Main Social Security 101: From Medicare To Spousal Benefits, An Essential Primer On Government Retirement..
You may be interested in Powered by Rec2Me
Most frequently terms
Thank you for downloading this Simon & Schuster ebook. * * * Get a FREE ebook when you join our mailing list. Plus, get updates on new releases, deals, recommended reads, and more from Simon & Schuster. Click below to sign up and see terms and conditions. CLICK HERE TO SIGN UP Already a subscriber? Provide your email again so we can register this ebook and send you more of what you like to read. You will continue to receive exclusive offers in your inbox. Social Security 101 From Medicare to Spousal Benefits, an Essential Primer on Government Retirement Aid Alfred Mill Avon, Massachusetts Copyright © 2016 Simon and Schuster All rights reserved. This book, or parts thereof, may not be reproduced in any form without permission from the publisher; exceptions are made for brief excerpts used in published reviews. Published by Adams Media, an imprint of Simon & Schuster, Inc. 57 Littlefield Street, Avon, MA 02322. U.S.A. www.adamsmedia.com Contains material adapted from The Everything® Retirement Planning Book by Judith B. Harrington and Stanley J. Steinberg, CFP, copyright © 2007 Simon and Schuster, ISBN 10: 1-59869-207-0, ISBN 13: 978-1-59869-207-5 and The Everything® Personal Finance in Your 20s & 30s Book, 3rd Edition, by Howard Davidoff, JD, CPA, LLM, copyright © 2012 Simon and Schuster, ISBN 10: 1-4405-4256-2, ISBN 13: 978-1-4405-4256-5. ISBN 10: 1-4405-9922-X ISBN 13: 978-1-4405-9922-4 eISBN 10: 1-4405-9923-8 eISBN 13: 978-1-4405-9923-1 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 Cover design by Heather McKiel. Cover images © Clipart.com. Interior images © iStockphoto.com/zimmytws/larryhw/Laura Young/MariuszBlach; Global Cuts; 123rf.com/Robert Mizerek/zimmytws/Brian Jackson/racorn/iqoncent/dmbaker. This book is available at quantity discounts for bulk purchases. For information, please call 1-800-289-0963. Contents Title Page Copyright Page Introduction What Is Social Security?: A Retirement Plan for Everyone Soc; ial Insurance The Beginnings of Social Security: Roots in the Great Depression The Scope of the Act The First Beneficiaries The History of Retirement: The Evolution of Leisure The Rise of America’s Middle Class: A Retired Class is Born Funding Social Security: Paying It Forward Investing Its Funds Running Out of Money? Is Social Security Unfair to Young People? Fixing Social Security: Countering the Myth of Collapse Will Social Security Go Bankrupt? How Could Social Security Be Fixed? Estimating the Political Price Getting a Social Security Card: Joining the System How Early Should You Get a Card? Applying for Your Own Social Security Card What to Do if You’re a Noncitizen Replacing a Lost or Stolen Card Changing Your Name Protecting Your Social Security Number: Guard Against Identity Theft Identity Theft in the United States What to Do Qualifications for Receiving Benefits: Who’s Eligible? Who Else Qualifies? How Much Will I Get? Your Full Retirement Age: When You’re Expected to Retire Determining Your FRA Figuring Your Life Expectancy How to Apply for Benefits: Getting Started with Social Security Other Ways to Apply What Should You Know? The Documents You’ll Need Estimating Your Benefits: How Much Are You Going to Get? Your Statement Disability Benefits: When You Can’t Work Anymore Social Security Disability Insurance (SSDI) Applying for Disability Benefits Family Disability Benefits Ticket to Work Supplemental Security Income: Adding to Your Disability Benefits Where Did It Come From? Who’s Eligible? How Is Your Benefit Calculated? How to Apply for SSI Children with Disabilities: Protecting Your Offspring If You Became Disabled in Childhood If You’re the Parent of a Disabled Child Disability Reviews If Your Child Wants to Work Medicare Spousal Benefits: A Key Element of Social Security Claims Whether to File Applying for Spousal Benefits Survivors Benefits: Living after the Breadwinner Is Gone Who’s Eligible? How Much? Other Beneficiaries: Who Else Can Get Benefits? Veterans Military Benefits and Social Security Getting Social Security If You’re Living Abroad Regular Questionnaires Benefits for Children: Protecting Young People Children Who Are Eligible for Benefits Divorced and Child-in-Care Children of Divorced Parents Taxes on Social Security Benefits: Giving the Government What’s Theirs Figuring Your Income Examples of Social Security Benefits Tax Your Tax Rate Working in Retirement: The Pluses and Minuses of More Income The Benefits of Working Annual Earnings Limit Taking Benefits Early: Don’t Do It Unless . . . A Case History The Issue of Life Expectancy When—If Ever—Should You Take Early Benefits? Claiming Benefits Later: Increasing the Size of Your Benefit Taking the Credit Breaking Even Taking Your Benefits Late If You’re Self-Employed: The Challenge of Working for Yourself Self-Employment and Taxes Net Earnings Which Tax Forms to Fill Out Deemed Filing: Issues with Suspending Benefits What Changed? File and Suspend Interest-Free Loan? Not Any More Windfall Elimination Provision: Working for Two Different Kinds of Employers What Is It? Social Security Benefits Low-Income Workers Government Pension Offset: If You Used to Work for the Government Who It Affects The Retroactive Lump Sum Option: Getting a Chunk of Money All at Once Getting a Chunk of Change Stopping Your Benefits: The Strategy of Waiting Stopping Benefits Before Your FRA At Full Retirement Age Appealing an SSA Decision: Getting the System to Change Its Mind Disability Benefits Be Fair to Yourself and Others Health and Social Security: Healthcare in Your Golden Years Where Does Healthcare Stand in the United States Medicare: Where’d It Come From? What Does It Do? Medicaid Who’s Eligible for Medicare? Medicare: Your Health in Retirement Part A Part B Part C Part D What Medicare Doesn’t Cover Extra Help with Prescription Costs: If Drugs Are Too Expensive How Can I Get Extra Help? Medicare Savings Programs Medicare Advantage: Independent Insurance Plans Private Plans Comparing Plans Now You’re Ready to Enroll Medigap Medicaid: Helping Those in Poverty Where Did It Come From? Who Qualifies for Medicaid Benefits? What Medicaid Covers Spend-Down Programs Social Security and Your Retirement: Having a Rounded Financial Picture Savings Have a Plan Keeping Track of Social Security Delaying Your Benefits Entering Retirement Using a Financial Planner: Bringing in the Experts Ask an Expert Who Should I Talk To? Establish a Plan Planning for Tomorrow: Young People, Retirement, and Social Security The Younger, the Better Defined-Benefit Plans Defined-Contribution Plans 401(k) Plans 403(b) and 457 Plans Individual Retirement Accounts Keogh Plans Choosing the Right Investments Think About Your Social Security Future Finding Happiness in Retirement: Will Your Retirement Be an Ending or a Beginning? What to Call It Your Dream Retirement: Options for Ending Work Challenges to a Part-Time Schedule If a Door Closes: Look for the Open Window Flexibility Is Key Being a Forward-Thinking Retiree The New Retirement: No Rocking Chairs for Baby Boomers The Boomer Philosophy Plan for Income, Plan for Living Budget Responding to Societal Problems Down but Not Out Bouncing Back Introduction When you think about your retirement, whether it’s coming up soon or many years away, you’ll start to think about Social Security. Since the Social Security program is going to be an essential part of your golden years, and since you’ve probably heard people say that it’s running out of money, you’ll probably have a lot of questions: How much money will I get? How does the government calculate that figure? Will my Social Security benefits be taxed? If so, how much? Is the program going broke? Will there even be any money by the time I retire? A whopping 74 percent of single people and 52 percent of married couples are going to depend on Social Security payments for more than half their income in retirement. But for something so financially important, many people know very little about Social Security. Social Security 101 will give you the most up-to-date information about this government program. You’ll learn how to apply for benefits and when you should start taking them. You’ll also learn strategies to maximize the benefits you receive and about recent changes to Social Security laws, changes that affect your filing plans. Like any part of the government, the Social Security Administration can seem intimidating. Social Security 101 will explain to you how this agency works and how you can appeal its decision about your benefits if you don’t agree with it. You’ll also learn about the government healthcare programs Medicare and Medicaid and how they relate to your Social Security benefits. Social Security is an important component of a carefully thought-out retirement plan. It is in your best interest to learn as much as you can about how Social Security works so that you can be sure to receive all the money that’s coming to you. This book will be an essential part of the toolkit you can use to build a financially secure retirement. What Is Social Security? A Retirement Plan for Everyone On the first day of your first full-time job, retirement was probably the last thing on your mind. You were too busy wondering how to learn all your duties, impress your boss, and find out where the bathrooms and the coffee machine were located. You were thinking about this amazing new world of work you’d just stepped into and what kind of people you were going to meet and work with. All in all, it was probably one of the most exciting days of your life. Retirement—if it even crossed your mind—was something far off in the misty future. Chances are, the subject of Social Security was something that didn’t even remotely intrude into your consciousness. Although you may not have been thinking about Social Security, the Social Security Administration (SSA) was already thinking about you. With your first paycheck, you took a step into the complex government program called Social Security. For the rest of your working career, that program tracks you. And when you finally decide to retire at the age of sixty-two or older, you’ll apply to the SSA for the benefits you’ve accumulated in the course of your working life. As you begin to approach your full retirement age (more about that later), you’ll probably give more and more thought to Social Security: How much are my benefits per month going to amount to? What if it’s not enough for me to live on? I keep hearing that Social Security is going bankrupt. What if all the money’s gone by the time I retire? Where can I go for help in figuring this stuff out? These are all good questions, and there are certainly plenty of others. Social Security has been around for a long time, and it’s seen its fair share of changes and adjustments. This has led to a seemingly byzantine set of rules and regulations. We’ll explain the most important of these as we go on, but for right now the important thing is for you to understand clearly what Social Security is. Social Insurance At its most basic, Social Security is a form of social insurance, set up and administered by the U.S. government. Payments to you from the system can begin as early as age sixty-two (although there are good reasons not to take your benefits that early, as we’ll see) and will continue until you die. It’s essentially a government-run retirement program that aims to keep you and your fellow retirees out of poverty. The program is funded through taxes, which are collected directly from workers’ paychecks. Look on your latest paycheck stub and find the acronym FICA. The amount next to it is how much money from your paycheck went toward Social Security. FICA and SECA FICA stands for Federal Insurance Contributions Act. The Social Security tax is also sometimes designated SECA, which stands for Self-Employment Contributions Act. This latter tax is levied on people who are self-employed (as the name implies). Some portion of both taxes also goes toward the governmental medical program, Medicare. Payouts from the Social Security program are huge; according to the Social Security Administration, in 2015 about 59 million people in the United States received Social Security benefits. Total payouts through the program amounted to almost $870 billion in 2015. The number of