more time you have, the more you can hope to accomplish, so the sooner you start, the better off you should be. You’ve got a lot to think about. There are many factors to consider, including your expected sources of retirement income, your retirement income needs, and how you can use those sources of retirement income to fulfill your retirement income needs.

The transition into retirement

If retirement is right around the corner, you’ve got some important decisions to make. If you haven’t done so, spend some time forming a good picture of your retirement financial position. To the best of your ability, estimate your retirement income and expenses as discussed in preretirement. As retirement approaches, though, you have to consider the impact of when you retire. Early retirement and delayed retirement, through choice or necessity, can raise certain issues you’ll want to understand.

Retirement

When you retire, there are still some retirement issues that you may need to consider. These include the effect of working during your retirement and the impact of other sources of income on your Social Security benefits. Also, required minimum distributions from your IRA or employer-sponsored retirement plan may be an issue.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Use of Government Benefits

Posted on April 10, 2023 by fsykes - Family Benefits, Social Security Benefits, Widow Benefits

What is it?

Introduction

If you’re like most people, you feel you should take steps to make sure that your spouse and other survivors will have sufficient resources if you die. If you are young and healthy, however, you may not put too much energy into worrying about what will happen to your loved ones if you die prematurely. But you may also realize that anything can happen to anyone, that you’re not immune from unexpected tragedy, and that you should be prepared for the worst. To minimize the risk of loss associated with premature death and to plan for the future of their survivors, most people purchase some form of life insurance. Others self-insure by saving or earmarking existing assets, while still others use some combination of life insurance and self-insurance. Another way to provide adequate resources for your survivors is through government benefits.

Social Security survivor benefits

For many people, the major source of government benefits for your survivors will be Social Security. In addition to regular Social Security benefits that are payable to most retirees, the federal government also provides survivor benefits payable under certain conditions to specified survivors of a retired or nonretired employee who dies. Generally, the survivors who may be entitled to receive these benefits at your death include your spouse, your former spouse, your dependent children, and your dependent parents. Usually payable in regular monthly installments, these survivor benefits will vary, based on your average lifetime earnings, the recipient(s) of the benefits, and other factors. Whatever the size of the benefits, Social Security survivor benefits provide a valuable means of financial support for the people you care about if you meet with an untimely end.

As with Social Security retirement benefits, your survivors’ eligibility for survivor benefits will depend on whether you are even part of the Social Security system. That is, you need to have contributed at least some of your earnings through payroll tax deductions to the federal government’s Social Security fund. As you contribute to the fund, you accumulate units of credit, and generally, you have to earn a certain number before your survivors can be eligible for benefits. Social Security survivor benefits are, in effect, a kind of pension or entitlement program that you become part of by paying into a fund. In this sense, the survivor benefit system differs fundamentally from regular life insurance that you buy, even though both are designed to provide funds that your survivors can draw on if you die prematurely.

Lump-sum death benefit

If you die fully or currently insured, a one-time lump-sum death benefit of a maximum of $255 is payable at your death if you are survived by a spouse who was living in the same household as you at the time of your death or by a spouse or dependent children eligible to receive Social Security benefits for the month of your death based on your earnings record. In addition, the death benefit may be payable under other circumstances as well.

While Social Security survivor benefits and the lump-sum death benefit can provide supplemental resources for your survivors, they will not be sufficient by themselves in most cases. You will probably need to take additional steps to ensure that your survivors have enough money to carry on and meet their various expenses if you die prematurely. Among others, these may include personal life insurance and earmarking existing assets as a kind of personal death benefit fund.

You should consult your financial planner and other resources to determine the particular strategy or set of strategies most appropriate for your circumstances.

What other types of government benefits are there?

Benefits for federal government employees

If you are a federal government employee who qualifies in terms of length of service, your death may trigger benefits to certain of your survivors under either of two retirement systems for federal employees: the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS). The benefits, which may be subject to restrictions based on whether you are also eligible for Social Security, are generally payable either in a lump sum or in regular installments (known as a survivor annuity). They are also payable regardless of whether you die before or after retirement.

Benefits for military personnel

If you are in the military, your survivors may be eligible for survivor benefits under the Survivor Benefit Plan in the event of your death. This plan provides survivor benefits for eligible widows, widowers, and dependent children of retired military personnel. You may be eligible for the Survivor Benefit Plan if you are married or have a dependent child when you become entitled to retired pay (although you may elect not to participate). The plan may provide for a reduction in benefits if some of your surviving beneficiaries are also eligible for Social Security benefits.

