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Social Security

Social Security Retirement Benefits

Social Security was enacted in 1935 to provide some relief to America’s destitute older citizens during the economic cataclysm known as the Great Depression. A direct descendant of that more limited effort, today’s Social Security program is in fact a group of related programs, each with its own eligibility and payment rules: retirement, disability, survivors and dependents benefits.

The best known of these programs is retirement, known formally as Old-Age and Survivors Insurance (OASI). Under this program, Social Security provides income to retirees, as well as benefits to a worker’s surviving spouse and to a retired worker’s children under age 18. As of September 2000, the program was issuing benefits to some 32 million retired workers and their dependents, as well as to nearly 7 million survivors of deceased workers.

Social Security benefits are financed primarily through dedicated payroll taxes paid by workers and their employers. Employees and employers split the 15.30 percent payroll tax equally, with employers paying 7.65 percent of an employee’s income, and the employee kicking in the same. Self-employed individuals pay the entire 15.30 percent payroll tax.

For most retired workers and their dependents, however, Social Security retirement benefits alone are not enough for them to maintain the standard of living they had before retirement. Although Social Security benefits are protected against inflation by annual Cost of Living Adjustments, the average retirement benefit for retirees is only about $955 a month, and the survivors of workers receive an average of only $920 a month (2005 figures). For 2005, the maximum monthly Social Security retirement benefit for a worker retiring at the full retirement age of 65 years and six months is $1,939.

Who Is Eligible?

Social Security retirement benefits are not based on need but rather on income earned during your earning life. The Social Security Administration (SSA) keeps a record of earnings over your working life and pays benefits that are based on the average amount earned, provided a minimum number of work credits have been accumulated. Only income on which Social Security tax is paid is considered in calculating these work credits.

To be eligible for Social Security benefits, a worker born after 1928 must have accumulated at least 40 quarters of work in “covered employment” (see below). A “quarter of coverage” generally means the three-month calendar quarter. In addition, you must earn at least $920 in a quarter (in 2005) for it to count. However, the SSA looks at how much you earned in a year and divides that figure by the minimum amount required to earn credit for a quarter. Thus, if you earn at least $3,680 in January and February of 2005 and don’t work the rest of the year, you will receive credit for four quarters of work ($3,680 ÷ $920 = 4).

For Social Security purposes, “retirement” is defined as whenever you choose to begin receiving benefits after you reach age 62 — whether or not you are actually still working. Starting at age 62 you can begin receiving benefits, provided you have accumulated the minimum required quarters of coverage (although you will pay a penalty for retiring before your “full retirement age,” as explained in the following section). You do not have to actually stop working to be eligible to receive Social Security retirement benefits, although if you have not yet reached your full retirement age your benefits may be reduced depending on how much income you earn. Conversely, you can stop working entirely and still postpone receiving Social Security retirement benefits (see The Delayed Retirement Option below). However, if you stop working, your average earnings over your working life may be less and this may result in a reduced benefit.

Determining Your Eligibility and Estimated Benefits

You can find out how many quarters of coverage you have accumulated and what your estimated benefit will be at the time of retirement by requesting Social Security Statement SSA-7004 (formerly known as the Personal Earnings and Benefit Estimate Statement) from the SSA. You can request a copy by mail or online by visiting the SSA Web site.

There is no charge for this service, and in addition to your quarters of coverage the statement will provide your earnings reported in each year.

You can also calculate your future Social Security benefit based on your current and projected earnings by using the SSA’s online Benefits Calculator.

How benefits are calculated

You must attain your “full retirement age” before being eligible to receive your full monthly Social Security benefit, which is referred to as your “primary insurance amount” (PIA). (You can choose to retire early, but you will then receive reduced benefits; see section below for details.) If you were born before 1937, you have a full retirement age of 65. If you were born after 1937 you must wait longer before attaining full retirement age, although exactly how long depends on your year of birth, according to the following table:

Note: persons born on January 1 of any year should refer to the normal retirement age for the previous year.

