One of the largest and most impactful U.S. Government Programs for citizens is the Social Security Administration. Benefits administered by this agency affect most Americans. Let’s look at the various means to realizing these important benefits.
First, there are several ways to qualify for Social Security Benefits:
- You can qualify on your own work history.
- You may be eligible based on someone else’s work history.
- You may be eligible before reaching age 62.
To qualify on your own work history, you generally must have worked (and paid in to the
SSA system) for a period of 40 quarters (3-month periods of employment). Your employer withholds 7.65% of your earnings and remits them to the IRS for allocation to the SSA. (Stay with me; this can get a little confusing.) Your employer is required to match your contribution with 7.65% for a total payment to the SSA of 15.3%.
The component of the withholding that pertains to your Social Security Benefit is limited in 2019 to the first $132,900 of earned income. The remaining 1.45% of the withholding is designated for the Medicare System which will provide hospitalization, health and prescription benefits, if you elect, when you retire.
To earn one (1) credit, which is applied towards your total of forty (40) credits needed to qualify for benefits, you must earn $1,360 in a three-month period to earn one credit. A maximum of four (4) quarters may be earned in a calendar year.
Another means of qualifying for benefits is being married to an individual who paid in SSA benefits during their work history. Assume your spouse worked in a position that provided greater salary than you. During their work history, she earned far more than you. You both are the same age and elect to file for SSA benefits at full retirement age of 66 years.
In our example above, assume your spouse’s benefits are the maximum allowed under the SSA payout formula, $2,861. Your benefits are calculated at $1,000 per month. At first glance, you may not realize that you have an election to make under the SSA regulations. If you have been married to your spouse for ten (10) years or more, you may receive benefits based on their earnings history. To simplify this option, you may be entitled up to one-half (½) of the benefits credited to your spouse or your actual benefits, whichever is higher. In our example, you would have earned $1,000 per month but will be allowed to receive $1,430 per month! This provides your household a 43% increase in your earned benefits.
Lastly, you may receive benefits prior to reaching age 62. This may occur if your spouse predeceased you and your age is 60 (or age 50, if disabled). To mitigate the loss of your spouse’s income, your children may qualify for benefits, too. The children must be younger than 18 years of age or between 18 and 19 years of age while continuing to attend secondary school as a full-time student or age 18 or older and disabled (provided the child was disabled before age 22).
The programs administered by the SSA are complicated to understand for most people. It is critical that you make informed decisions that will provide the greatest impact for your family. Seek out the assistance of a CFP practitioner or a CPA who specializes in these benefits. What you don’t know, can hurt you.