An Overview of Social Security Benefits
What Is Social Security?
Social Security is a system of social insurance benefits available to all covered workers in the United States. Begun in 1937, the Social Security system covers a wide range of social programs. The term “Social Security,” as it is commonly used, refers to the benefits provided under one part of the system, known by its acronym, OASDI, or Old-Age, Survivors, and Disability Insurance.
OASDI benefits are funded primarily by payroll taxes paid by covered employees, employers, and self-employed individuals. Both the OASDI portion of the payroll tax, as well as that part of the tax that goes to finance hospital insurance, HI (Medicare), are provided for under the Federal Insurance Contributions Act, FICA.
To qualify for benefits, a worker must be either “fully” insured or “currently” insured. An insured status is acquired by earning “credits”, based on the wages or self-employment income earned during a year. In 2014, an individual must earn $1,200 in covered earnings to receive one credit and $4,800 to earn the maximum of four credits for the year.
A worker generally becomes fully insured by earning 40 credits, typically by working 10 years in covered employment.1 To be considered currently insured, a worker must have at least six credits in the last 13 calendar quarters, ending with the quarter in which he or she became entitled to benefits.
All benefits are available if a worker is fully insured. Some benefits are not available if the worker is only currently insured. Special requirements apply to disability benefits.
What Benefits Are Available?
1 For those working less than 10 years, an alternative test to determine fully-insured status may apply.
On What Is the Amount of a Social Security Benefit Based?
In general, a covered worker’s benefits, and those of his or her family members, are based on the worker’s earnings record. The earnings taken into account are only those reported to the Social Security Administration (SSA), up to a certain annual maximum known as the “wage base.” The wage base is indexed for inflation each year and effectively places a cap on the amount of Social Security benefits a worker can receive, regardless of earnings. The wage base for 2014 is $117,000.1
Using a worker’s earnings record, the SSA calculates a number known as the Primary Insurance Amount, or PIA. The PIA is the basic value used to determine the dollar amount of benefits available to a worker and his or her family.
What Is the Benefit Amount?
The table below summarizes the benefit amounts generally payable under OASDI in the event of a worker’s death, disability, or retirement. All monthly benefit amounts are subject to reduction to meet a “family maximum” limit. Individual benefits may also be reduced if the recipient has earned income in excess of specified limits.
1The wage base for 2013 was $113,700.
Workers age 60 or older and who are not receiving Social Security benefits automatically receive a paper Social Security Statement each year which summarizes the worker’s earnings as well as providing estimated retirement, disability, and survivors benefits. Workers turning age 25 will receive a one-time-only statement with similar information. A paper statement can be requested by completing form SSA-7004 and mailing it to the address shown on the form.
Earnings information may also be verified by calling the SSA directly at (800) 772-1213; TTY (800) 325-0778, Monday through Friday, 7:00AM to 7:00PM. On the internet, the SSA can be found at http:www.ssa.gov.
1 Reduced widow(er)’s benefits are available at age 60.
2 Disability benefits are subject to a very strict definition of disability. At normal retirement age (NRA), disability benefits cease and retirement benefits begin.
3 Unreduced benefits are available at NRA. For those born before 1938, NRA is age 65. For individuals born after 1937, NRA gradually increases from age 65 to age 67.
For example, for baby boomers born between 1943 -1954, NRA is age 66. A larger retirement benefit is available to those who continue to work past NRA.
4 If one parent qualifies, the benefit is 82.5% of the PIA. If both parents qualify, the benefit is 75% of the PIA to each.