Year of birth
1937 and prior
Normal retirement age
65 and 2 months
65 and 4 months
65 and 6 months
65 and 8 months
65 and 10 months
Year of birth
1960 and later
Normal retirement age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months

The early retirement option

You can begin receiving benefits any time between age 62 and your full retirement age, but you will pay a price in reduced monthly benefits for the rest of your life. If you take the early retirement option, your benefits will be reduced 5/9 of one percent for each month before your full retirement age that you begin receiving benefits, up to 36 months. For each month above 36 months before your full retirement age, the reduction formula is 5/12 of one percent. For example, if you were born in 1944 and decide to retire at age 62, four years before your full retirement age of 66, there are a total of 48 months of reduction. The reduction for the first 36 months is 5/9 of 36 percent, or 20 percent. The reduction for the remaining 12 months is 5/12 of 12 percent, or 5 percent. Thus, your total benefit reduction is 25 percent. If your full benefit (your PIA) was to be $1,200, your reduced benefit will be $900 ($1,200 – 25 percent = $900). You will receive this reduced benefit (plus cost of living adjustments) for as long as you receive Social Security.

Although most Social Security recipients take the early retirement option, whether you should depends on your need for income, the availability of other income sources, and your health and likely longevity.

The delayed retirement option

Just as you pay a penalty for receiving benefits early, you receive a bonus for delaying their receipt beyond your full retirement age. How much your deferment of benefits will increase your monthly check when you ultimately retire depends on your year of birth:

Note: Persons born on January 1 of any year should refer to the credit percentage for the previous year.

Delayed retirement credit

Year of birth
Credit per year
Year of birth
1943 and later
Credit per year

If you delay your retirement beyond age 70, you will receive no further increases in your PIA, no matter how long you continue to work.

Here’s an example of how the deferred retirement option might increase a beneficiary’s PIA: Lena was born in 1936. Although she is eligible for her full Social Security retirement benefit at age 65, Lena doesn’t plan to retire until she reaches age 68. The table above tells us that her annual percentage increase in benefits will be 6 percent. Since she will delay her retirement three years, the Social Security check she will begin receiving when she retires will be 18 percent higher (3 years x 6 percent per year). If Lena’s monthly benefit would have been $1,000 had she retired at age 65 (including any cost of living adjustments that were made between age 65 and her retirement), the monthly benefit she will begin receiving at age 68 will be $1,180.

In determining whether to either postpone your retirement or cut back on your work hours, call the Social Security Administration at (800) 772-1213 or use the SSA’s Benefits Calculator. The SSA can tell you exactly what your benefits will be under different scenarios. For information on how continuing to work affects your Social Security benefits, click here.

One factor to keep in mind when considering the delayed retirement option: If you keep working after age 65, your ultimate Social Security benefits can also be higher because you will have more earning quarters on which to base your benefit calculation. This will be true whether or not you elect to begin receiving benefits while you continue working.

Finally, regardless of whether you choose to begin receiving retirement benefits at age 65, you should remember to sign up for Medicare. You should do this during the period beginning three months before your 65th birthday and ending three months afterwards.

How does the SSA calculate the monthly benefit?

The process by which the SSA calculates your PIA is fairly complicated, but it is based on your earnings history. The formula is somewhat redistributive in that the first few hundred dollars of earnings are given more credit than the last few hundred. So, in relationship to earnings and contributions to the system, low wage earners receive more back in Social Security benefits than do high wage earners.

Benefits to Spouses and Children

A little-known feature of the Social Security system is that in addition to paying retirement benefits for the retired worker, it may provide benefits to the worker’s spouse, an ex-spouse if the marriage lasted at least 10 years, and dependent children and grandchildren, depending on the circumstances. Moreover, these benefits can be paid all at the same time.

Spousal benefits: Your spouse is entitled to an amount equal to one-half of your full PIA. In order to receive this benefit, your spouse must be at least 62 years old or caring for your child who is under age 16. Also, you must be receiving Social Security benefits in order for your spouse to receive them as well. Thus, for example, if you are 67 years old and not yet retired, your spouse cannot receive spousal benefits.

