I have an adult son who is disabled and never worked. Will he be able to get my Social Security when I die?

Your son can become eligible for Social Security benefits as a "disabled adult child" when either you or his father start receiving Social Security benefits as long as he meets some basic requirements:

• His disability must have begun before age 22 and be severe enough to keep him from doing substantial work,
• He must be unmarried, and
• He must not be eligible for a higher benefit based on his own work history.

The benefit rate for a disabled adult "child" while the parent is living is generally 1/2 of the parent's full (unreduced) Social Security benefit. If the parent dies, the disabled child's rate is increased to 75% of the parent's full benefit. And he can continue to receive these benefits regardless of his age as long as he meets the basic requirements listed above.

The Social Security Administration also administers another disability program called Supplemental Security Income (SSI). Even if both parents are still working, your son may qualify for SSI now if he has limited income and financial assets. In most states, people who receive SSI payments automatically qualify for Medicaid. Check with Social Security for more information and to find out how to apply.

Question from a reader..

A reader asks: "Can I apply for my own Social Security at age 62 and then switch to my ex- husband's as a divorced spouse at 66? We were married 24 years. I am still working but earn less than the $14,160 annual earnings limit for Social Security. I need the extra income I could receive at 62 unless it will prevent me from collecting benefits on my ex-husband's record or reduce my divorced spouse's benefit."

The answer: If you apply for your own retirement at age 62, your benefit will be reduced by 25% and that reduction will be permanent even if you are eligible for an additional amount on your ex-husband's record then or later. You will only be eligible for divorced spouse's benefits if they are higher than what you can receive on your own and even then they will be reduced by 30% below the full spouse's benefit.

Could you wait until your full retirement age (FRA) of 66 to apply for benefits? If so, you could apply for an unreduced benefit as a divorced spouse. This will be one-half of your ex-husband's unreduced benefit. You could then postpone applying for your own retirement until you are age 70 and get a benefit that is 76% higher than your age 62 retirement benefit. This will only be to your advantage if your age 70 rate is higher than your benefit as a divorced spouse and you must meet certain other requirements to make this strategy work, but it is well worth consideration!

Want to know more? Request a Personalized Social Security Benefit Analysis to find out about strategies to help you maximize your Social Security retirement!

Do most people apply for early Social Security retirement?

About 73% of current Social Security retirement beneficiaries receive reduced benefits because they applied before they reached their Full Retirement Age (FRA). We don't know if this trend will continue for the 80 million baby boomers who will reach age 62 during the next 20 years, but filing early definitely has a negative impact on a retiree's monthly income.

The chart below shows the effect on average monthly benefits (as of 2007) for Social Security beneficiaries who applied early compared to those who waited until their FRA or later to apply:

As the chart reveals, the Average Reduced Benefit for both men and women is significantly lower than the Average Unreduced Benefit. Part of this difference is undoubtedly due to the fact that most people who delayed retirement worked longer and had higher average earnings than those who took early Social Security retirement, but even those who stopped work at 62 could have increased their monthly benefit by waiting until their FRA or later to apply.

The chart also reflects the gender gap in average monthly benefits in that more women (almost 76%) applied for reduced benefits than men (about 71%). Since women have a higher average life expectancy than men, this gender gap means that women have to live with this lower average monthly income several years longer than men who take reduced benefits.

Social Security Finances - 2009 Trustees Report

Well, the 2009 Social Security Trustees Report has finally been published online at http://www.ssa.gov/OACT/TR/2009/ and it's official; the economic recession has taken it's toll on Social Security payroll tax revenues. Is it time to panic? Not quite, current year revenues still exceed expenses by more than 180 billion dollars, but this year's report is a timely reminder that there are still long-term solvency issues that need to be addressed.

For a quick summary of Social Security finances check out the slide show below:

If I work after I start receiving retirement benefits, will my employer stop taking out Social Security taxes from my paycheck?

No, the IRS tax code requires employers to withhold and match Social Security taxes on all wages up to the yearly maximum regardless of whether an employee receives Social Security benefits.

Is this fair? Well, consider that your benefit rate is based on your highest 35 years of earnings under Social Security. The higher your earnings average or AIME is, the higher your benefit will be when you retire. If you continue working after you start your benefits, Social Security will automatically review your record each year to see if prior year earnings would increase your benefit. If these earnings increase your 35 year average, your benefit rate will be increased effective with January of the next year. You still pay the tax but you also get the benefit of those extra earnings if they will increase your benefit rate.

How it works. Let's look at an example.

