Chapter 18



Chapter 3

Social Security

LEARNING OBJECTIVES:

A. Have an understanding of Social Security eligibility

B. Know the significance of being fully insured or currently insured for Social Security

C. Have a basic understanding of Social Security (OASDI) benefits

D. Understand how to determine Social Security benefits

E. Have a basic understanding of how Social Security benefits are taxed

REVIEW:

This chapter is about Social Security. The chapter begins with a discussion of eligibility requirements. Next, fully insured and currently insured status is covered. Following this, various benefits are identified, including retirement benefits, disability benefits, spousal benefits, and survivor benefits (mother’s or father’s, children’s, and widow or widower’s). The next section covers computing benefits and works through the various steps to determine benefits. A section on maximum family benefits is followed by cost-of-living increases and delayed retirement credit. This is followed by a discussion of working after retirement. Finally, the income taxation of social security benefits is covered.

Chapter Outline:

A. Eligibility

1. Insured Status: Fully Insured

2. Insured Status: Currently Insured

B. Benefits

1. Retirement

2. Disability

3. Spouse’s Benefit

4. Survivor Benefits

a. Mother’s of Father’s Benefits

b. Child’s Benefits

c. Widow or Widower’s Benefits

C. Computing Benefits

1. Maximum Family Benefits

2. Cost-of-Living Increases

3. Delayed Retirement Credit

D. Working After Retirement

E. Income Taxation of Social Security Benefits

1. 50 Percent Taxable

2. 85 Percent Taxable

E. Chapter Endnotes

FEATURED TOPIC:

Social Security

CFP® CERTIFICATION EXAMINATION TOPIC:

Topic 60: Social Security [Old Age, Survivor, and Disability Insurance (OASDI)]

A. Paying into the system

B. Eligibility and benefit

C. How benefits are calculated

D. Working after retirement

E. Taxation of Social Security

COMPETENCY:

Upon completion of this chapter, the student should be able to:

1. Have an understanding of Social Security eligibility

2. Know the significance of being fully insured or currently insured for Social Security

3. Have a basic understanding of Social Security (OASDI) benefits

4. Understand how to determine Social Security benefits

5. Have a basic understanding of how Social Security benefits are taxed

KEY WORDS:

Social Security, quarters of coverage, fully insured, currently insured, normal retirement age, spouse’s benefit, survivor benefits, Primary Insurance Amount (PIA), wage indexing, Average Indexed Monthly Earnings (AIME), delayed retirement credit

DISCUSSION:

1. Discuss the various benefits provided by Social Security.

2. Discuss the impact of working and non-Social Security income on retirement benefits and their income taxation.

QUESTIONS:

1. Which of the following are included in determining whether an individual is fully insured for Social Security?

(1) has at least six quarters of coverage

(2) has acquired at least as many quarters of coverage as there are years elapsing after 1950

(3) has 40 quarters of coverage

(4) is at least age 16

 

a. (1) only

b. (1) and (2) only

c. (1) (2) and (3) only

d. (2) (3) and (4) only

Chapter 3, p. 29

 

 

2. Which one of the following is the minimum age at which an individual is entitled to a Social Security retirement benefit?

a. 62

b. 65

c. 66

d. 67

Chapter 3, p. 30

3. What is the name of the basic unit used to determine the amount of each monthly benefit payable under Social Security?

a. Average Indexed Monthly Earnings (AIME)

b. Delayed Retirement Credit (DRC)

c. Fully Insured Amount (FIA)

d. Primary Insurance Amount (PIA)

Chapter 3, p. 33

 

4. Joe, a retiree, is married (filing jointly) and has a total annual income (including ½ his Social Security benefits) of $50,000. Up to what percentage of Joe’s Social Security retirement benefits could be subject to income taxation?

a. 50

b. 85

c. 90

d. 100

Chapter 3, p. 37

ANSWERS:

1. c

2. a

3. d

4. b

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