It may be that your spouse could receive more from Social Security based on her own earnings record than through your spousal benefit. If this is the case, the Social Security Administration automatically provides your spouse the larger benefit.

If you retire early, your spouse will still receive benefits based on one-half of the PIA you would have received had you waited until full retirement age to retire. But in order to receive a full half of your PIA, your spouse must wait to begin receiving the retirement benefits at her full retirement age. If she opts to receive benefits before that time, she will be penalized according to a formula similar to that used to compute the reduced benefits of workers who retire early.

Children’s benefits: Children and even grandchildren who are unmarried and dependent upon you (the retired worker) for their support are eligible for benefits. To be eligible, the child must be under age 18, under age 19 but still in elementary school or high school, or over age 18 but have become mentally or physically disabled prior to age 22.

Children generally receive an amount equal to one-half of your PIA, up to a “family maximum” benefit. The family maximum is calculated when you reach age 62, and is determined by a formula similar to that used to determine the PIA. The family maximum depends on the amount of your benefit and the number of family members who also qualify on your work record. The total varies, but it is generally equal to about 150 to 180 percent of your retirement benefit. The family maximum benefit rises annually with the cost of living.

Because of the maximum, the more dependants you have, the less their individual benefit will be, although your own benefit will not be reduced. For example, let’s say Henry’s PIA is $1,500 and his family maximum is $2,300. Henry would receive his $1,500 a month, and his wife, Beatrice, and their dependent child, Barbara, would split the remaining $800 a month ($2,300 – $1,500). If Henry and Beatrice had two children who qualified for benefits, the remaining $800 after Henry’s benefit would be evenly divided three ways. Upon the worker’s death, dependent children receive 75 percent of the worker’s PIA, up to the family maximum, until they outgrow their eligibility.

Divorced spouse’s benefits: If you are the retired worker, your divorced spouse is eligible to receive an amount equal to one-half of your PIA, provided the marriage lasted at least 10 years. The rules are similar to those for spousal benefits described above, with two notable exceptions. First, your divorced spouse can begin receiving benefits even before you have begun receiving benefits yourself. The SSA does require, however, that you be at least 62 years old and that the divorce have been final for at least two years if you have not yet reached full retirement age. Second, your divorced spouse’s benefits are not counted in your “family maximum” benefit described above, and they do not affect that maximum.

Divorced spouses who had more than one marriage that lasted at least 10 years do not receive multiple benefit checks, one for each marriage. But the SSA does automatically choose the former marriage that will yield the largest benefit to the ex-spouse. Divorced spouses who re-marry are ineligible for benefits unless the marriage occurs after the spouse is 60 years old.

Survivor’s benefits: If you die and your spouse has by that time reached full retirement age, your spouse begins receiving your actual benefits. This is true even if you and your spouse have divorced, so long as you had been married for at least 10 years. If your surviving spouse has not yet reached full retirement age but is at least age 60, she receives an actuarially reduced percentage of your benefits. At age 60, for example, she will receive 71.5 percent of your actual benefits. This percentage increases each year until she reaches full retirement age herself, at which point she begins receiving 100 percent of your actual benefits. Spouses younger than 60 may be able to receive benefits in limited circumstances, such as cases of disability or if they are caring for a disabled child.

Finally, the widow (if not divorced) of a deceased worker or his children under age 18 are entitled to a lump sum death benefit of $255.

When a beneficiary dies

Social Security payments are made on the third day of each month as payment for the previous month. Thus, a Social Security recipient must have survived the entire month to be entitled to the payment. For example, if a recipient dies on June 24, the payment made on July 3 will have to be returned. Consequently, in most cases the estates of decedents must pay back the SSA for the last payment received.

The executor, administrator, or next-of-kin should notify the SSA by calling the 800 number for the state in which the deceased resided. (Often funeral homes provide this service.) If the recipient had her Social Security deposited directly into her bank account, the SSA will arrange to withdraw the payment electronically. The bank account must remain open for at least 45 days following notification to the SSA of the death. If the payments were mailed rather than direct-deposited, the SSA will send a letter requesting reimbursement.

