1. Session 2 Fundamentals of Social Security
CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits
Session 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.
1-7
Analyze 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 insured
Average Indexed Monthly Earnings (AIME)
Full retirement age (FRA)
Primary Insurance Amount (PIA)
Spousal benefit
Benefit reductions due to age
Benefit reductions due to earnings
Events that trigger the end of benefits
Divorced spouse coverage (married 10 years)

5. Full Retirement Age Born Full Retirement Age Age 62 Benefit
Before 1938 65
80%
65 plus monthly adjustment
75-80% 66
75%
66 plus monthly adjustment
70-75%
After 1960 67
70%

6. Benefit Reductions Due to Earnings
Age
You will lose
Amount (2015)
62 to year of FRA
$1 in benefits for every $2 of earnings above
$15,720
Year you reach FRA
$1 in benefits for every $3 of earnings above
$41,880
After reaching FRA
No benefit reduction
Unlimited

7. Retirement Earnings Test Example
Item
Amount
Total Social Security benefits
(75% of maximum FRA amount)
$23,967
Earnings
$41,560
Social Security earnings limit (2015)
$15,720
Excess earnings
$25,840
Reduction in Social Security benefits
(50% of excess earnings)
$12,920
Net Social Security benefits
$ 11,047

8. Qualifying for Social Security Disability Benefits
Disabled worker must be fully insured (at least 40 quarters) and
Have 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) or
Currently insured (at least 6 of last 13 quarters)

10. Social Security Benefit Review
Benefits will be paid to:
Retirement
Disability
Death
Worker, Under FRA
Reduced* PIA
100% of PIA
N/A
Worker, FRA & Over
Disability benefits cease; retirement benefits begin
Spouse, age 60 or 61
No benefit
100% of PIA, reduced
Spouse, age 62 to FRA
50% of PIA, reduced
100% of PIA,
reduced
Spouse, FRA or older
50% of PIA
Spouse, any age, caring for child under age 16 or disabled
75% of PIA, reduced (worker was currently insured)
Unmarried child under age 18 (19 if in high school) or any age if disabled
50% of PIA (subject to family maximum)
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 $750
Jane’s Benefit, 75% of PIA, Reduced to $750
Widow(er)’s Blackout Period*
Jane’s SS = 71.5%† PIA
$1,200 PIA X 75% =
$900
$2,700
$2,250
family max.
$450
reduction 35 40 45 47 48 50 55 60 65 66
Jane’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 filers
Threshold income: single filers
Percent of Social Security retirement benefit subject to income tax
Less than $32,000
Less than $25,000
None
$32,000 to $44,000
$25,000 to $34,000
Up to 50%
Greater than $44,000
Greater than $34,000
Up to 85%

14. Income Tax on Social Security Benefits
Thresholds are arrived at by using “provisional
income.” The main components of provisional
income are:
AGI
Tax-exempt interest income (muni bonds)
One-half of OASDI benefits

15. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits
Session 2 End of Slides