Your survivors may also be eligible for dependency and indemnity compensation, a death pension, and other benefits.

Railroad survivor benefits

If you are a railroad employee or a retired railroad employee, your survivors may be eligible for one or more railroad survivor benefits if you die. Specifically, the Railroad Retirement Act may provide survivor annuities for certain of your survivors. You must have completed 10 years of railroad service and have had a current connection with the railroad industry at the time of your death. Your widow(er), surviving divorced spouse, or remarried widow(er) may receive an annuity based on such factors as age, disability, and whether he or she is caring for a child of yours. Subject to certain restrictions, other railroad survivor annuities may be payable to your dependent children, grandchildren, and parents.

Workers’ compensation

If you die as a result of a job-related injury or illness, your survivors may be entitled to receive workers’ compensation survivor benefits based on your wages (subject to minimums and maximums) and on the number of your surviving dependents. Your survivors may also receive money for your burial expenses. Benefits are usually payable to your surviving spouse as long as he or she does not remarry, and to your dependent children up to a certain age.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Supplemental Security Income (SSI) Benefits

Posted on April 5, 2023 by fsykes - Social Security Benefits

What is Supplemental Security Income (SSI)?

The Supplemental Security Income program (SSI) is a cash assistance program designed to provide minimum income to people who are aged, blind, or disabled. Although your eligibility for Social Security retirement and disability benefits is based on how long you’ve worked and how much you’ve earned during your lifetime, your eligibility for SSI is based on financial need. If your resources and income fall below certain levels, you may be able to receive SSI benefits. Often, people who get SSI also get other government assistance as well, such as food stamps and Medicaid. However, SSI is a program of last resort; before applying for it, you must file for all other benefits for which you may be eligible.

Who is eligible for SSI benefits?

The following individuals who have income and resources less than a certain limit may be eligible for SSI benefits:

An aged person (age 65 or over).
A blind person regardless of age: A blind person is defined as a person whose vision, with use of a corrective lens, is 20/200 or less or who has tunnel vision of 20 degrees or less.
A disabled person regardless of age: A disabled person is defined as a person who has a medically determinable physical or mental problem that keeps him or her from working and that is expected to last for a year or more or end in death. The definition for a disabled child differs slightly, since most children don’t work. A child will be considered disabled if he or she is not working and has an impairment that is as severe as one that would disable an adult. The medical requirements for disability and the process used to determine disability are the same for SSI and the Social Security disability program.

Disabled Social Security and SSI beneficiaries have the chance to participate in vocational rehabilitation, employment, or other support services from approved providers. Most beneficiaries become eligible for the SSA’s Ticket to Work Program when they start receiving Social Security disability benefits or SSI benefits based on disability. This program is free and voluntary, and provides support services that will help you return to work. Other work incentives are also available.

How much money can you make and still get SSI?

Income limit

You can have a certain amount of income and still be eligible for SSI. Under SSI, income includes earned income (earnings from wages and self-employment), unearned income (e.g., retirement benefits, pensions, and interest), in-kind support (e.g., gifts of food, shelter, and clothing), and deemed income (income from a spouse, parent, or sponsor used to compute your benefit). Not all of your income is countable, however. For example, when figuring your eligibility for benefits, some income is excluded, including (but not limited to) the following types of income:

The first $20 of most income received in a month
The first $65 a month earned from working and half the amount over $65 (if there is no unearned income, $85 a month of earned income plus half the amount over $85)
Food stamps
Most food, clothing, and shelter received from private nonprofit organizations
Most home energy assistance
Earned income you use to pay for items or services you need to work if you are disabled
Earned income you use to pay for expenses caused by working if you are blind

If only one member of a couple living together in the same household is eligible for SSI, the ineligible member is considered in the calculation. If an unmarried child under 18 is living at home, some of the parents’ income may be used to determine the child’s eligibility.

Income limits are subject to annual cost-of-living related increases.

For more specific information on SSI income limits and program rules, visit the Social Security Administration’s website, ssa.gov.

