Scenarios about Social Security Retirement Benefits
Scenario
Social Security retirement benefits can supplement personal retirement savings and pensions. For example, your 71-year-old great-aunt retired 9 years ago. In addition to Social Security retirement benefits, she also receives a pension from the automobile plant where she worked for 30 years.
Scenario
Divorced spouses can receive the retirement benefits they would have received as the spouse of a worker as long as they are at least 62 years old and were married for at least 10 years. For example, your grandmother is 64 years old. She and her husband have just divorced, after 45 years of marriage. She has never been employed outside of the home and, thus, has not paid into the Social Security system. She will, however, be able to receive Social Security retirement benefits based on her ex-husband’s earnings, once he begins to draw them.
Scenario
Retirees who are full retirement age or older will not have benefits reduced if they reenter the workforce. Retirees who have not yet reached full retirement age, however, will have their Social Security benefits reduced until they reach their full retirement age. The amount of this reduction depends on the total amount of new earnings each year. For example, your godfather is a 70-year-old man who retired 5 years ago with Social Security as his only source of income. Rising property taxes, however, are making it difficult to make ends meet, so he is considering getting a part-time job to supplement his income. Since he has already reached full retirement age, any outside income he earns will not reduce his Social Security retirement benefits.
Scenario
Individuals who begin drawing Social Security retirement benefits before reaching their full retirement age receive a reduced monthly benefit for as long as they draw benefits. For example, your uncle is a 61-year-old man who would like to retire next year and begin drawing his Social Security retirement benefits early. If he does so, he will receive a lower monthly benefit than he would if he waited until his full retirement age to being drawing benefits.
Scenario
Workers receiving Social Security disability benefits are switched to the Social Security retirement program once they reach full retirement age. For example, your 64-year-old grandfather has been receiving Social Security disability benefits for 14 years. When he reaches full retirement age—66 for persons born in 1943-1954—he will no longer receive disability benefits from Social Security and will instead begin receiving retirement benefits. The benefit amount will be the same, however.
Scenario
Minor children (and adult children who were disabled before age 22) of workers can receive Social Security benefits once a worker retires and begins drawing benefits. For example, your 30-year-old brother was born with severe cerebral palsy and has required constant care for his entire life. He is unable to work, but does not qualify for Supplemental Security Income (SSI) because your parents’ incomes are too high. However, once your father retires next year, at his full retirement age of 66, your brother may be eligible for a “child’s†benefit, based on your father’s Social Security retirement benefits (which are calculated using your father’s Social Security earnings record and record of FICA payments.)
Scenario
Individuals who begin receiving Social Security benefits before reaching full retirement age will have their monthly benefit permanently reduced. For example, your 60-year-old aunt has been anxiously counting down the months until she can retire. She recently discovered that she won’t be eligible to receive full Social Security retirement benefits until she is 66. She is considering retiring early, at age 62, and taking a reduced monthly Social Security retirement benefit for the duration of her life.
Scenario
Social Security credits are accrued by paying taxes on earnings. In 2007, individuals receive one credit for every $1,000 of taxable earnings. Individuals can earn a maximum of four credits per year, and 40 credits are necessary to qualify to receive Social Security retirement benefits. You are 25 years old and have just received your first Social Security Statement in the mail from the Social Security Administration. According to the statement, you have earned 8 credits in your two years of employment.
Scenario
People who wait until after their full retirement age to begin drawing retirement benefits will receive an increased monthly benefit based on how long they wait. For example, your grandfather is 61 years old. He loves his job and hates the idea of sitting around the house all day, so he does not intend to retire anytime soon, despite the urgings of his wife and children. He has decided to delay beginning to receive Social Security retirement benefits until he is 69 or 70. He discovered that for people born in 1943 or later, the Social Security Administration will add 8% per year to his benefits for each year that he delays signing up for benefits beyond his full retirement age (which is 66), up to age 70.
Scenario
Current workers pay taxes into the Social Security system, which are then distributed as benefits to current retirees and other beneficiaries. Workers are taxed at a rate of 6.2% of wages, up to $97,500 (in 2007). You can see this from the stub for your first paycheck at your first job. The amount of the paycheck is much smaller than you anticipated. You knew that federal and state taxes would be taken out, but were not expecting nearly 8 percent of your money to be taken out for “FICA†(most for Social Security, plus some for Medicare).
Scenario
Social Security is facing solvency challenges, and many new workers are losing confidence in the system. For example, you have recently graduated from college and started a new job, which offers a 401(k) plan. You weren’t planning to contribute to it, but one of your friends told you that you should since, “Social Security is going broke and isn’t going to be around to support us when we retire.†Your friend reflects the views of half (50 percent) of African Americans ages 18-25 who say they expect their own savings and investments to be their primary source of retirement income, compared to the 28 percent who expect Social Security to be the major source (2005 Joint Center for Political and Economic Studies National Opinion Poll of African American Adults About Social Security and Wealth).
Scenario
The “Windfall Elimination Provision†reduces the amount of Social Security retirement benefits that can be received by individuals who have worked at one job covered by Social Security and at another job that is not. For example, your mother has been working for the state government for 20 years. Money is not withheld from her paycheck for Social Security taxes. When she retires, any Social Security retirement benefits she may qualify for (e.g. from employment more than 20 years ago) will be offset by the pension she receives from the state government. Only if she has at least 30 years of “substantial†earnings from her job covered by the Social Security system would she be able to receive her Social Security benefits in full along with her state government pension.