CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Session 2
Fundamentals of
Social Security
©2015, College for Financial Planning, all rights reserved.
Session Details
Module
1
Chapter(s) 4
LOs
1-5
1-7
Identify and categorize basic provisions of an
OASDI program: retirement, survivorship, and
disability.
Analyze a given situation to calculate the
taxation of Social Security benefits.
2-2
OASDI
Old Age, Survivors, and
Disability Insurance
has three main
components:
1. Retirement
(old age)
2. Disability
(disability of wage
earner)
3. Survivorship
(death of wage earner)
2-3
Key Terms in OASDI Programs
•
•
•
•
•
•
•
•
•
•
Quarter of coverage ($1,220 in 2015)
Currently insured/Fully insured
Average Indexed Monthly Earnings (AIME)
Full retirement age (FRA)
Primary Insurance Amount (PIA)
Spousal benefit
Benefit reductions due to age
Benefit reductions due to earnings
Events that trigger the end of benefits
Divorced spouse coverage (married 10 years)
2-4
Full Retirement Age
Born
Full Retirement Age
Age 62 Benefit
65
80%
1938-1942
65 plus monthly adjustment
75-80%
1943-1954
66
75%
1955-1959
66 plus monthly adjustment
70-75%
After 1960
67
70%
Before 1938
2-5
Benefit Reductions Due to Earnings
Age
You will lose
Amount (2015)
62 to year of FRA
$1 in benefits for every
$2 of earnings above
$15,720
Year you reach FRA
$1 in benefits for every
$3 of earnings above
$41,880
After reaching FRA
No benefit reduction
Unlimited
2-6
Retirement Earnings Test Example
Item
Amount
Total Social Security benefits
(75% of maximum FRA amount)
$23,967
Earnings
$41,560
Social Security earnings limit (2015)
$15,720
Excess earnings
$25,840
Reduction in Social Security benefits
(50% of excess earnings)
$12,920
Net Social Security benefits
$ 11,047
2-7
Qualifying for Social Security Disability Benefits
1. Disabled worker must be fully
2.
insured (at least 40 quarters)
and
Have worked for at least 20 of
the last 40 quarters
2-8
Qualifying for Social Security Survivor Benefits
1. Deceased worker
2.
must have been
either fully insured
(40 quarters)
or
Currently insured
(at least 6 of last 13
quarters)
2-9
Social Security Benefit Review
Benefits will be paid to:
Retirement
Disability
Death
Worker, Under FRA
Reduced* PIA
100% of PIA
N/A
Worker, FRA & Over
100% of PIA
Disability benefits cease;
retirement benefits
begin
N/A
No benefit
No benefit
Spouse, age 60 or 61
100% of PIA,
reduced
50% of PIA, reduced
100% of PIA,
reduced
Spouse, FRA or older
50% of PIA
100% of PIA
Spouse, any age, caring
for child under age 16
or disabled
50% of PIA
75% of PIA, reduced
(worker was
currently insured)
50% of PIA
(subject to family maximum)
75% of PIA, reduced
(worker was
currently insured)
Spouse, age 62 to FRA
Unmarried child under
age 18 (19 if in high
school) or any age if
disabled
2-10
Johnson Family Example
• Robert Johnson died at
•
•
age 35. Survivors are:
o Wife, Jane (age 35).
o Daughter, Juli (age 6).
o Son, Bobby (age 3).
His PIA is $1,200.
Maximum family benefit
is $2,250.
2-11
Family Limits
$1,200 PIA X 75% =
$900
$900
Juli’s Benefit, 75% of
PIA Reduced to $750
$900
$2,700
$2,250 family max.
Bobby’s Benefit, 75% of
PIA Reduced to $750
Jane’s Benefit, 75% of
PIA, Reduced to $750
35
40
45
$450 reduction
Jane’s SS =
71.5%† PIA
Widow(er)’s Blackout Period*
47 48
50
55
60
65 66
Jane’s Age
*If widow(er) is disabled within seven years of spouse’s death. Social Security payments may begin at age 50.
† If benefits begin at 60. 71.5% PIA; at 62.75% PIA: at 65, 100% PIA.
2-12
Income Tax on Social Security Benefits
Percent of Social Security
retirement benefit
subject to income tax
Threshold income:
joint filers
Threshold income:
single filers
Less than $32,000
Less than $25,000
None
$32,000 to $44,000
$25,000 to $34,000
Up to 50%
Greater than $44,000
Greater than $34,000
Up to 85%
2-13
Income Tax on Social Security Benefits
Thresholds are arrived at by using “provisional
income.” The main components of provisional
income are:
• AGI
• Tax-exempt interest income (muni bonds)
• One-half of OASDI benefits
2-14
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Session 2
End of Slides
©2015, College for Financial Planning, all rights reserved.