people receiving Social Security benefits is expected to rise as members of the baby boom generation retire, something that has created concerns that the program might go bankrupt. We’ll consider this question later and look at some possible ways in which Social Security might be fixed, but for right now we’ll look at the program as it currently exists. The taxes collected through workers’ paychecks go into one of a series of trust funds: The Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, and the Federal Supplemental Medical Insurance Trust Fund. Your earnings are taxed for these funds up to a certain federally determined limit. As of 2015, the maximum amount of taxable income was $118,500. Any money you make beyond that cap isn’t taxed for Social Security (although, of course, it is taxed in other ways such as income tax). Your Social Security card is one of the most important documents you own. It marks your entry into the government-run retirement system, paid for by deductions from employee paychecks. © iStockphoto.com/zimmytws The Social Security Administration also operates other important programs, including the State Children’s Health Insurance Program (SCHIP) and Supplemental Security Income (SSI). The SSA, which has its headquarters in Maryland, has ten regional offices scattered around the United States and employs more than 67,000 people. Some Facts and Figures Here are some things you may not know about Social Security: Nine out of ten people aged sixty-five and older receive Social Security benefits. Social Security covers an estimated 165 million workers (in the sense that anyone who pays payroll taxes to Social Security is “covered”). Of those receiving benefits, 39.5 million get retirement benefits; 6.1 million receive survivors benefits; and 9 million receive disability benefits. About one in four of today’s twenty-year-olds will become disabled before reaching age sixty-seven. In today’s workforce, 51 percent of workers do not have private pension coverage. The agency issues a nine-digit number to all U.S. citizens and temporary working residents. This number is used to track people within the Social Security system, but it has also become an important identification number that is used in many circumstances to guarantee personal security (for instance, in banking transactions). The way in which Social Security has been administered has changed over the years, reflecting changing economic circumstances within the country. The most recent change came in 2015, when Congress passed a law that eliminated several filing strategies (particularly the strategy called file and suspend) that had been gaining in popularity. Baby Names Lists As a by-product of issuing Social Security numbers to newborns, the SSA is very up on the popularity of baby names for any given year since the system started. Every year the SSA issues two lists: one for the ten most popular girls’ names and another for the ten most popular boys’ names. Go to www.ssa.gov/OACT/babynames to check out the most recent lists. In general, Social Security mostly benefits lower-paid workers, since these are the people who are unlikely to be able to save enough for retirement on their own. However, anyone who pays into the system by working as an employee or who is self-employed and pays Social Security taxes can become eligible to receive benefits. This is a controversial aspect of the program, and some have suggested there should be an upper income level beyond which people wouldn’t receive benefits (since, presumably, they could afford to support themselves in retirement without aid from the government). Warren Buffett, one of the richest people in the United States, has pointed out the absurdity of the fact that he receives Social Security benefits. You’re also eligible for benefits if you’ve just been released from prison. You can’t receive benefits while you’re in jail (provided you’ve been incarcerated for thirty continuous days), but once you’re released, you can begin or restart your benefits. In addition to paying out retirement checks, the Social Security Trust Funds also make payments to people who are disabled to the degree that they are unable to work. In 2013, this part of the funds made payments of around $140 billion. Another part of the program, the Supplemental Security Income (SSI), pays money to low-income people who are sixty-five or older, blind, or disabled. Some would argue that this isn’t really part of the Social Security system, since it’s funded from the general funds of U.S. Treasury rather than the Social Security Trust Funds. But it’s still administered by the SSA. The Beginnings of Social Security Roots in the Great Depression In the late 1920s Americans were convinced that they had life by the tail. It was the jazz age, the Roaring Twenties—“flappers” in fringed skirts and bobbed hair frolicked in nightclubs, accompanied by scores of eager young men. Bootlegged champagne flowed freely, and dancers puffed on cigarettes while downing that new American innovation, cocktails. Inventions such as the telephone, moving pictures, and above all, the automobile spread across the country, changing both the physical and cultural face of the United States. Above all, there was prosperity. World War I, which had devastated Europe and destroyed a generation of young men, had barely touched America. Far from the death and destruction of Europe, American factories turned out hundreds of millions of dollars in commodities that poured into eager markets. The stock market was intoxicated by this wealth. Stock prices soared to higher and higher levels. Analysts predicted an endless bull market; prices would continue to go up and up. Alas, it was not to be! Beginning on October 24, 1929, the American stock market precipitously crashed. Over a two-day period, the Dow Jones Industrial Average fell 23 percent. The demand for manufactured goods dried up, seemingly overnight. Businesses collapsed, industries shrank, and millions were thrown out of work. President Herbert Hoover’s responses to the economic chaos were neither swift nor imaginative enough to stem the tide. Across the country, homeless workers erected shantytowns, derisively named Hoovervilles. Whatever small nest eggs had been accumulated by workers for their old age were wiped out overnight. Popular anger with Hoover and the Republican Party helped sweep Franklin D. Roosevelt into the presidency in 1933. A less likely champion of the common man and woman could scarcely be imagined. Roosevelt came from an aristocratic clan that numbered President Theodore Roosevelt as among its most distinguished member. Franklin’s mother, Sara, came from a New York family whose fortune was founded on the opium trade with China. The young Franklin attended Groton School, a private school in Groton, Massachusetts, and then went on to Harvard. At some stage, he learned to sympathize with the plight of those less fortunate than himself. This compassion for the poor and needy colored much of his political career. Upon assuming the presidency, Roosevelt developed and expanded many programs begun by Hoover, and he also launched a series of new initiatives. Collectively, he dubbed this effort the New Deal. The New Deal was composed of two parts: The first part, the First New Deal, from 1933–34, is sometimes referred to as “The First Hundred Days,” since the laws that created the new programs were passed during the first 100 days of Roosevelt’s administration. In this First New Deal period the president’s actions focused on unemployment and the need for immediate relief of poverty-stricken workers. During the so-called Second New Deal, which lasted from 1935–36, Roosevelt was able to contemplate the economy and the country in a broader, more leisured perspective. President Franklin Roosevelt signed the Social Security Act into law in 1935 in response to the Great Depression. He intended the system to keep older people from falling into poverty. Global Cuts With the issues of poverty and joblessness much on his mind, Roosevelt was disturbed to see that Dr. Francis Townsend had proposed a plan for the government to take care of people in their old age. Townsend proposed the government pay everyone over sixty years old a monthly sum of $200. His only restriction was that they not have a criminal past. Townsend’s proposal was extremely popular—so much so that Roosevelt was concerned lest he not have a viable alternative before the 1936 presidential election. Under these circumstances, he asked Secretary of Labor Frances Perkins to come up with a plan to counter Townsend’s. Frances Perkins Frances Perkins (1880–1965) was the first woman to serve in the U.S. Cabinet. She held the post of Secretary of Labor from 1933 to 1945, the longest-serving secretary in that position. Perkins and the committee that assisted her studied the issue from many different angles and eventually produced a report. The report, in turn, spurred the writing and passage of a bill in 1935: the Social Security Act. Bismarck and the German Precedent One of the important precedents studied by Perkins’s committee was the social insurance created under Prussian Chancellor Otto von Bismarck in the previous century. Though a die-hard conservative, Bismarck in 1889 set up a system of old-age insurance that required payments from both workers and employers. His goal was to prevent the implementation of some more radical scheme. When accused of socialism on account of his program, Bismarck could point to his long political record of hostility to socialism and communism. The Scope of the Act The 1935 law passed by Congress was limited in scope compared to what Social Security covers today. The preamble says the act is: An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes. The act excluded almost half of U.S. workers from Social Security coverage; only gradually did it expand to cover most of the population. “We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” —President Franklin D. Roosevelt John G. Winant President Roosevelt asked John G. Winant to become the first head of the Social Security Board, charged with carrying out the provisions of the 1935 act. Winant was a former three-term governor of New Hampshire and a member of the Republican Party. After the party’s vice presidential candidate in the 1936 elections, Alf Landon, began campaigning against Social Security, Winant resigned from the board in order to defend Social Security against Landon’s attacks. The Social Security Administration, which grew out of the Social Security Board, was at first an independent agency. It became part of a sub-Cabinet department, the Federal Security Agency, in 1939, and then, in 1995, resumed its status as an independent agency of the Federal government. The First Beneficiaries When the program formally began in 1937, employers and workers paid 1 percent tax each on the worker’s income up to $3,000. Benefits began to be paid out in 1940 (they were originally scheduled for 1942 but were moved up by a 1939 amendment to the act). In that year, Ernest Ackerman of Cleveland became the first person to receive a Social Security benefit—all of seventeen cents. His pay had been taxed five cents. The first monthly payment went to Ida May Fuller of Vermont. Between 1937 and 1939 she paid in $24.75 to the system. Starting in January 1940 she received monthly benefits of $22.54. Since she lived to be 100 years old, her benefits at the end of her life totaled $22,888.92. She commented, “It wasn’t that I expected anything, mind you, but I knew I’d been paying for something called Social Security.” Expanding Beneficiaries In 1950, Congress expanded the range of people covered to include some agricultural workers, domestic workers, nonprofit employees, and those self-employed. By 1954, that range had grown to include all agricultural labor, hotel and laundry workers, and employees of state and local government. In the 1960s, the number of people covered continued to increase, including disabled adult children of workers covered under the act. Today, as previously mentioned, an estimated 165 million workers are covered by Social Security—an impressive feat for a program more than eighty years old. The History of Retirement The Evolution of Leisure Earlier we talked about the history of Social Security and how it grew out of the Great Depression and the New Deal policies of Franklin Roosevelt’s