The Social Security Act was passed by Congress and signed into law by Franklin Delano Roosevelt in 1935.

The act’s goal was to limit unforeseen financial dangers of aging such as poverty, widow(er)s with children and unemployment.

Initially, the act only provided benefits to retirees and a lump-sum benefit upon death. Currently, Social Security provides benefits to survivors, and certain disabled persons, as well as the elderly and helps keep almost 20% of all Americans older than 64 above the government-defined poverty line.

All Social Security programs are funded through various taxes.

• In 2014, workers will pay 10% on taxable income from $0 to $9,075,
• plus 15% on taxable income over $9,075 to $36,900,
• plus 25% on taxable income over $36,900 to $89,350,
• plus 28% on taxable income over $89,350 to $186,350,
• plus 33% on taxable income over $186,350 to $405,100,
• plus 35% on taxable income over $405,100 to $406,750,
• plus 39.6% on taxable income over $406,750
• and 1.45% of all income towards Medicare.

Employers pay the same rates. Those defined as “self-employed” pay a higher rate of 12.4% on income under $113,700 towards retirement and 2.9% on all income for Medicare.

Determining a person’s benefits requires several steps. The first is determining their eligibility which is based on age.

• People born before 1938 have a retirement age of 65.
  • The minimum age for retirement increases by two months for every year after 1938 a person was born until 1943.
• For those born between 1943 and 1955, the minimum age is 66.
• From then on the same two-month increase per year is observed until 1960.
• Those born in 1960 or later have a normal retirement age of 67.
• These ages are decreased by two for a widow(er).

In addition, a person can start to receive their benefits early however, the paid amount is decreased.

• For every month, up to 36, before normal retirement age a person receives benefits they lose 5/9 of 1%
• and for every subsequent month, they lose an additional 5/12 of 1%.

Next, a person has to look at their Average Indexed Monthly salary (AIME).

Wages are adjusted by multiplying annual salaries by wage factors that account for things such as inflation and then the last 35 years’ worth of wages averaged. In a process similar to determining tax rates the AIME number is then divided into brackets and multiplied by different percentages set by congress to determine the monthly allowance paid.

In some cases, a person may need to return to work after retiring.

Some people can still receive retirement or survivor benefits at the same time. A person returning to work after full retirement age is entitled to keep all of their benefits after taxes no matter how much they earn.

However, if the person and/or their spouse is younger than full retirement age and earns over a certain amount their SSA benefits will be reduced by $1 for every $2 over the threshold they earn. In 2014, that number was set at $15,480.

Retirement benefits are not the only thing provided by the Social Security Administration. Other benefits available to eligible persons include:

• Survivors,
• Disability Insurance (OASDI),
• Temporary Assistance for Needy Families (TANF),
• Health Insurance for Aged and Disabled (Medicare),
• Grants to States for Medical Assistance Programs for low income citizens (Medicaid),
• State Children’s Health Insurance Program for low income citizens (SCHIP),
• Supplemental Security Income (SSI),
• and Social Security Disability Insurance (SSDI)

The differences between these benefits and who qualifies for them will be covered in future articles.

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Richard K. Abraham, Esquire

Mr. Abraham is an experienced attorney and founding member of the Law Office of Richard K. Abraham. The Sparks, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.

He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.

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