Resources limit

You cannot have resources (cash or other liquid assets and real or personal property) in excess of $2,000 if you are an individual with no spouse or in excess of $3,000 if you have a spouse. Everything you own, however, is not considered a resource. For example, these (and other) things are not considered resources:

The home you live in and the land it’s on if you own it as your principal residence
Personal household goods
Your car, when used to provide necessary transportation
Life insurance policies with a combined face value of $1,500 or less
Burial plots for you and members of your immediate family
Up to $1,500 in burial funds for you and up to $1,500 for your spouse
Certain items you use for work or to earn income if you are blind or disabled
Up to $100,000 of funds in an Achieving a Better Life Experience (ABLE) account

For example, these things are considered resources:

Real estate (other than your primary residence)
Cash
Bank accounts
Stocks and bonds

If only one member of a couple is eligible, the couple’s resources are still considered together, and the couple’s limit still applies. If an unmarried child under age 18 is living at home and the parents’ resources exceed $3,000 (for a couple), the excess can be included with the child’s income to determine eligibility.

How much money will you receive from SSI?

How much you receive will depend on where you live

Your basic federal SSI benefit will be the same in Georgia as it would be in Idaho, because your benefit is based on the same criteria everywhere. The maximum federal benefit for 2023 is $914 for an eligible individual and $1,371 for an eligible individual with an eligible spouse. However, you might receive more than this because most states add money to your basic benefit. This supplement will vary because of differences in regional living costs and state-defined eligibility criteria. Your state may send you the supplement separately or combine it with your federal benefit. To find out if your state pays supplementary benefits and how much it pays, call the Social Security Administration at (800) 772-1213. In some cases (for example, if your family has money coming in besides the SSI benefit) you may get less than the basic benefit.

Some months, you may not receive a benefit check

Your eligibility for SSI benefits is determined on a month-by-month basis. Your countable income is figured by adding up all your earned and unearned income that can’t be excluded by law or under the Social Security Act. Then, that amount is compared to the federal benefit rate. If the FBR is less than your countable income, you won’t receive a federal SSI check that month.

Your federal benefit amount is based on your monthly income two months ago

Your monthly payment is usually based on your countable income from the second month before the current month. This countable income is subtracted from the current month’s FBR to determine your SSI payment.

If you are eligible for a state supplement payable with your federal check, the supplement will be calculated by subtracting any excess countable income. In some months, you may be eligible only for the state supplement. States may vary payment amounts based on living arrangements or geographical area and may disregard some income when calculating payments.

Other factors that will affect your SSI benefit

Federal and state maximum benefits: You can’t receive a benefit check in excess of federal and state maximum benefits. Each state has its own maximum benefit.
Your living arrangements: Your basic SSI payment may be reduced by up to one-third if you live in someone else’s household and receive maintenance and support from that person. Maintenance and support is food, clothing, or shelter you receive and for which you do not pay.

While you are receiving SSI, what other benefits can you receive?

Medicaid and Medicare assistance: You can probably get Medicaid to help you pay health care expenses. If you get Medicare because you are age 65 or over, your state may assist you with paying your Medicare premiums if you have low income and few resources.
Social Services: You may be eligible for social services provided by the state, city, or county, such as homemaker services, meals, and transportation.
Interim payments: Some states make interim payments to individuals waiting for a decision on eligibility for federal payments.
Food stamps: You may be eligible for food stamps. If everyone in your household receives SSI, Social Security will help you prepare the application.
Social Security: If you qualify, you may be eligible for Social Security retirement or disability benefits as well as SSI. However, the income you receive from Social Security benefits will be used to determine your eligibility for SSI payments.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Claiming Survivor’s and Death Benefits

Posted on April 3, 2023 by fsykes - Social Security Benefits, Widow Benefits

What is it?

After the death of your spouse, you may be eligible to receive survivor’s benefits and death benefits from government sources, from your spouse’s employer, and from retirement plans.

Social Security benefits

Social Security survivor’s benefits

If your spouse (or former spouse) was self-employed or employed in a job where he or she paid Social Security payroll taxes, you may be eligible to receive Social Security survivor’s benefits. The following table illustrates the eligibility requirements for survivor’s benefits:

Beneficiary	Age	Insured Status of Worker	Conditions That Must Be Met
Spouse (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (age 50, if disabled) unless subsequent marriage ended, and must have been married to worker at least nine months just before worker died (unless death was accidental or military-related), or be the parent of the worker’s natural or adopted child
Spouse of worker (with dependent child who is entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried unless subsequent marriage ended, and is not already eligible to receive a larger benefit in another category
Divorced spouse of worker (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (or if disabled, before age 50), unless subsequent marriage ended, and was married to worker for at least 10 years
Divorced spouse of worker (with dependent child entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried (unless subsequent marriage ended) and is not already eligible for larger benefit in another category

How much you receive depends on your spouse’s lifetime earnings, how many other members of your family are receiving benefits, and what beneficiary category you fit into.