administration. It’s time to put this in a broader context, to consider how the concept of life after work developed. It is a pretty recent phenomenon that itself is closely linked to the move from an agrarian to an industrial society, paired with the tremendous strides in healthcare over the past century and a half. As mentioned earlier, many people credit Otto von Bismarck, as chancellor of Germany in the late nineteenth century, with laying the groundwork for Social Security. In fact, Bismarck should be credited with developing the concept of retirement itself by establishing a pension for military personnel. He was no fool, recklessly frittering away government funds. He set the age at which a soldier could begin collecting his pension at sixty-five. That would be like setting the retirement age for today at 125 because, in that era, the average life expectancy for Germans was the mid-thirties. The actuarial number-crunchers of that era would have had no problem with a pension as a concept under this age restriction because, statistically, who would live to collect? Don’t think the bean counters in the United States had a much bigger heart when Social Security legislation was first passed in 1935. At the beginning of this hallmark entitlement program for Americans, the age for receiving benefits was set at sixty-five, which sounds great, even normal by today’s standards. But what you might not know is that American life expectancy at that time was only sixty-two, meaning that the government had limited financial exposure with this sweeping program. Further, as the legislation was originally written only about 60 percent of the working population, those in commerce and industry, qualified for Social Security. In fact, the first checks did not begin to flow until 1940. Expanding the Aging Population Thanks to tremendous decreases in infant and child mortality through the first half of the twentieth century, the number of people alive today that are at least sixty-five years old is equal to half of all the people who have ever lived to age sixty-five in the course of written history. In the 1950s, benefits were added to Social Security and the overall umbrella expanded to cover government employees, farmers, domestic help, and the self-employed. An added feature to the legislation was that workers could begin receiving reduced benefits at age sixty-two if they chose. Women became eligible for benefits in their own right in 1961. In 1965 hospital benefits were added, which became the basis for the Medicare and Medicaid coverage that today’s seniors are fighting tooth and nail to protect. Social Security marched right along through the early 1970s, adding built-in cost-of-living adjustments (COLA). It wasn’t until the late 1970s that the brakes started to be applied. During the decades following World War II, while Social Security was ramping up, private pension plans designed to mesh with government programs were expanding. Even with the private pensions, however, it was Social Security that provided the financial bedrock for aging Americans. There may not have been enough money through these programs to provide retirees with the dolce vita, but it was enough that, for the first time, legions of older workers could leave their jobs on their terms, not when they were ready to practically fall into an early grave. The Rise of America’s Middle Class A Retired Class Is Born Up to now we’ve largely talked about Social Security in terms of how it will affect you. But it’s time to consider the wider impact of the program. In truth, Social Security was vital in creating what we’ve come to accept as a fact of life: the American middle class. It’s a bit startling to think that until the mid-twentieth century, the middle class didn’t really exist, at least in the sense of a mass phenomenon. This went hand in hand with the fact that a retired class of people who stood out from the rest of the population didn’t really exist either. That began to change, though, due in part to the vision of people like Del Webb. A true American original, Webb was the real-estate developer who took a radical gamble with the creation of Sun City in Arizona. This was the landmark retirement community based on age segregation—no youngsters need apply—that became a model with three key characteristics: Activity—there would be plenty to do. Economy—houses would be affordable; costs for common facilities would be spread among all residents. Individuality—residents would be free to choose whatever they wanted to do. The convergence of social policies after World War II helped make life at a Sun City type of retirement community possible. Postwar, cheap government loans enabled young families to purchase their homes in mass numbers. These homes appreciated in value, creating an asset that could be cashed in when the go-to-work and the raise-the-kids jobs had been wrapped up. The expanding Social Security program laid the groundwork for predictable income in addition to the tangible asset that home ownership provided. Social Security in Sweden Not surprisingly, Sweden, often pointed to as an example of democratic socialism, has a firmly embedded system of government assistance for the elderly. Sweden’s old-age pension begins at age sixty-one. Employers’ contributions amount to 31.42 percent of the employee’s gross salary. In many instances, state assistance is accompanied by private pensions. If you have a low income (or none) and have lived in Sweden for at least three years, you are entitled to an additional pension. With its extensive provisions for childcare, maternity leave, disability payments, and housing allowances, Sweden provides “cradle to grave” social insurance for its citizens. At the same time, a shift was occurring in the family structure. In a preindustrial agrarian culture, every person was needed to work the land for as long as humanly possible. Older family members were valued for their knowledge. The family farm was needed for survival, and transferring ownership did not happen until the owner died. The younger family members cared for the aging or ill older members. This family ecosystem changed forever when new industries arose, and people became more mobile and were no longer tied to the land for survival. Social Security in Canada Canadians aged sixty-five or older and who have an income less than $114,815 per year receive payments from the Old Age Security pension (OAS). If they make more than $71,592 per year, when tax time comes the OAS claws back some of that money at a rate of 15 percent of net income. You are eligible for the OAS scheme if you: Have lived in Canada for at least forty years from the time you turned eighteen Were born prior to July 1, 1952, and lived in Canada for at least ten years after turning eighteen; Canada has a reciprocal agreement with the United States that allows Canadian citizens who have lived in the United States for some time to count those years toward their qualifying time for the OAS Leisure Time With people living longer, and having the financial flexibility to quit working, the question arose: “What to do?” In the mid-twentieth century, the thinking was to view retirement as a period of leisure. If work was a hard slog, then retirement would be the payoff with nothing to think about other than how to enjoy oneself. The notion of age-segregated communities ignited a positive response because now there would be a place for the oldsters to go who were no longer needed by their employers or their families. These communities were seen as a reward for a lifetime of hard work. One thing was clear: There was a very clean line between work and retirement. Work was work, and retirement was fun. The Search for Something More Than Fun Frenetic activity in the pursuit of fun hardly seems to define relaxation. The concept of luring a massive portion of the nation’s population to reservations of recreation was an artificial design. Although keeping busy has its merits, it has its limits. Not all seniors were decamping to retirement communities. Some, whether for lack of sufficient financial resources or simply lack of interest, were leaving work and going nowhere. All that experience, talent, and skill were sitting idle, waiting to be released in a meaningful direction. It should come as no surprise that today there is an explosion of new opportunities. People you know, and many you do not, are blazing paths and opening minds to a new understanding of what a happy retirement means. Funding Social Security Paying It Forward One of the most common myths about Social Security is that in some way it’s a Ponzi scheme. This myth persists because the money you pay into the system isn’t held in trust for when you retire but instead is used to pay benefits for workers who are retired right now. What’s a Ponzi Scheme? This type of fraud, named after Charles Ponzi, who constructed such a scheme in 1920, pays old investors by using capital paid into the scheme by new investors. Since the scheme lures in investors by promising higher-than-average returns, it needs to continually expand in scope. The most famous Ponzi scheme was that of Bernard Madoff, who bilked investors out of $65 billion, the largest such fraud in history. Investing Its Funds One of the most important things that differentiates Social Security from a Ponzi scheme is that the money in the Social Security Trust Funds is invested. An operator of a Ponzi scheme doesn’t invest, since that wouldn’t allow the scheme to pay out the high returns demanded by its investors. Social Security, on the other hand, invests in U.S. Treasury bonds, one of the safest investments in the world, since those bonds are backed by the full faith and credit of the United States. Another important distinction is that Social Security is mandatory for U.S. workers. There’s no possibility of people suddenly deciding to opt out of it. Most Ponzi schemes collapse when a portion of their investors decide to take their money out of what proves to be phantom investments. But that can’t happen with Social Security. Social Security funds are invested in U.S. Treasury Bonds, one of the safest investments there is since the bonds are backed by the full good faith of the government. © iStockphoto.com/larryhw Running Out of Money? Why, then, are there persistent rumors (louder during an election cycle) that Social Security is running out of money? It’s true that over the years the government has had to make adjustments to ensure that the system continues to have the wherewithal to pay benefits. When Social Security began in 1935, it taxed just 2 percent of a worker’s earnings—1 percent came from the worker’s paycheck and 1 percent was paid by her or his employer. It taxed up to $3,000 in income. Today that tax has risen to 12.4 percent of a worker’s earnings, which is still split evenly between worker and employer, and the income level cap has been increased to $118,500. (Self-employed people pay a tax of 12.4 percent on their earnings.) So over time, Social Security taxes have increased. Does the Government Raid Social Security? Some people have charged that Social Security’s difficulties, real or imagined, are caused by the government burrowing into its trust funds and spending the money on various other projects. In fact, this charge misunderstands the fact that these aren’t really trust funds. They’re government accounts, and the money from them is invested. The government funds Social Security in three ways: From payroll taxes collected on workers’ paychecks. This is the FICA tax. From money deposited in the Social Security Trust Funds, which is invested in Treasury bonds and earns interest. This money represents a surplus collected when taxed income exceeds the amount paid out in benefits. From income tax that beneficiaries with high incomes pay on Social Security benefits. Overall, the program is expected to run a surplus until 2020. However, the trust funds will be depleted sometime in the 2030s (exact dates vary, depending on who’s doing the estimating). Even in that case, using payroll taxes and income tax, the program can continue to pay out 77 percent of benefits. However, as you’ll see in the next chapter, there are a number of ways in which Social Security can be fixed that will make it solvent for a long time to come. In addition to payroll taxes to fund Social Security, you and your employer each pay 1.45 percent tax to fund