Applying for Retirement Benefits

The SSA advises you to apply for retirement benefits three months before you want your benefits to begin. And, as noted above, even if you have no plans to receive retirement benefits, you should still sign-up for Medicare three months before age 65.

You can apply for retirement benefits online. Connect to the Internet Retirement Insurance Benefits application and follow the instructions. You can also apply by calling the SSA’s toll-free number, 1-800-772-1213. Representatives there can make an appointment for your application to be taken over the telephone or at any Social Security Office. (Don’t know where your local Social Security Office is? Click here for the SSA’s Social Security Locator.)

People who are deaf or hard of hearing may call the SSA’s toll-free “TTY” number, 1-800-325-0778, between 7 A.M. and 7 P.M. on Monday through Friday.

When you apply for benefits, you will need the following information:

  • your Social Security number;
  • your birth certificate;
  • your W-2 forms or self-employment tax return for last year;
  • your military discharge papers if you had military service;
  • your spouse’s birth certificate and Social Security number if he or she is applying for benefits;
  • children’s birth certificates and Social Security numbers, if applying for children’s benefits;
  • proof of U.S. citizenship or lawful alien status if you (or a spouse or child is applying for benefits) were not born in the U.S.; and
  • the name of your bank and your account number if you want your benefits directly deposited into your account.
  • You will need to submit original documents or copies certified by the issuing office. You can mail or bring them to the SSA. The SSA will make photocopies and return the documents to you.

Taxation of Social Security Benefits

Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income” – including Social Security benefits and nontaxable interest income – is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax. If you file a joint return and you and your spouse have a combined income between $32,000 and $44,000, 50 percent of your benefits will be subject to tax. If your combined income is more than $44,000, 85 percent of your Social Security benefits is subject to income tax.

For more information on the taxation of Social Security benefits, call the Internal Revenue Service’s toll-free telephone number, 1-800-829-3676, and ask for Publication 554, Tax Information for Older Americans, and Publication 915, Social Security Benefits and Equivalent Railroad Retirement Benefits. You can also access these publications on the IRS Web site. Calculating the taxes you owe on your Social Security benefits is also explained in the instruction booklet accompanying your Form 1040 federal tax return.

Disability Benefits

The Social Security Disability Income (SSDI) program pays cash benefits to people who are unable to work for a year or more because of a disability. Benefits continue until you are able to work again on a regular basis, or until you reach retirement age. At that point, the disability benefits automatically convert to retirement benefits, but the amount remains the same. After receiving SSDI benefits for two years, you also become eligible for health insurance coverage under Medicare. The disability program also includes a number of work incentives to ease your transition back to work. As of September 2000, some 6.6 million disabled workers and their dependents were receiving benefits through the program.

Who is eligible?

As with retirement benefits, you must have accumulated a certain number of work credits before you can qualify for disability benefits. However, fewer credits are required to qualify for the disability program than for retirement. You can earn up to four credits per year of employment. How many credits you need to qualify for disability depends on the age you become disabled.

Before age 24 You may qualify if you have six credits earned in the three-year period ending when your disability starts.

Age 24 to 31 You may qualify if you have credit for having worked half the time between age 21 and the time you become disabled. For example, if you become disabled at age 27, you would need credit for three years of work (12 credits) out of the previous six years (between age 21 and age 27).

Age 31 or older In general, you will need to have accumulated the number of work credits shown in the chart below. Unless you are blind, at least 20 of the credits must have been earned in the 10 years immediately before you became disabled. If you are disabled by blindness, your work credits can be from any time after 1936.

Born After 1929, Become Disabled At Age = Credits You Need

      • 31 through 42 = 20
      • 44 = 22
      • 46 = 24
      • 48 = 26
      • 50 = 28
      • 52 = 30
      • 54 = 32
      • 56 = 34
      • 58 = 36
      • 60 = 38
      • 62 or older = 40

Certain members of your family may qualify for disability benefits on your work record should they become disabled. The amount of these benefits depends on your earnings record. These family members include:

      • Your spouse who is age 62 or older, or any age if he or she is caring for your child who is under age 16 or disabled and also receiving checks;
      • Your widow or widower or divorced spouse (if the marriage lasted at least 10 years) age 50 or older should he or she become disabled. The disability must have started before your death or within seven years after your death;
      • Your unmarried son or daughter, including an adopted child, or, in some cases, a stepchild or grandchild.