The amount of Social Security survivor’s benefit you receive will be reduced (even to zero) if you have earnings over the annual exempt amount, unless you are disabled. If you are under normal retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over the annual exempt amount (in 2012, $14,640).

Social Security death benefit

If you were living in the same household as your spouse at the time of his or her death and your spouse was fully or currently insured for Social Security benefits, you may be entitled to receive a $255 lump-sum death benefit from the Social Security Administration.

Who to contact for more information

Social Security benefits are not automatic; you must apply for them. Although the Social Security Administration (SSA) suggests that you apply for survivor’s benefits in the month of your spouse’s death, benefits may be paid retroactively. To apply for the death benefit, call the Social Security Administration (SSA) at (800) 772-1213 or contact your local SSA office.

Federal employees’ survivor benefits

Federal Employees Retirement System (FERS) benefits

If your spouse or ex-spouse was a civilian federal employee covered by FERS, you may be eligible to receive a survivor’s benefit. Benefits can be paid both to survivors of workers who die before retirement (whether employed by the government at the time of death or separated from government service but entitled to a deferred annuity) and to survivors of retirees (unless the retiree and his spouse elected not to pay for the survivor annuity). Benefits may be paid in the form of a monthly annuity, a lump-sum cash payment, or both, depending on how long the employee worked for the government and whether he or she was currently or formerly employed at the time of his or her death. The following table illustrates the eligibility requirements for FERS survivors’ benefits:

Beneficiary	Age	Conditions
Surviving spouse of worker employed at time of death	Any age	Must have been married to employee for at least nine months or must be the parent of a child of the marriage, or employee’s death must have been accidental
Surviving ex-spouse of worker employed at time of death	Any age	Must have been married to the employee for at least nine months, have not been remarried before age 55, and have a court order or approved settlement agreement providing that survivor annuity will be paid
Surviving spouse of retired worker	Any age	Must have been married to the employee for at least nine months or must be a parent of a child of the marriage, or the death of the retired employee was accidental and employee and spouse did not waive right to a survivor’s annuity
Surviving ex-spouse of retired worker	Any age	Must have been married to worker for at least nine months, have not been remarried before age 55, and have a court order or approved property settlement agreement. These conditions can be waived if worker elected to provide his or her former spouse with an insurable interest annuity at the time he or she retired

Civil Service Retirement System (CSRS) benefits

If your spouse or ex-spouse was covered under CSRS, you may be eligible to receive a survivor’s annuity paid until you die or remarry (unless you remarry after age 55). In general, eligibility requirements are the same as those under FERS, with one notable exception. While a former spouse of a FERS employee separated from government service may be entitled to a survivor’s annuity even if that employee dies before reaching retirement age, the former spouse of a CSRS employee will not be.

Survivor’s benefits for state government employees

Some state employees are covered under retirement programs (similar to CSRS) that serve as alternatives to Social Security. Instead of paying Social Security taxes, they contribute a portion of their paychecks (matched by the government employer) to a money market fund or investment fund that grows until retirement and then is paid out in the form of an annuity. If your spouse was a state or local employee, check with his or her employer for information about survivor’s benefits.

Social Security benefits may affect your FERS or CSRS benefit

Survivors’ benefits you receive under FERS or CSRS may reduce (or be reduced by) benefits you receive from Social Security.

Who to contact

Contact the Office of Personnel Management (OPM), 1900 E Street NW, Washington DC 20415, or call (202) 606-1800 to locate your nearest regional office. You can also access information (including benefit handbooks) via the Internet at the OPM website (www.opm.gov).

Military service members survivor’s and death benefits

Death gratuity payments

Survivors of members of the military who have been killed while on active duty may receive a $100,000 death gratuity payment fully tax free.

Burial-related expenses

Burial allowances are available to the survivors of servicemembers who die on active duty and to the survivors of some other veterans. The government provides free markers and headstones to some veterans, as well as some final honors such as flags, presidential certificates, and an honor guard. Almost all veterans are eligible for burial in a national cemetery.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation (DIC) provides a monthly pension to widows, widowers, dependent children, and low-income parents of some deceased active duty servicemembers and some disabled veterans (if disability was service-related). Beneficiaries receive a fixed monthly benefit that usually increases annually with inflation. If you need nursing home care or are housebound, DIC will also pay you an extra benefit. Receiving money from DIC will decrease the amount that you receive from another benefit plan, the Survivor’s Benefit Plan (SBP), but is not affected by (and does not affect) Social Security.