Medicare’s Hospital Insurance Trust Fund. High-income individuals pay an additional 0.9 percent to support Medicare. Is Social Security Unfair to Young People? One argument that’s been brought up a great deal is that Social Security is a burden on the younger generation. When the system was created, the argument goes, there were fifty-five workers to support each retiree, so the payroll tax each worker paid could be kept very low. But since 1935, the life expectancy of the average worker has dramatically increased. The result is that it takes more and more younger workers to support retired older ones. It’s been estimated that to continue to function, the system needs approximately 2.8 younger workers for each retiree Social Security supports. If the ratio slips below the critical level, we will reach a situation in which too few workers must support too many retirees. This is the crisis that doomsayers are warning about. But is the situation as dire as they claim? Let’s look at what’s really wrong with Social Security and how it can be fixed. Fixing Social Security Countering the Myth of Collapse Spend any time on the Internet and you’ll come across someone claiming that Social Security is on the verge of collapse. Those people assert that the system is overwhelmed. Millions upon millions of newly retired baby boomers are filing claims every day. It’s only a matter of time before the system runs out of money. The more extreme version of this assertion is that Social Security is a Ponzi scheme (we took up this point in the previous chapter) and as such has always been unstable and is fated to fail. What’s true and what’s false about these claims? Will Social Security Go Bankrupt? From 1985 to 2009, the government took in more money in payroll taxes for Social Security than it paid out in benefits. The resulting surplus went into the Social Security Trust Funds, where it earned interest. However, beginning in 2010, benefits exceeded revenues from payroll taxes. The result is that if this trend continues, the trust funds will run out of money around 2037. (Note that this assumes the economy grows at an average rate of 1.7 percent. A faster average growth would mean the system would remain fully solvent for much longer.) All right. That looks pretty straightforward. That means the system will be bankrupt by 2037, right? Well, no. It doesn’t. The reason is because Social Security is set up so that today’s workers are paying the cost of today’s retirees. In other words, there is always money coming into the system, because the American workforce continues to, well, work, and payroll taxes continue to be deducted from their paychecks. In addition, the system continues to have a revenue stream from wealthy individuals paying income tax on their benefits. The third revenue source, remember, is the interest earned by the surplus that went into the trusts. So the system can’t go bankrupt in the sense of just running out of money. Reduced Benefits It is true that unless steps are taken by the government, by 2037 Social Security will no longer have the funds to pay full benefits to retirees unless the economy experiences a faster growth rate. At that point, experts estimate that tax revenues would only account for about 75–78 percent of full benefits. Although this is a long way from being bankrupt, it’s something no one wants to see happen (especially anyone planning to retire in 2037 or later). Seventy-six million baby boomers started to become eligible for Social Security as of 2008 (that is, they began turning sixty-two). If the system is going to be able to handle those numbers, the politicians in Washington need to start considering some possible fixes. Changes in the Past Change is nothing new to Social Security. Over the years it has seen a number of adjustments, from the amount of payroll taxes deducted to cost-of-living adjustments (COLA). The tax rate first increased in 1950 from 2 percent to 3 percent. The following year, the upper limit on taxable income was raised for the first time from $3,000 to $3,600. How Could Social Security Be Fixed? A number of possible changes to the system have been proposed to extend its solvency and ability to pay full benefits. Some of these are more politically possible than others, and almost all are controversial. Privatize the System At the beginning of his second term, President George W. Bush proposed the partial privatization of Social Security. His proposal would have allowed participants in the program to move some of their money to personalized investment accounts. The plan was aimed primarily at younger workers; older workers were exempt from it. Although the plan had the backing of many conservatives, others opposed it, along with virtually all Democratic Party politicians. Bush campaigned energetically for the plan, but ultimately it failed to gain traction. Many commentators pointed out that after the Great Recession of 2008–09 privatized accounts could have severely impacted many workers’ retirement savings. It seems unlikely in the near future that any politician will be able to privatize Social Security, in part or in whole. Raise the Earnings Cap or Payroll Tax Under the present system, payroll taxes for Social Security are not deducted from earnings above $118,000. (As previously mentioned, this cap has been raised a number of times in the program’s history; it started out at $3,000.) One relatively simple way to make the program solvent in the future is to raise this cap again. Taking it up to $229,500 would, it’s estimated, cut the program’s shortfall by 28 percent. Another way to increase the amount of money in the system is to hike the payroll tax, which accounts for the large majority of revenue that flows into the system. Remember that this tax began in 1935 at 1 percent each from both worker and employer and is currently at 6.2 percent for each of them. It’s estimated that if the tax were raised by 1 percent, to 7.2 percent for worker and employer, this alone could account for 50 percent of the program’s shortfall. That said, raising taxes is never easy, and it’s hard to say whether Congress would have the political fortitude to take either of the steps just mentioned. In addition, since lower-earning workers get more of a return on their contributions than higher-earning workers, raising the earnings cap would be unpopular with richer contributors. Expanding Coverage Although Social Security covers the overwhelming majority of U.S. workers, some are still outside it. Roughly 25 percent of state and government workers use a pension system for their retirements rather than paying into Social Security. If the system were expanded to cover them as well, it’s estimated that this could reduce the program’s shortfall by about 6 percent. However, this would mean higher government contributions to pensions to fully compensate those workers who remain covered by them. For this reason, state and city governments generally oppose such a move. Cut Benefits The solutions proposed so far assume that the goal is for the system to continue to pay the same level of benefits. But suppose, instead, the government were to cut benefits. This would certainly help the program remain solvent. But who can imagine beneficiaries cheering about it? Such a program would have to be carefully phased in, would have to be graded from lower-earning workers to higher earners, and politically would be immensely unpopular. Adjust the COLA As mentioned earlier, the first cost-of-living adjustment in Social Security benefits was made in 1950. In 1975 Congress mandated automatic adjustments within the system. Benefits are currently tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Some people have proposed changing this, and instead link benefits to what is called a chained Consumer Price Index (CPI). The details of this don’t need to concern us here; suffice it to say that because the chained CPI rises a bit slower than the CPI-W, making this switch would save significant amounts of money in the long run—it would cut the shortfall by about 20 percent. The downside to this, of course, is that beneficiaries would receive a lower cost of living increase, something that no one would welcome. Raising the Full Retirement Age (FRA) Finally, there’s the option of increasing the age at which workers can take their full benefits. We’ll talk later about how your FRA is calculated, but here we’ll just note that in the current system, if you were born in 1960 or later you reach your FRA at age sixty-seven. (You can take benefits before then, but they’ll be less than they would be if you waited until your FRA; more discussion of this later.) The argument has been made that since longevity is increasing, people should expect to work longer and therefore the FRA should be pushed back. Moving the FRA back a single year, to sixty-eight, could reduce the shortfall by up to 16 percent. Of course, many people aren’t enthusiastic about adding another year of work onto their careers. They want to get as many golden years as possible. Estimating the Political Price All of the solutions mentioned in this chapter have political costs, and none will, by itself, eliminate Social Security’s shortfall. But it’s likely that eventually some combination of these changes will be used to keep the program solvent at least into the next century. Getting a Social Security Card Joining the System When you start your first job, you must have a Social Security number (SSN); you can’t be legally hired without it. So even though you technically aren’t required to have a Social Security number, for all practical purposes you’ll need one at some point in your life. As has been pointed out, Social Security numbers have become a basic means of identification for most Americans, precisely because they’re so widespread. How Early Should You Get a Card? Many parents take care of the issue of Social Security numbers very early—pretty much when their baby is born. It’s easiest to do this when you’re giving information to the hospital, which they’ll use to generate your child’s birth certificate. The Social Security Administration points out that waiting longer can create delays while the SSA verifies the birth certificate. Why on Earth Does a Baby Need a Social Security Number? Good question. After all, the baby isn’t going to get a job any time soon. But there are other reasons for her or him to have a Social Security number: If you’re planning to claim your child as a dependent If you want to open a bank account in your baby’s name If you’re going to buy savings bonds for the child If you’re getting medical coverage for your offspring If you’re applying for government services for the child To apply at a Social Security office, you’ll need to bring proof of your baby’s age, U.S. citizenship, and identity as well as proof of your own identity. Then you’ll fill out Form SS-5. The SSA will take up to twelve weeks to issue your child a Social Security card. If your child is twelve or older, she or he must be present in person at the SSA office when you fill out the application. The SSA only accepts certain documents as proof of citizenship. These include: U.S. birth certificate U.S. Consular Report of Birth Abroad U.S. passport Certificate of Naturalization Certificate of Citizenship If, for some reason, you don’t have your child’s birth certificate, the SSA will accept a U.S. passport; a religious record made before your child turned five that shows the date of birth; or a U.S. hospital record of birth. To apply for a Social Security card for you or your child, you’ll need various specified forms of identification, which can include a driver’s license and a passport. © 123rf.com/Robert Mizerek Born Abroad If your child was born abroad, when you apply for her Social Security number you’ll need to bring one of the following: Foreign birth certificate Certificate of Birth Abroad Certificate of Report of Birth Consular Report of Birth Abroad Certificate of Naturalization Passport The SSA is also a bit picky about what they will and won’t accept as proof of identity. “An acceptable document must be current (not expired) and show your child’s name, identifying information, and preferably, a recent photograph.” They may also accept: State-issued non-driver identification card Adoption decree Doctor, hospital, or clinic record Religious record Daycare or school record School identification card