Who is “disabled”?

Social Security uses a strict definition of disability. The program does not pay for partial disability or short-term disability. To qualify for Social Security benefits, your disability must prevent you from doing any substantial gainful work, and it must last or be expected to last a year or to result in death.

Despite the rule that the disability must be expected to last a year, you should apply for benefits as soon as the condition becomes disabling and your doctor is willing to state in writing that it is expected to last at least a year. If it turns out that you recover sooner than expected, Social Security will not ask for its money back.

Older workers who become disabled tend to have an easier time having their claims approved. The SSA recognizes that it is more difficult for older workers to be retrained or to find new employment. In addition, the agency knows that a disabled worker who is, say, 60 years old and will be receiving retirement benefits in a few years anyway will cost it less in benefit outlays than a younger worker would.

The amount of disability payments

As with other Social Security benefits, the amount of your disability payments is based on your age and your earnings record. The calculations are the same as those for retirement benefits, although fewer work credits are needed to qualify for benefits. You can obtain the SSA’s estimate of what your disability benefits would be by requesting Social Security Statement SSA-7004 (formerly known as the Personal Earnings and Benefit Estimate Statement) from the SSA. You can request a copy by mail or online by visiting the following page on the SSA Web site:

Your spouses and minor or disabled children are also eligible for benefits. The most that you and your family can receive, however, is either 85 percent of your salary before you became disabled or 150 percent of your own disability benefit, whichever is less.

In most cases, the SSA allows you to supplement your benefits with a small amount of income (in 2005, up to $830 a month or $1,380 for the blind).

Beneficiaries who are eligible for more than one Social Security program — say, disability and retirement benefits — cannot collect more than one Social Security benefit simultaneously. If you are eligible for two benefit programs, you will receive the higher of the two benefit amounts, but not both. The exception is Supplemental Security Income, which you can receive while collecting benefits from another Social Security program. However, you are permitted to collect disability payments from a private insurer, the Veterans Administration, or other source at the same time that you are receiving Social Security disability benefits. This holds true for workers’ compensation benefits as well, although your Social Security disability benefits will be reduced if the total of your workers’ compensation and disability benefits exceeds 80 percent of your average wages before you became disabled.

Applying for benefits

Unlike applying for retirement benefits, the application process for disability benefits is complicated and time-consuming. Before you can collect benefits, you have to have been disabled for at least six months. However, since the application process itself can take up to six months, do not wait for the six-month period of disability to elapse before applying for benefits; do it as soon as you become disabled.

The initial application is made at your local Social Security Office. (Don’t know where your local office is? Click here for the SSA’s Social Security Locator.) If the office determines that you have sufficient work credits to collect disability benefits, it will forward your application to a Disability Determination Services office in your state, which will make the decision about whether you meet Social Security’s criteria for disability. This decision is made by a doctor and a disability evaluation specialist. They may request additional medical records and/or request a medical evaluation or test. This exam will be paid for by Social Security.

Appealing Social Security decisions

If your application for benefits is denied or you are receiving less than you believe you deserve, you can appeal. Appeals are most common with disability claims. A large percentage of decisions are changed in the appeal process. For example, almost half of all disability claim appeals are resolved in favor of the beneficiary. There are four stages of the appeal process, and you must go through each before you can move to the next. They are: request for reconsideration, a hearing before an administrative law judge (ALJ); a request for review of the ALJ’s decision by the Social Security Appeals Council in Washington, D.C.; and, finally, a lawsuit filed in federal court. At each stage in the process, you have 65 days from the date on a written notice of the Social Security’s decision at the previous stage to let the SSA know that you are appealing to the next stage.

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