T he B asics of

1. The Basics of Social Security A Public Service Presentation provided by the Society of Certified Senior Advisors

2. What this Presentation Will Cover Social Security • Retirement • How to Qualify • How Social Security Income is Determined • How Do I Receive My Benefits • Taxes and Social Security • Survivor Benefits • Disability and Social Security

3. Social Security Overview • Social Security began in 1935 and was designed to be a financial “safety net” to ensure the well being of retired workers and their families • The 5 major components of Social Security are: • Retirement • Disability and SSI • Survivor’s Benefits • Medicare

4. Retirement • Social Security (S.S.) is designed to be a foundation • It is not designed to be the only income source in retirement • Financial advisors recommend to use S.S. as 30% of retirement income • Average worker uses S.S. as 40% of retirement income • 1 out of 5 seniors uses S.S. as their only income source • The Social Security program will undergo changes in order to keep the system solvent and functioning

5. How Do I Qualify? • By working and paying Social Security taxes workers earn credits • Credit requirements are dependent on your birth year • Anyone born after 1929 needs 40 credits to receive benefits • 1 credit earned in covered employment, with a maximum of 4 per year • Individuals are “fully insured” after 10 years (40 credits)

6. How Do I Qualify? • Workers who stop working prior to earning 40 credits cannot receive benefits • At full retirement age workers can receive full benefits • 65 used to be standard, but this varies based on year of birth:

7. How Do I Qualify? • Reduced retirement benefits can be collected as early as age 62 (with 40 credits) • Benefits are about 25% less than they are at full retirement age • Although Social Security retirement age varies, Medicare eligibility remains at 65

8. How is Social Security Income Determined? • Retirement benefits are calculated on lifetime earnings under the Social Security system • Generally, your 35 highest years of earnings are averaged • Zero is averaged in for every year under 35 years of work • Calculating Social Security Income • The benefit computation is complex and not simple

9. How is Social Security Income Determined? • Social Security sends a yearly statement to everyone age 25 or older (that has paid S.S. taxes) and not received benefits • Statements arrive 3 months prior to your birthday • Statements can be requested by asking for a form SSA-7004 from the S.S. Administration or at www.socialsecurity.gov/online/ssa-7004.html • Go to www.socialsecurity.gov/planners to estimate your benefits

10. How Do I Receive My Benefits? • To receive Social Security benefits you must apply • It takes about 3 months from when you apply to when you will receive benefits • To get info on applying call 1-800-772-1213 or go to www.socialsecurity.gov • Social Security benefits can still be received while you are working • There is no income restriction on receiving benefits after full retirement age

11. How Do I Receive My Benefits? • If you are under full retirement age, every $1 in benefits is deducted for each $2 earned above the annual limit • Earnings limit changes yearly • The year you reach full retirement age, $1 in benefits is deducted for each $3 you earn above a different limit, only applied to earnings before the month you reach full retirement age. • Earnings limit changes yearly

12. How Do I Receive My Benefits? • Social Security benefits can be increased by a percentage (depending on DOB) • Delaying receiving benefits beyond full retirement age means you will draw a higher percentage • The benefit increase stops at age 70, even if you continue to delay taking benefits.

13. Taxes and Social Security • Some people have to pay federal income taxes on their Social Security Benefits • Only applies if you have substantial other income (wages, businesses, interest, dividends, etc.) • No one pays federal income tax on more than 85% of their Social Security Benefits • If you are between the annual limits you may pay income tax on 50% of benefits

14. Taxes and Social Security • Each January you are sent a statement (Form SSA-1099) showing amounts of benefits you received • This is used on your tax returns to calculate if S.S. Benefits are subject to tax and at what rate • Federal taxes can be withheld from Social Security benefits • This is not required, but can be simpler than paying out each year or each quarter • Combined income = sum of adjusted gross income, + nontaxable interest, + ½ of your S.S. Benefits

15. Investment Income • Non-work sources of income do not count as wages for the earnings test • These Include: • Inheritance payments • Pensions • Income from investments • IRA distributions • Interest • Other sources determined by the Social Security program

16. Survivor Benefits • Family members eligible to receive survivor benefits are: • Widow (er) – receive full benefits at retirement age or reduced benefits as early as 60 • Disabled Widow (er) – as early as age 50 • Widow (er) – at any age if they take care of deceased’s child who is: under age 16 or disabled and receiving S.S. benefits

17. Survivor Benefits • Unmarried Children under 18 (up to 19 if still in high school) • Children All Ages – disabled before age 22 and remain disabled • Dependent Parents – age 62 or older

18. Disability and Supplemental Security Income • Provides a distribution of cash in the event of interruption of employment • Disability • Unemployment • Benefit is based on work record only • Must be “fully insured” under Social Security rules • 5 month waiting period for benefits • Benefits continue till able to work, or till beneficiary reaches retirement age • Call 800.772.1213 for more information

19. Resources • Social Security Administration Website, www.ssa.gov • Working with Seniors (2009), Society of Certified Senior Advisors