Download - Session 2 Fundamentals of Social Security
©2015, College for Financial Planning, all rights reserved.
Session 2Fundamentals of Social Security
CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMRetirement Planning & Employee Benefits
Session DetailsModule 1Chapter(s)
4
LOs 1-5 Identify and categorize basic provisions of an OASDI program: retirement, survivorship, and disability.
1-7 Analyze a given situation to calculate the taxation of Social Security benefits.
2-2
OASDIOld Age, Survivors, andDisability Insurance has three main components:1.Retirement
(old age)2.Disability
(disability of wage earner)
3.Survivorship (death of wage earner)
2-3
Key Terms in OASDI Programs
• Quarter of coverage ($1,220 in 2015)• Currently insured/Fully insured• Average Indexed Monthly Earnings (AIME)• Full retirement age (FRA)• Primary Insurance Amount (PIA)• Spousal benefit• Benefit reductions due to age • Benefit reductions due to earnings• Events that trigger the end of benefits• Divorced spouse coverage (married 10
years)2-4
Full Retirement AgeBorn Full Retirement Age Age 62 BenefitBefore 1938
65 80%
1938-1942 65 plus monthly adjustment
75-80%
1943-1954 66 75%1955-1959 66 plus monthly
adjustment70-75%
After 1960 67 70%
2-5
Benefit Reductions Due to Earnings
Age You will lose Amount (2015)
62 to year of FRA$1 in benefits for
every $2 of earnings above
$15,720
Year you reach FRA
$1 in benefits for every $3 of earnings
above$41,880
After reaching FRA No benefit reduction Unlimited
2-6
Retirement Earnings Test Example
Item AmountTotal Social Security benefits (75% of maximum FRA amount)
$23,967
Earnings $41,560Social Security earnings limit (2015)
$15,720
Excess earnings $25,840Reduction in Social Security benefits (50% of excess earnings)
$12,920
Net Social Security benefits $ 11,047
2-7
Qualifying for Social Security Disability Benefits
1. Disabled worker must be fully insured (at least 40 quarters) and
2. Have worked for at least 20 of the last 40 quarters
2-8
Qualifying for Social Security Survivor Benefits
1. Deceased worker must have been either fully insured (40 quarters) or
2. Currently insured (at least 6 of last 13 quarters)
2-9
Social Security Benefit Review
Benefits will be paid to: Retirement Disability DeathWorker, Under FRA Reduced*
PIA100% of PIA N/A
Worker, FRA & Over 100% of PIA Disability benefits cease; retirement
benefits begin
N/A
Spouse, age 60 or 61 No benefit No benefit 100% of PIA, reduced
Spouse, age 62 to FRA 50% of PIA, reduced 100% of PIA,
reducedSpouse, FRA or older 50% of PIA 100% of PIA Spouse, any age, caring for child under age 16 or disabled
50% of PIA 75% of PIA, reduced (worker
was currently insured)
Unmarried child under age 18 (19 if in high school) or any age if disabled
50% of PIA (subject to family maximum)
75% of PIA, reduced (worker
was currently insured)
2-10
Johnson Family Example• Robert Johnson died at
age 35. Survivors are:o Wife, Jane (age 35).o Daughter, Juli (age
6).o Son, Bobby (age 3).
• His PIA is $1,200.• Maximum family
benefit is $2,250.
2-11
Family Limits
Juli’s Benefit, 75% of PIA Reduced to $750
Bobby’s Benefit, 75% of PIA Reduced to $750
Jane’s Benefit, 75% of PIA, Reduced to $750 Widow(er)’s Blackout Period* Jane’s SS =
71.5%† PIA
*If widow(er) is disabled within seven years of spouse’s death. Social Security payments may begin at age 50.† If benefits begin at 60. 71.5% PIA; at 62.75% PIA: at 65, 100% PIA.
$1,200 PIA X 75% = $900
$900
$900
$2,700
$2,250 family max.
$450 reduction
35 40 45 47 48 50 55 60 65 66Jane’s Age
2-12
Income Tax on Social Security Benefits
Threshold income: joint filers
Threshold income: single filers
Percent of Social Security retirement benefit subject
to income taxLess than $32,000 Less than $25,000 None$32,000 to $44,000 $25,000 to $34,000 Up to 50%Greater than $44,000
Greater than $34,000
Up to 85%
2-13
Income Tax on Social Security Benefits
Thresholds are arrived at by using “provisional
income.” The main components of provisional
income are:• AGI• Tax-exempt interest income (muni bonds)• One-half of OASDI benefits
2-14
©2015, College for Financial Planning, all rights reserved.
Session 2End of Slides
CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMRetirement Planning & Employee Benefits