Applying for Your Own Social Security Card Getting a Social Security number for yourself is similar to getting one for your child. To prove your identity, you can show one of the following: U.S. driver’s license State-issued non-driver identification card U.S. passport Employee identification card School identification card Health insurance card (not Medicaid) U.S. military identification card Life insurance policy They’ll want to see the original documents, so don’t bother bringing photocopies; they won’t be accepted. There’s no cost for getting a Social Security number and card. The SSA warns, “If someone contacts you and wants to charge you for getting a number or card, please remember that these Social Security services are free. You can report anyone attempting to charge you by calling our Office of the Inspector General hotline at 1-800-269-0271.” What to Do if You’re a Noncitizen About the only noncitizens needing Social Security numbers are those authorized to work in the United States by the Department of Homeland Security. For example, noncitizens who are in the United States on a student visa generally don’t need a Social Security card to do many of the things American citizens do—get a driver’s license or register for school, for instance. If you need an SSN, you can apply in your home country before coming to the United States or, having arrived in America, you can visit your local SSA office. The first is the easier option. When you visit the SSA, you’ll need your paperwork showing that you’re authorized to work in the United States. The SSA recommends you wait until ten days after arriving in the United States to make your application, since that will give the agency time to verify your documents from the Department of Homeland Security. You’ll also need: Two documents verifying your identity, immigration status, and age. A completed Application for a Social Security Card (Form SS-5), which you can download from the SSA’s website. As usual, the documents must be original and not photocopies. You can’t use one document as two forms of identification; the best and easiest forms are your birth certificate and passport. If you hold a J-1 or J-2 exchange visa, the SSA will want to see your Certificate of Eligibility for Exchange Visitor Status (Form DS-2019). If you’re a student holding a J-1 visa, you’ll have to provide the SSA with a letter from your sponsor on the sponsor’s letterhead, including an original signature. The letter should authorize you to work in the United States. If you are an international student with an F-1 or M-1 visa, the SSA will need to see your Certificate of Eligibility for Nonimmigrant Student Status (Form I-20). You’ll receive your Social Security card in the mail. Replacing a Lost or Stolen Card If your card disappears it’s extremely important that you report the loss and get a replacement card as soon as possible. Identify theft is among the most widespread crimes being practiced today, and as mentioned earlier, Social Security numbers are widely used as a form of identification. You’re only allowed to replace it three times in the course of a year and can only have ten replacement cards over your lifetime. If you think someone is fraudulently using your card or your child’s card, there are several ways to report it: Go to www.idtheft.gov Call 1-877-438-4338; or TTY: 1-866-653-4261 my Social Security If you want to apply for a replacement card (or check the amount of your monthly benefits, should you retire right now), the Social Security Administration has set up a website called my Social Security (www.ssa.gov/myaccount). You can go to this site and set up an account, and it will guide you through the steps you need to take. However, this online service is available only if you’re from certain states. You can use my Social Security to get a replacement card if you: Are a U.S. citizen, eighteen years or older, with a U.S. mailing address Are only requesting a replacement card (not a name change) Have a valid driver’s license or state-issued ID card from one of the following: District of Columbia (driver’s license only) Iowa Kentucky Michigan Nebraska New Mexico Washington Wisconsin (driver’s license only) Changing Your Name If you legally change your name when you get married, divorced, or for some other reason, you will have to change your name on your Social Security card. This is important because the government has to ensure that your earnings are properly tracked to credit your benefits. It would be really bad if, because you neglected to change your name in the SSA’s records, five or ten years of your working life was credited to the wrong benefit account. Fortunately, changing your name with the SSA isn’t difficult. Married or Divorced If you’ve recently married, and have changed your name, go to a SSA office with the marriage certificate as well as a document proving your previous identity (an expired driver’s license will work fine). If you’ve recently divorced, and changed your name, bring a copy of the divorce decree and a document proving your new name. Adoption or Naturalization If you have been adopted or have recently become a naturalized citizen, bring an adoption degree or Certificate of Naturalization. As well, bring two documents identifying you by your old name and by your new name. Protecting Your Social Security Number Guard Against Identity Theft Social Security numbers (SSNs) are among the most widely used forms of identification in the United States. You use them to get everything from a driver’s license to a credit card. For that reason, protecting your Social Security number is extremely important. Identity Theft in the United States Particularly with the expansion of the Internet and the growth of sophisticated computer systems, identity theft in the United States has skyrocketed. A U.S. Department of Justice study concluded that in 2012, identity theft accounted for about $24.7 billion in losses. That’s nearly double the $14 billion in other property crimes. Another analysis suggests that one in three Americans has been the victim of identity fraud. Bureau of Justice Statistics report that in 2014, 17.6 million U.S. residents experienced identity theft. Students and Identity Theft Many college students are victims of identity theft, partly because they are at the age when they start to obtain credit cards. Also, the practice of having grades posted by Social Security number is one way in which their identity is often stolen. This gives thieves a list of valid SSNs they can exploit. All of these statistics suggest the importance of protecting your identity, particularly your Social Security number. The SSA and other organizations have many suggestions about the best ways to do this. Here are a few: Don’t Carry Your Social Security Card with You There’s no reason at all for you to carry your Social Security card around in your wallet. It can be stolen; you could lose your wallet or leave it somewhere. Your Social Security card is extremely important, and you should not treat it carelessly. Leave it at home, preferably somewhere safe and secure where you keep other important documents. To keep it really safe, rent a safe-deposit box at your bank and store the card there. Don’t Give Out Your SSN Unless You Have To There are a relatively limited number of circumstances in which you will have to provide your Social Security number to anyone. If you open a bank account or are applying for a credit card, you’ll be asked for it. But there’s no reason for most people to know it or want to know it. It’s not uncommon for various retailers to ask for the last four digits of your SSN; but be cautious about giving out the full number. The Bank Scam This is a widespread scam that particularly targets elderly people. Your phone rings, and the voice on the other end says he’s from your bank. He informs you that there’s been some questionable activity in your account. So far, this all sounds normal. This kind of thing happens, and usually the bank will (assuming the suspicious transactions are unauthorized) void your debit/credit card and issue you a new one. But this time, the friendly voice on the other end of the line asks you to “confirm” your account by giving him your Social Security number and your bank account number. Don’t do it. The bank doesn’t need either of those pieces of information from you. If you’re still worried, stop by a branch of the bank and ask the bank manager about the phone call. Beware of Unsecured Websites A huge amount (though not all) of identity theft takes place through the Internet. All of us are so connected, through our smartphones, laptops, and all our other devices that we tend to grow careless about protecting important information like our Social Security numbers. If a website address begins with https:// (as opposed to http://; the letter s is the key here), that indicates that it’s a secured site. You should still be cautious about giving out your SSN, but at least on a secured site you will be relatively safe from identity theft. In general, it’s a good idea not to click on websites unless you have some idea of what they are. Many scammers set up websites that look as if they are legitimate. The same thing goes for e-mail. If you receive an e-mail from someone you don’t know and with a subject line you don’t recognize, delete it rather than open it. Many such e-mails are designed to steal your personal information, including your Social Security number. Get a Shredder Identity thieves look for documents that contain your Social Security number. With all the stuff that comes in the mail for you, it’s not surprising that some of it will have information that identity thieves find valuable. You can deny them access to this sort of information by running your billing receipts, credit card offers, and so on through a shredder. Shredders are cheap, and you can pick one up at your local office supplies store. Phishing for Numbers An extremely common online scam technique is called “phishing.” Here’s how it works: You receive a piece of unsolicited e-mail. It might appear to come from somewhere you know (your bank, for instance); or it might be an enticement that offers you something for nothing (“Click here for thousands of dollars in free quality merchandise!”). If you click on the link and go to the site, you’ll be asked to put in various bits of information—your password, your SSN, your address, and so on. The owners of the site want you to give them as much information as possible so they can steal your identity. A good rule of thumb is to be suspicious of unsolicited e-mails and avoid sites with which you’re not familiar. And be wary of great offers. If something sounds too good to be true—it probably is. What to Do If, despite your best precautions, you think your Social Security number has been stolen, then you need to take immediate action to prevent serious damage from happening to your accounts and your credit. You should: File a police report as soon as you discover the theft. Sadly, identity theft has become extremely common, so police resources are stretched. There is a limited amount the police can do to help you. But you should still notify them to help protect yourself in the event that someone attempts to use your identity. Get in touch with your bank. Inform them that someone has stolen your Social Security number. They’ll be on their guard and will monitor your account to make sure there is no suspicious activity. It’s possible they may issue you a new debit card. Report the theft to one of the three major credit score agencies: Equifax, TransUnion, or Experian. Ask them to place a fraud alert in your file. Contact the Internal Revenue Service at www.irs.gov/uac/identity-protection or call them at 1-800-908-4490. Get in touch with the Federal Trade Commission at www.idtheft.gov. You can also call 1-877-IDTHEFT. After doing this, carefully monitor your bank account and credit card accounts. Keep up the monitoring for several months to make sure there’s no unauthorized activity. If there is, report it immediately to your bank and the appropriate credit card companies. Myths about Social Security Numbers The tinfoil hat crowd on the Internet has spread some strange rumors over the years about Social Security numbers. Foremost among these is the idea that your SSN contains information that identify you to the government. In particular, it’s said that the