The Survivor’s Benefit Plan (SBP)

The SBP provides a monthly lifetime annuity payment to qualified widows, widowers, dependent children, and some ex-spouses who are survivors of a retired military servicemember. A retired servicemember automatically is covered by the SBP when he or she retires after 20 years of service, but may elect reduced coverage or no coverage for his or her survivors, if his or her spouse concurs. The annuity you will receive as a survivor depends on the amount your spouse designated when he or she retired.

Death pension

Available to qualified survivors of low-income veterans, the death pension provides a fixed monthly benefit that usually increases annually with inflation. The amount of monthly benefit a survivor receives depends on the survivor’s other income and whether other dependents reside with the survivor.

Educational assistance

Monthly educational assistance payments can be made to spouses and children of disabled veterans who die. These payments can help pay for college or university classes, secondary school programs, remedial education, apprenticeships, and other courses of study.

Home loans

The widow or widower of a service member who died on active duty or as a result of a service-connected illness or injury may qualify for a VA home loan to purchase a primary residence. The loan is issued by a financial institution but guaranteed by the federal government. The primary advantages of VA home loans are that they often require no down payment and because the loan is partially guaranteed by the federal government, no mortgage insurance payments.

Federal job preference

Survivors of servicemembers who died on active duty or as a result of a service-connected disability may receive ten extra points on the results of a competitive examination for a federal job.

Health insurance

The spouse or dependent child of a veteran who died as a result of a service-connected disability or who died on active duty may purchase government-backed health insurance called CHAMPVA. This health insurance costs less than insurance available from private sources because it is government-subsidized.

Who to contact to apply for benefits

For information or to apply for benefits, call the Department of Veterans Affairs (VA) at (800) 827-1000 or contact your nearest VA office.

Qualified benefit plans and IRAs

Qualified benefit plans

When your spouse dies, call his or her employer or plan administrator to ask about what benefits may be payable to you. Your spouse may have contributed to one or more plans designed to provide retirement income, including profit-sharing plans, 401(k) plans, 403(b) plans, stock option plans, Keogh plans, and thrift/savings plans. He or she may also have assets in a traditional defined benefit pension plan that was funded entirely through employer contributions. Different rules surround different plans, but in general, qualified pension plans must provide both pre-retirement survivor annuities and post-retirement survivor annuities. This means that even if your spouse died before retirement and was not yet vested in a qualified pension plan, you may be entitled to receive a survivor annuity (or other payment form) unless you waived that right at some point.

IRAs

If your spouse owned an IRA and named you as the beneficiary, you have several options in taking funds from the IRA. Your options include taking the proceeds of the IRA as a lump-sum distribution or rolling them over to your own IRA. If you elect a lump-sum distribution of your spouse’s IRA, you will not owe the normal 10 percent premature withdrawal penalty tax, even if you are under age 59½. However, if the funds come from a traditional IRA, the amount you receive will generally be included in your taxable income (qualifying distributions from Roth IRAs are tax free). Rolling over the IRA proceeds to your own IRA provides you with a great deal of flexibility and control. You can name your own beneficiary or beneficiaries, and can postpone taking distributions (distributions from traditional IRAs, though, generally must begin after age 70½). You should weigh your options carefully, using your income needs, expected return on investments, and tax consequences as a guide.

Questions & Answers

Does the former spouse of a federal employee who died while employed under FERS have any claim to his or her pension benefits?

Possibly. It depends on the terms of the divorce. A former spouse may have been awarded a court-ordered survivor’s annuity or may have the rights to an insurable interest annuity if his or her former spouse elected to provide one. He or she may also be eligible for Social Security survivor’s benefits based on the Social Security earnings record of his or her former spouse.

What should you do if you receive Social Security checks in your spouse’s name after his or her death?

Don’t cash them. The law requires that these checks be returned. Send them back to the Social Security Administration right away. For information on the procedure to follow, call the SSA at (800) 772-1213.

If you are already receiving Social Security benefits and your spouse dies, how will your spouse’s death affect your benefit?

An individual entitled to Social Security benefits may be eligible to receive a greater benefit as a widow than he or she would as a retiree. If so, then his or her Social Security benefit may be adjusted automatically.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.