Presentation on theme: "Session 2 Fundamentals of Social Security"— Presentation transcript:
1 Session 2 Fundamentals of Social Security CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee BenefitsSession 2 Fundamentals of Social Security
2 Session Details Module 1 Chapter(s) 4 LOs 1-5 1-7 Identify and categorize basic provisions of an OASDI program: retirement, survivorship, and disability.1-7Analyze a given situation to calculate the taxation of Social Security benefits.
3 OASDI Old Age, Survivors, and Disability Insurance has three main components:Retirement (old age)Disability (disability of wage earner)Survivorship (death of wage earner)
4 Key Terms in OASDI Programs Quarter of coverage ($1,220 in 2015)Currently insured/Fully insuredAverage Indexed Monthly Earnings (AIME)Full retirement age (FRA)Primary Insurance Amount (PIA)Spousal benefitBenefit reductions due to ageBenefit reductions due to earningsEvents that trigger the end of benefitsDivorced spouse coverage (married 10 years)
5 Full Retirement Age Born Full Retirement Age Age 62 Benefit Before 19386580%65 plus monthly adjustment75-80%6675%66 plus monthly adjustment70-75%After 19606770%
6 Benefit Reductions Due to Earnings AgeYou will loseAmount (2015)62 to year of FRA$1 in benefits for every $2 of earnings above$15,720Year you reach FRA$1 in benefits for every $3 of earnings above$41,880After reaching FRANo benefit reductionUnlimited
7 Retirement Earnings Test Example ItemAmountTotal Social Security benefits(75% of maximum FRA amount)$23,967Earnings$41,560Social Security earnings limit (2015)$15,720Excess earnings$25,840Reduction in Social Security benefits(50% of excess earnings)$12,920Net Social Security benefits$ 11,047
8 Qualifying for Social Security Disability Benefits Disabled worker must be fully insured (at least 40 quarters) andHave worked for at least 20 of the last 40 quarters
9 Qualifying for Social Security Survivor Benefits Deceased worker must have been either fully insured (40 quarters) orCurrently insured (at least 6 of last 13 quarters)
10 Social Security Benefit Review Benefits will be paid to:RetirementDisabilityDeathWorker, Under FRAReduced* PIA100% of PIAN/AWorker, FRA & OverDisability benefits cease; retirement benefits beginSpouse, age 60 or 61No benefit100% of PIA, reducedSpouse, age 62 to FRA50% of PIA, reduced100% of PIA,reducedSpouse, FRA or older50% of PIASpouse, any age, caring for child under age 16 or disabled75% of PIA, reduced (worker was currently insured)Unmarried child under age 18 (19 if in high school) or any age if disabled50% of PIA (subject to family maximum)Slide assumes age 65 as NRA
11 Johnson Family Example Robert Johnson died at age 35. Survivors are:Wife, Jane (age 35).Daughter, Juli (age 6).Son, Bobby (age 3).His PIA is $1,200.Maximum family benefit is $2,250.
12 Family Limits Jane’s Age Juli’s Benefit, 75% of PIA Reduced to $750 Bobby’s Benefit, 75% of PIA Reduced to $750Jane’s Benefit, 75% of PIA, Reduced to $750Widow(er)’s Blackout Period*Jane’s SS = 71.5%† PIA$1,200 PIA X 75% =$900$2,700$2,250family max.$450reduction35404547485055606566Jane’s Age*If widow(er) is disabled within seven years of spouse’s death. Social Security payments may begin at age 50.† If benefits begin at % PIA; at 62.75% PIA: at 65, 100% PIA.
13 Income Tax on Social Security Benefits Threshold income: joint filersThreshold income: single filersPercent of Social Security retirement benefit subject to income taxLess than $32,000Less than $25,000None$32,000 to $44,000$25,000 to $34,000Up to 50%Greater than $44,000Greater than $34,000Up to 85%
14 Income Tax on Social Security Benefits Thresholds are arrived at by using “provisionalincome.” The main components of provisionalincome are:AGITax-exempt interest income (muni bonds)One-half of OASDI benefits
15 CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee BenefitsSession 2 End of Slides