middle two numbers indicate your race. This is untrue. The first three digits are an Area number; the second two are a Group number; and the last four are a Serial number. There are no hidden codes or meanings in any of this. Your Social Security number is deeply important to maintaining your identity as a U.S. citizen. Never be careless with it. Qualifications for Receiving Benefits Who’s Eligible? A lot of myths have been passed around the Internet about who’s receiving Social Security benefits. Many people, for instance, believe that illegal immigrants, immediately upon arriving in the United States, file for and start getting Social Security benefits. Others suggest that there is massive fraud in the system and that people are getting two, three, or more sets of benefit payments. While there’s unquestionably some degree of fraud practiced in relationship to the system (like any large, complex system Social Security is subject to some degree of fraud), the truth is that the retirement part of Social Security works pretty much the way it’s supposed to. Those who paid into the system are the ones who get benefits. Those who didn’t, don’t. All U.S. citizens who work in the United States are qualified to receive Social Security benefits. As a worker, every time you receive a paycheck the government deducts money from it to pay for the Social Security system. As mentioned earlier, these deductions, or payroll tax, are marked on your check as FICA, which stands for Federal Insurance Contributions Act. As it’s currently set up, Social Security gives you one credit for every $1,260 you earn. You can earn a maximum of four credits per year, and when you’ve earned forty credits, you’re eligible to start receiving benefits. (Keep in mind that the $1,260 number is adjusted each year to take inflation and other things into account.) Who Else Qualifies? Assuming you fall into the category of those qualifying for benefits, there are some members of your family who may also be eligible to receive benefits. These include: Your spouse, if she or he is sixty-two or older Your spouse, if she or he cares for a dependent child who is younger than sixteen or is disabled Your children, if you’re collecting benefits. The children must be either: Younger than eighteen and not married Disabled Full-time students up to and including the age of nineteen and unmarried Dependent grandchildren An ex-spouse who is at least sixty-two and retired, hasn’t remarried, and to whom you were married at least ten years and have been divorced from for at least two years Expanding the Definition of Marriage Like other agencies of the federal government, the Social Security Administration has had to adapt to changing definitions of marriage. In particular, the SSA now recognizes same-sex marriage as qualifying for spousal benefits throughout all fifty states. When a Breadwinner Dies There are certain circumstances in which someone can receive Social Security benefits even if he or she isn’t yet sixty-two years old. For example, if a family’s principal breadwinner dies, then the widow or widower might be eligible to receive Social Security benefits. We’ll discuss this more thoroughly in the section of this book that deals with benefits for widows and widowers. For now, just note that this is an aspect of coverage within the Social Security system. How Much Will I Get? In determining the amount of money to pay a beneficiary, the SSA takes three key things into account: How long you have worked How much you earned How old you are when you decide to start taking benefits These determinations apply whether you’ve spent your career being employed by other people or if you have been self-employed for all or part of your working life. Your Working Life The Social Security Administration looks at the totality of your working life and asks: What were your top-earning thirty-five years? Note that these need not be consecutive years. If you had significant earnings for ten years, then were unemployed for a couple of years, and then worked again for another twenty-five years, the government will discount the unemployed years. Who Doesn’t Qualify? Even though most U.S. workers are covered by Social Security, some are not. These include: Federal workers who were hired before 1984 Some state and local workers Railroad workers who’ve worked on the railroads for more than ten years Still that leaves more than 95 percent of the U.S. workforce covered. If you didn’t work for an entire thirty-five years, the SSA will fill in the empty years with zeros. This is one reason why, especially if your employment over the years has been a bit spotty, it’s a good idea to keep working as long as possible. The years don’t have to be those that you worked most recently. The SSA starts from the beginning of your working life, when you first started paying taxes into the system, and goes from there. Using these top thirty-five years of your career, the SSA creates an average, called the average indexed monthly earnings (AIME). They use this number to determine your primary insurance amount (PIA), which is what your monthly benefit will be once you’ve reached your full retirement age (FRA). All of this information is encapsulated in your Social Security statement, which we’ll talk about shortly. Immigrants The Social Security Administration reaches out to immigrants in a number of ways: By visiting www.ssa.gov/multilanguage/, immigrants who do not know English well can choose from eighteen other languages to read about Social Security. Immigrants can request the services of an interpreter, whom the SSA will provide, free of charge. If you are a foreign student holding an F-1, J-1, or M-1 visa and are working on campus or by a special arrangement with the college or university, your earnings will not be taxed for purposes of Social Security. However, if you have a work visa of a different type, your wages can be taxed for Social Security. For more information about this, go to www.irs.gov/forms-pubs and look for publications 515 and 519. You can also call the Internal Revenue Service directly at 1-800-829-1040. Your Starting Date Another important factor that affects the amount of your monthly benefit is when you decide to start taking those benefits. The earliest age at which you can apply for Social Security benefits is sixty-two. However, this isn’t necessarily when you should start collecting them. We’ll discuss this later in more detail. But for right now, mark age sixty-two as the date you can first start collecting your benefits. Of course, if you continue working, especially if you have a reasonably high-earning job, you increase the number of years that can be figured into your AIME and thus, potentially, raise the amount of your benefit. This situation lasts until you reach age seventy. At that point, your AIME is fixed. You can continue to work, of course, but it won’t have any effect on increasing your benefit. Your Full Retirement Age When You’re Expected to Retire As discussed earlier, you can start taking your benefits when you turn sixty-two. However, it’s usually better to wait until you reach what the Social Security Administration terms your full retirement age (FRA). If you wait until you reach your FRA, you’ll receive your full retirement benefit, although you can increase the amount of your benefit even more by waiting until age seventy to file a claim. Determining Your FRA Congress changed the FRA in 1983. Up to that point, it had been pinned at sixty-five. Since this was the age at which it was anticipated that baby boomers would start to retire in large numbers (and thus start claiming benefits). Congress took several steps to increase the amount of money Social Security was taking in. One step was to increase the payroll tax rate. Another step was to increase the FRA. The following table indicates how the SSA currently figures full retirement age. Year of Birth Full Retirement Age 1937 or earlier 65 years 1938 65 years 2 months 1939 65 years 4 months 1940 65 years 6 months 1941 65 years 8 months 1942 65 years 10 months 1943–54 66 years 1955 66 years 2 months 1956 66 years 4 months 1957 66 years 6 months 1958 66 years 8 months 1959 66 years 10 months 1960 and after 67 years Figuring Your Life Expectancy When you’re determining questions such as when you should begin taking Social Security benefits, the underlying unknown is, How much longer am I going to be alive? Obviously, it’s impossible to predict the answer to that with any degree of certainty, but statisticians have given us a pretty good general idea. Their conclusions are reflected in the following table. Age Total Years Remaining Male Female 0 77.9 75.4 80.4 1 77.5 74.9 79.9 5 73.6 71.0 76.0 10 68.6 66.1 71.0 15 63.7 61.1 66.1 20 58.8 56.4 61.2 25 54.1 51.8 56.3 30 49.4 47.1 51.5 35 44.6 42.5 46.7 40 39.9 37.8 41.9 45 35.4 33.3 37.2 50 30.9 29.0 32.7 55 26.7 24.9 28.2 60 22.5 20.9 23.9 65 18.6 17.2 19.9 70 15.0 13.7 16.0 75 11.7 10.6 12.5 80 8.8 7.9 9.4 85 6.5 5.8 6.8 90 4.6 4.1 4.8 95 3.2 2.9 3.3 100 2.3 2.1 2.3 Clearly there are lots of factors involved, and this chart is pretty simple. For a more sophisticated and complex calculation, go to www.livingto100.com. The purpose of this examination is to figure out whether or not you should take early benefits—that is, start collecting them before you reach your FRA. In general, you’re trying to determine what financial planners call a “break-even point.” You do this by comparing the differing amounts you’ll get from Social Security, depending on when you claim benefits and how long you live after that. If you claim benefits early but don’t live to your break-even age, then you made the right decision to claim early. If you claim later and live longer, you again made the right decision, since your benefit will be larger than if you’d claimed early. The bad decision is to claim early and then live up to or past your break-even age. That’s the point at which you’ve left money on the table and may even have financial difficulties because of the smaller size of your benefit. In subsequent chapters we’ll discuss more details of taking early benefits versus claiming later. Getting Started with Social Security What You Need to Know Although it’s pretty easy to apply for benefits, the Social Security Administration recommends that you apply three months before you want your benefits to start coming. They strongly urge you to apply online rather than in person. “In most cases, once your application is submitted electronically, you’re done. There are no forms to sign and usually no documentation is required. Social Security will process your application and contact you if any further information is required.” —Social Security Administration You can use the online application if you’re at least sixty-one years and nine months old, are not currently receiving benefits, haven’t already applied for benefits (say, at a regional SSA office), and don’t want benefits to start any later than four months from the time you apply. You can apply online on the Social Security Administration's website, www.ssa.gov/onlineservices/. The SSA's online hours of operation are Monday through Friday 5 A.M. to 1 A.M.; Saturday from 5 A.M. to 11 P.M.; and Sunday from 8 A.M. to 11:30 P.M. Other Ways to Apply There are two other ways to apply for benefits: over the phone and in person. Applying in Person You probably don’t want to sit around at the SSA office, patiently waiting for the long line of people ahead of you to finish their business. However, you can significantly cut down on your wait time by making an appointment ahead of time. Call 1-800-772-1213 and set up a time to talk to someone. Particularly if you’re unsure or insecure about parts of the process, this is a good route to go. Applying over the Phone To apply over the phone, call 1-800-772-1213 Monday through Friday between 7 A.M. and 7 P.M. However, be aware that the phone lines are likely to be busy early in the morning and will be especially busy early in the week and the month. So be ready to sit on hold for quite a while. What Should You Know? Before applying, whether online, over the phone, or in person, there are certain basic things you should know: Your full retirement age. You can learn this from the table in the previous chapter. Generally speaking, it will be between sixty-six and sixty-seven. You need to know this even if you’re applying for benefits before reaching