Ann applies for Social Security at age 66 (her full retirement age or FRA) with 30 years of earnings. Her benefit rate is based on the sum of her 30 years of earnings divided by 35. This means that her 35 year average includes 5 years of zero earnings. Since she waited until her FRA to apply for benefits, she can continue working and still receive her full Social Security retirement benefits. Her employer will withhold the usual 6.2% Social Security and 1.45% Medicare tax from her paychecks and report her earnings on her W-2 Form. These additional earnings will then be used to replace a zero earnings year and increase her benefit rate. Ann will receive a rate increase each year as long as she works and her yearly earnings are high enough to replace a lower year in her 35 year average.

Many women receive a lower monthly benefit because they dropped out of the workforce for a time to care for children or other family members. For these women even working part-time after "retirement" can help them make up for these lost years of earnings and therefore increase their lifetme Social Security benefits.

I read that it is better to wait until age 70 to apply for retirement benefits. Is that true?

It depends. Have you ever tried on a robe or a pair of gloves marked one size fits all and been disappointed that they were either too big or too small on you? That's how I feel when I hear about articles advising people to either (1) apply at 62, invest the money, and pay all their benefits back at age 70 or (2) wait until age 70 to apply for retirement benefits as if this would be the best choice for everyone!

My advice? Before you decide when to apply, do your research and get the facts about your benefit options.

Start with your Social Security Statement. Look at your estimated benefit rates at age 62, at your Full Retirement Age (FRA), and at age 70. You will see that the longer you wait to start your benefits the higher your monthly income. The trade off is that you will receive fewer monthly checks over your lifetime. So which is best for you?

Look at the chart below for an example of a boomer whose FRA benefit at age 66 is $1000. If he or she applies at 62, the monthly benefit is reduced by 25% to $750/month. By waiting until age 70 to apply, our boomer can receive a higher benefit of $1320/month.

By comparing total benefits paid at different ages under each option, we see that the initial advantage of choosing benefits at age 62 in this example is gradually lost sometime before age 80. After age 80, starting at age 70 becomes the most advantageous due to the higher monthly rate. It also guarantees a higher monthly income in later years when other financial assets may have been depleted.

Does this mean that everyone should wait until age 70 to apply? Not at all! There are plenty of other things to consider:

• How is your health?
• Do you plan to keep working past age 62 or have other income to maintain your standard of living until age 70?
• How will Social Security benefits affect your tax liability?
• Are you married, divorced, or widowed and potentially eligible for benefits on a current or former spouse's Social Security record?

Before you commit yourself to a course of action, make sure you have all the facts that apply to your unique financial and family circumstances. Finally, consider consulting with an expert on Social Security to help you find the benefit option that fits you "like a glove."

Social Security Fact or Myth?

"I worked under Social Security for 20 years. Now I work for a school district that only pays Medicare taxes for employees. I heard that I won't get any Social Security when I retire because I will get a government pension!"

What do you think? Social Security Fact or Myth?

Social Security Fact or Myth? The Answer

"I worked under Social Security for 20 years. Now I work for a school district that only pays Medicare taxes for employees. I heard that I won't get any Social Security when I retire because I will get a government pension!"

Answer: This is a myth.

Anyone who has earned 40 credits (roughly 10 years of work) under Social Security will be eligible for a retirement benefit as early as age 62.

It is true that the amount of their Social Security retirement benefit will be reduced if they receive a government pension based on work that was not covered by Social Security (i.e. no Social Security tax was withheld). This is because there is a different benefit formula called the Windfall Elimination Provision (WEP) used in these cases.

There are exemptions that can minimize the adverse effect of this WEP computation on government employees:

1. If you have at least 30 years of substantial earnings under Social Security (public or private employment), you will be completely exempt from WEP.
2. If you have between 21 and 29 years of substantial earnings under Social Security, your benefit rate will be increased for each year over 20 that qualifies as "substantial earnings" as defined by Social Security (see WEP Factsheet).
3. Even if you have 20 years or less of substantial earnings, any additional work you have that is covered under Social Security will increase your benefit.

My wife and I each get benefits based on our own work, but mine are higher. If I die first, will she get a higher benefit as a widow?

If your wife survives you, she will receive an increase in her benefits based on her age at the time of your death. If she has already reached her Full Retirement Age (FRA), her total benefit will usually be raised to equal the amount you receive.

If she is still under her FRA, her benefit will be reduced based on her age. In that case, she could continue to receive her own retirement and wait until she reaches her FRA to apply for the highest possible widow's benefits.

If I plan to work until I am 66, do I need to sign up for Medicare at 65?

If you are not planning to apply for Social Security benefits until you stop work, you are not required to sign up for Medicare at 65, but you still may want to do so even if you have insurance through your employer.

There are now 4 parts to Medicare and each has different rules for enrollment so let me take them one at a time.