your FRA. When you can start receiving benefits. You can start taking benefits any time after turning sixty-two or as late as age seventy. Remember that if you take early benefits (that is, take them before reaching your FRA), you will not receive your full benefits. If you wait until you reach age seventy, your benefit will be larger than if you start taking it at your FRA. How working during retirement can affect your benefits. We’ll discuss this important question shortly. Delayed retirement credits. We’ll talk about these in the next section. Your life expectancy. Look this up on the table in the previous chapter. Retirement Estimator The Social Security Administration has very kindly provided a Retirement Estimator to calculate how much your benefits will be at different ages. You can access the Retirement Estimator at www.ssa.gov/retire/estimator.html. Delayed Retirement Credits If you choose to begin taking your Social Security benefit some time after you’ve reached and passed your full retirement age, your benefits increase. The longer you delay, the greater the increase, until you reach age seventy. At that point, the additional increases stop. You can continue to work, of course, but it won’t make a difference in the size of your benefits. The following table, taken from the SSA’s website, shows the rate of increase for people born in different years. If you were born January 1, refer to the rate of increase for the previous year. Increase for Delayed Retirement Year of Birth Yearly Rate of Increase Monthly Rate of Increase 1933–34 5.5% 11⁄24 of 1% 1935–36 6% 1⁄2 of 1% 1937–38 6.5% 13⁄24 of 1% 1939–40 7% 7⁄12 of 1% 1941–42 7.5% 5⁄8 of 1% 1943 or later 8% 2⁄3 of 1% Retroactive Benefits Here’s an important note from the SSA: “If you’ve already reached full retirement age, you can choose to start receiving benefits before the month you apply. However, we cannot pay retroactive benefits for any month before you reached full retirement age or more than 6 months in the past.” The question of when to start taking your benefits is key to a successful retirement. Most financial experts advise delaying the start of benefits as long as possible. © 123rf.com/zimmytws This is particularly useful if you’re past your FRA but have an urgent need for a lump sum of cash, perhaps for a medical emergency. For example, David has decided that rather than beginning his benefits at age sixty-seven, his FRA, he will delay taking them until he reaches age seventy. However, at age sixty-nine he develops an illness that requires a lengthy operation. Not all the cost will be covered by his insurance, so he decides to apply for retroactive Social Security benefits. David receives a delayed retirement credit (DRC) for the two years he’s past his FRA. Unfortunately, he can only receive six months’ worth of benefits, but all the same the lump sum he receives goes a long way toward paying some of the bills for his operation. The Documents You’ll Need To file for Social Security benefits, you have to have a sizeable amount of information about yourself, backed up with original documents. The part about “original” is important; the SSA will not accept photocopies of your birth certificate and other documentation. Lost Your Birth Certificate? If you’ve lost your birth certificate or never had a copy of it in the first place, the state and city of your birth will be able to provide it to you. Go to city hall in the city or town in which you were born and ask for a copy. You’ll have to provide photo ID (your driver’s license is sufficient) and pay a small fee to cover the costs of the transaction. Documents you’ll need include: Birth certificate or other proof of birth Proof of U.S. citizenship; if you’re an alien legally residing in the United States, proof of your legal status If you’re a veteran who served before 1968, a copy of your military service papers Copies of your W-2 forms; if you work for more than one employer, W-2s from each of them If you’re self-employed, a copy of your most recent tax return If you’re married to the chief breadwinner in the household, your marriage certificate Estimating Your Benefits How Much Are You Going to Get? You need to take Social Security benefits into account as an important part of your financial picture for retirement. When you begin to draw up your retirement budget, though, you need a clearer idea of exactly how much those benefits might be. The two factors that determine this are: How much have you earned? When do you intend to start taking benefits? The first step in determining what the answer to those questions might be comes in the form of your Social Security statement. Your Statement Between ages twenty-five and sixty, the Social Security Administration mails your statement to you every five years. When you hit the magic age of sixty, you’ll start receiving your statement every year. The Check Is Not in the Mail One significant change from past practices is that the SSA no longer mails out actual physical checks every month to those taking benefits. Since 2011, the SSA has required that recipients of benefits receive their money through electronic transfer to their bank accounts. Therefore, when you sign up for Social Security benefits, you’ll have to provide some information about your bank account (specifically, the routing number, which is the number at the bottom left-hand corner of your check). You also have the option—if you don’t have a bank account or don’t want to give the SSA information about it—of using a prepaid debit card. Each month, the amount of your benefit is automatically loaded on the card, and you use it to make purchases, just as you would a regular bank debit card. What’s on Your Statement? The statement you receive will contain three things: Your estimated benefit Your year-by-year earnings that the system used to estimate your benefit An explanation of how the SSA uses the information it has gathered to calculate your benefit Estimated Benefit In the top right-hand corner of the first page of the statement is your estimated benefit at your full retirement age. Inside, the statement tells you: Whether you’ve earned enough credits to qualify for retirement benefits What your retirement benefits would be if you retired at your FRA, if you retired at age sixty-two, and what they’d be if you retired at age seventy Whether you’ve earned enough credits to qualify for disability benefits and, if you are disabled right now, what your monthly benefit would be Whether your spouse and children would qualify for survivors benefits in the event of your death, and what those monthly benefits would be (this is broken down by child and spouse caring for the child, as well as spouse if she or he started taking those benefits at your FRA) The limit on total family survivors benefits Whether you have enough credits to qualify for Medicare Let’s look, briefly, at the statement of Marilyn, who turned sixty-two several months previously. She examines her statement and sees that she’s earned enough credits to take Social Security benefits. She can get $1,429 a month if she claims her benefits now. However, if she waits five years until her full retirement age of sixty-seven, her benefits increase to $2,006 per month (an increase of almost 29 percent). Further, if she can wait until she turns seventy to claim, her benefits rise to $2,787, an increase of 28 percent over the amount she would get by claiming at her FRA, and an increase of almost 49 percent over what she would get by claiming now. Sensibly, Marilyn decides to wait at least until she reaches her FRA. At that point she can re-evaluate the situation and see if she wants to wait until age seventy. (This, of course, is where the issue of life expectancy kicks in. If Marilyn’s family has a history of living many years, it makes sense to wait the longer time. If they tend to die earlier, she may want to put in her claim at her FRA or even, depending on her life expectancy, at the early age of sixty-two.) Year-by-Year Earnings Record This is a table on your statement. It shows how much taxable income you earned for each of the thirty-five years that Social Security averaged to come up with your estimated benefit. You may notice that some years are marked with zeros. Those were years in which you had no taxable income. The longer you work, the more of those zeros will go away and be replaced by income numbers, and the higher your estimated benefit will be. If you earned more than $118,500 in a given year, that’s all the taxable income the statement will show (even though you may have actually earned quite a bit more). That’s because $118,500 is the upper limit on income taxable for Social Security. At the bottom of the table are the totals of tax paid by you and your employer toward Social Security and Medicare. Marilyn’s work history shows considerable variation in her taxable income. For seven years, she had none, so these years appear as zero. On the other hand, in one year her taxable income rose to more than $80,000. For the past few years, her taxable income has remained relatively steady. Marilyn knows that her situation will be improved if she can replace those zeros with some numbers. Working past her FRA until she turns seventy will do that, giving her an increased benefit. Medicare Cap versus Social Security Cap Although there is a cap on Social Security taxable earnings ($118,500), that is not true of Medicare. The maximum taxable amount for Medicare began increasing in 1991, and since 1994 there has been no cap on earnings that are taxable to pay for the program. Explanation of Social Security The third part of your statement explains in some detail how Social Security works. Topics it takes up include: Retirement benefits Disability benefits Family benefits Survivors benefits Extra help with Medicare Working while receiving benefits The section has extensive links (if looking at your statement online) to resources as well as phone numbers to call for assistance and information. my Social Security If you want to look at your statement or get other information about your benefits, the best thing is to set up a my Social Security account. To set it up, go to www.ssa.gov/myaccount. The site will allow you to access your statement any time you want. If you find an error in your statement, it’s important to draw it to the attention of the SSA immediately so that it can be corrected. If you feel your earnings were misreported for a particular year, find your W-2 for that year and have it in hand when you call the SSA at 1-800-772-1213. Disability Benefits When You Can’t Work Anymore No one gets up in the morning and says, “I think I’ll be injured today so I can’t work anymore.” Disability is something that is difficult, if not impossible, to plan for accurately. You don’t know if or when it’s going to happen and what sort of financial assistance you’ll need. And the fact is, it’s more common than we tend to think. It’s estimated that a twenty-year-old worker has a one-in-four chance of becoming disabled before she or he reaches full retirement age. The Social Security Administration’s statistics show that in 2015 the agency received 2.4 million applications for disability benefits; of those, the SSA awarded benefits in more than 775,000 cases. Currently about 8.9 million workers receive disability payments. Like other aspects of your financial planning, Social Security is not the sole answer to the financial issues of being unable to work. Nonetheless, Social Security disability benefits can be a big help in coping with something that’s personally and professionally devastating. Social Security Disability Insurance (SSDI) The government pays two kinds of disability benefits: SSDI and Supplemental Security Income (SSI). We’ll deal with SSI in a separate section. We’ll also talk later about Social Security’s plans for children who suffer from disabilities. For now, let’s concentrate on SSDI. Taking disabilities can present challenges, since the Social Security Administration requires proof that you can’t do your job or any related job making use of your skills. © 123rf.com/Brian Jackson The SSA explains its disabilities program in this way: Social Security pays benefits to people who can’t work because they have a medical condition that’s expected to last at least one year or result in death. While some programs give money to people with partial disability or short-term disability, Social Security does not. Earnings Tests To determine whether or not you’re eligible for Social Security disability benefits, you must consider two earnings tests: A recent work test A duration of work test For the recent work test, the SSA offers the following table: Rules for Work Needed for the Recent Work Test If you became disabled: Then, you generally need: In or before the quarter you turned 24 1.5 years of work during the 3-year period ending with the quarter your disability began. In the quarter after you turned age 24 but before the quarter you turned 31 Work during half the time for the period beginning with the quarter after you turned 21 and ending with the quarter you became disabled. Example: If you became disabled in the quarter you turned age 27, then you would need 3 years of work out of the 6-year period ending with the quarter you became disabled. In the quarter you turned age 31 or later Work during 5 years out of the 10-year period ending with the quarter your disability began. The SSA also provides a table to determine where you stand on the work test: Examples of Work Needed for the Duration of Work Test If you become disabled: Then you generally need: Before age 28 1.5 years of work Age 30 2 years Age 34 3 years Age 38 3 years Age 42 5 years Age 44 5.5 years Age 46 6 years Age 48 6.5 years Age 50 7 years Age 52 7.5 years Age 54 8 years Age 56 8.5 years Age 58 9 years Age 60 9.5 years Benefits to Dependents If you are the principle breadwinner in your family and you become disabled, your spouse may be entitled to benefits. To receive these benefits your husband or wife must be at least sixty-two years old or must be caring for your child, who must be under sixteen years old. Applying for Disability Benefits You can apply for disability benefits the same three ways as you can for retirement benefits: by phone, in person, or online. The SSA warns that processing time for an application can take anywhere from three to five months, so it’s important to start the application process as soon as you’re able. To apply, you’ll need the following documentation: Social Security number Birth certificate Names, addresses, and phone numbers of the medical personnel who took care of you and the dates on which you received care Names and dosages of prescription medicine you take Medical records from the treatment you’re receiving; this includes doctors, therapists, hospitals, and clinics Laboratory and test results Proof of where you worked and what kind of work you did A recent W-2; if you’re self-employed, your most recent tax return Sadly, this being the government after all, you’ll spend quite a lot of time filling out forms. Keep going, though. This is very important to your financial well-being. If You’ve Committed a Crime If you have an outstanding warrant for your arrest or if you’ve been convicted of a crime, you must let the Social Security Administration know. You can’t receive disability benefits during the time you’re in jail, but your eligible family members can continue to receive their benefits. Deciding If You’re Really Disabled After you’ve completed your application it goes to the Disability Determination Services (DDS) in your state for consideration. These folks will contact your doctors or other caregivers to find out more details of your medical condition. It’s possible you may have to go for a special examination, either by your doctor or one picked by the DDS. In the end, the DDS makes its recommendation to the SSA about whether to grant your application based on five questions: Are you working? Is your medical condition “severe”? Does your condition match an SSA listing for disability? Can you do the type of work you did before? Can you do any other kind of work? This last point is crucial and is a reason many disability claims are disallowed. Even if you’re unable to perform the kind of work you did before you suffered the disability, it’s possible you may have the education, training, or physical skills to do something else. If that’s the case, your claim will probably be denied. The SSA will notify you by letter of the resolution of your claim. If the claim’s been approved, the letter will tell you how much money you’ll get per month and when payments will start. Appealing a Denial If your claim is denied and you disagree with the reason (outlined in the letter from the SSA), you have the right to appeal the decision. Appealing a decision by the SSA for the denial of SSDI benefits is the same as any other SSA appeals process. We’ll discuss in detail a bit later how the SSA appeals process works. Family Disability Benefits Because the government understands that your disability also affects members of your family, it’s possible to obtain benefits for them as well. These include: Your spouse, if she or he is sixty-two or older Your spouse, if she or he is caring for your child and the child is younger than sixteen or disabled Your unmarried disabled child younger than eighteen Your child eighteen or older if she or he has a disability that began before the child reached the age of twenty-two Other Benefits and Disability It’s possible for other benefits to be affected by your disability benefits. We’ll discuss this in more detail in the respective chapters that cover the Windfall Elimination Provision and the Government Pension Offset. Ticket to Work If you’re eighteen through sixty-four years of age and qualify for disability benefits, the Social Security Administration offers you a program called Ticket to Work. Its object is to train you, free of cost, in skills that can lead to employment. The SSA explains: When you take part in the Ticket to Work program, you can get help finding a job, vocational rehabilitation, or other support. Employment networks and state vocational rehabilitation agencies provide these services. These networks include private organizations and government agencies that have agreed to work with Social Security. They provide employment services and other support to beneficiaries with disabilities. If you want to apply to participate in the program, you can call the Ticket to Work Help Line at 1-866-968-7842 or visit the website at www.ssa.gov/work. Supplemental Security Income Adding to Your Disability Benefits As you can see from the previous chapter, the Social Security Administration is careful in its definition both of “disabilities” and who qualifies for disability benefits. These benefits are the primary way in which the system assists workers who, for one reason or another, are unable to work. In this chapter, we’ll talk about a second kind of disability benefits: Supplemental Security Income (SSI). Where Did It Come From? The original 1935 act that created Social Security also mandated state programs of Aid to the Blind, Old-Age Assistance, and Aid to the Permanently and Totally Disabled. In the 1970s, the Nixon administration decided to federalize and centralize these programs under the umbrella of the SSA. The result was a 1972 amendment creating SSI. The program began in 1974. Differently Funded Unlike Social Security, which is primarily funded by a payroll tax (FICA), the SSI is funded out of general Treasury revenues, which come from income tax, corporate taxes, and other sources. As of August 2014 SSI benefits were going to 8.3 million people, 1.3 million of whom were under the age of eighteen. These numbers, and the amount of dollars being doled out by the program, continue to increase. This represents a challenge to the government, since SSI isn’t funded the same way as Social Security and therefore isn’t subject to the same kinds of fixes we discussed earlier. Who’s Eligible? The key determinants for whether or not you qualify for SSI are your age and your income. In calculating your income, the Social Security Administration does not count the following: The first $20 in income you receive each month from all sources The first $65 you earn in a month as wages and half of your earnings over $65 received in a month Supplemental Nutrition Assistance Program (SNAP) benefits Most home energy assistance Part of your spouse’s income is included in the calculation; if you’re under eighteen, the SSA uses part of your parents’ income in calculating your income. To qualify for SSI benefits, your income must be less than $733 per month if you’re an individual ($1,100 for couples). Note that these figures are as of 2016 and change from year to year. For the latest information on this, go to www.ssa.gov/ssi/. Disabled but Working If you are disabled but are still working, any money you spend on items you need because you’re disabled (e.g., a wheelchair, crutches, special transportation) is deducted from the SSA’s calculation of your income. Under the same logic, the SSA deducts from the income calculation any money a blind person uses to do her or his work. In addition to income, the SSA includes in its means test your resources (that is, assets you own, as opposed to money you earn): Real estate (but not, it’s important to note, your primary home) Cash Bonds Stocks Savings The SSA doesn’t count as part of your resources your car, insurance policies worth less than $1,500, and burial plots you own. If your resources total $2,000 or less ($3,000 for a couple), you may be eligible for SSI. How Is Your Benefit Calculated? After the Social Security Administration has calculated your countable income, excluding the various things listed in the preceding section, it subtracts this number from the benefit amount (currently $733 for individuals). Let’s take a for instance: John is sixty-three and suffers from diabetes, which makes him no longer able to work at his lifelong job. His Social Security benefit is $400 per month. This counts as income, but the SSA deducts the first $20 of it: $400 – $20 = $380. Now the SSA subtracts $380 from the current SSI benefit: $733 – $380 = $353. John is eligible to receive a monthly SSI benefit of $353. By applying for and receiving SSI benefits, he’s come close to doubling his monthly income. Now let’s look at a slightly more complicated example. Emily, sixty-four, is still working part-time but suffers from a disability. Her monthly wage is $317. She applies for SSI benefits. First the SSA subtracts $20 from her wages, since they count it as income: $317 – $20 = $297. Next, the agency subtracts the first $65 of her earned wages: $297 – $65 = $232. Finally, since $232 is more than 65, Emily’s countable income is divided in half: $232 ÷ 2 = $116, so $232 – $116 = $116. The SSA now subtracts that from the current benefit amount for individuals: $733 – $116 = $617. This means Emily will receive an SSI monthly benefit of $617. That’s in addition to any money she’s receiving from Social Security, if she’s already put in for benefits. As a further qualification for SSI, you must live in the United States or the Northern Mariana Islands. You must also be a U.S. citizen. Mentally Ill Straining Social Security In a 2006 book, Disability Rights and the American Social Safety Net, Jennifer L. Erkulwater argues that one of the main drivers of the increase in disability claims is mental illness, particularly among the young. “Between 1989 and 2001, the proportion of children with a mental impairment grew more than fivefold, increasing from only 6 percent of all children receiving SSI to 32 percent. Today, children and adults with mental disorders outnumber beneficiaries in all other diagnostic categories.” How to Apply for SSI The process for applying for SSI is the same as that for applying for disability benefits. The list of materials you should bring is similar. You will need: Birth certificate Social Security card (or other proof of your SSN) A mortgage if you own your own home; if you rent, a signed lease Information about your income, such as payroll slips, insurance policies, etc. Contact information for doctors, hospitals, and clinics where your disability has been treated Proof of citizenship Your checkbook or some other document that includes your bank account number SNAP and SSI If you’re eligible for SSI, you may get additional financial assistance through the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. You can sign up for this program at a SSA office, or you can go online at www.fns.usda.gov/snap. Children with Disabilities Protecting Your Offspring If you’re the parent of a child with disabilities, you know how challenging life can be. In addition to