Part A Hospital Insurance: This covers only inpatient care charged by a hospital. There is no premium charged when you enroll since the cost is covered by a 1.45% employee payroll deduction (matched by employers). You can enroll in Part A even if you are covered by an employer group health plan (EGHP) and doing so may save you money. Check with your insurance counselor to see if this would be advantageous to you.

Part B Medical Insurance: If you have medical insurance through your employer (or through your spouse's current employer), you can wait until you stop work to apply for Part B of Medicare without penalty. Since there is a monthly premium for Part B many people wait to sign up during a special enrollment period that begins with the monthy they stop work or if covered under a spouse's EGHP when their spouse stops work. Be sure to check with Social Security before you apply to find out what you will need to document your EGHP coverage.

Part C Medicare Advantage: These are private Medicare approved HMO plans available in limited geographic areas as alternatives to traditional Medicare. You must have both Part A and B to enroll in these plans and there may be additional premiums depending on the level of coverage you choose. Call 1-800-MEDICARE or go to http://www.medicare.gov/ for more information about these plans.

Part D Prescription Drug Coverage: If you have prescription drug coverage through your employer, you probably should not consider Part D. Check with your insurance counselor to be sure. If you have no prescription coverage and you have either Part A or Part B of Medicare, you can find out about Part D plans available in your area at http://www.medicare.gov/.

Can't afford the cost of Medicare or prescription drug coverage? There is help available for certain low income Medicare beneficiaries. Check with Social Security to find out how to apply.

How are earnings used to figure Social Security retirement benefit?

The answer to yesterday's multiple choice question is: d) Your Social Security retirement benefit will be based on your highest 35 years of lifetime earnings.

When you apply for retirement benefits, Social Security will look at all of your yearly earnings, index them to the national wage index for the year you turned age 60, and select the highest 35 yearly amounts. These are then averaged and converted to a monthly amount called an Average Indexed Monthly Earnings (AIME) which is then used to figure your monthly benefit. The higher your AIME is, the higher your benefit will be.

When planning your retirement date, keep in mind that working even a year or two longer may increase your benefit if those extra earnings are higher than the lowest yearly earnings used in your 35 year average!

Social Security Multiple Choice

Many times people ask me if retiring early will make a difference in their Social Security benefit. I have found that most people do not know how Social Security uses their earnings to figure their benefits.

So here's a multiple choice question to test your knowledge. Your Social Security retirement benefit will be based on:

a) your last 5 years of earnings before you retire

b) your highest 5 years of lifetime earnings

c) your last 10 years of earnings

d) your highest 35 years of lifetime earnings

Make your choice and check for the answer tomorrow!

Will Social Security change in the future?

Yes, Social Security will continue to change in the future as it has over its nearly 75 year history. Exactly what these changes will be no one knows for certain, but there have been several proposals made to address the need to pay benefits to a growing number of retirees who are expected to live longer than earlier generations.

First, proposals that reduce the growth in future benefits:

1. Change cost of living adjustments (COLA) so that future increases would be somewhere between 0.5% and 1% less than under current law.
2. Change benefit formulas for future retirees to average 40 years of earnings (rather than the current 35 years) or adjust benefit rates in other ways that reduce average benefits.
3. Phase in a higher Full Retirement Age (FRA) of 68 or higher for future retirees.

Finally, proposals that increase future revenues to pay for benefits:

1. Raise the maximum earnings subject to Social Security taxes (currently $106,800) faster than under current law or eliminate the maximum entirely.
2. Increase payroll tax rates for employers and/or employees.
3. Require that all state & local government employees be covered under Social Security(under current law participation by state & local governments is voluntary).
4. Invest Social Security trust funds in marketable securities to potentially increase future income to the fund.
5. Increase taxation of Social Security benefits; currently about 1/3 of all beneficiaries pay some income tax on their benefits.

What will the final plan to refinance Social Security look like? I am sure that it will include at least some of these proposals. There could also be provisions for a voluntary "personal account" that would include an offset of traditional Social Security benefits at retirement if a worker chooses to participate.

When people ask me if Social Security will be there for them I say yes and I really do believe it. But I can't help thinking about the verse from a Joni Mitchell song, "Don't it always seem to go, that you don't know what you've got till it's gone." So boomers, pay attention! We all have a lot to lose.

Will Social Security be there for me when I retire?

The short answer is yes, it will. The long answer is a little more complex and requires (forgive me) a bit of background before I get to the bottom line.

Social Security has never been an individual investment account like a 401(k). It is more like a defined benefit pension that covers about 95% of wage earners and the self-employed in the U.S. and is not tied to any one employer. Both the employer and employee contribute to the Social Security trust fund and employees are vested for a retirement benefit payable as early as age 62 based on their earnings under the system. Part of the Social Security tax also is used to provide disability benefits to workers who are unable to work due to illness or injury and to qualified family members of workers who die (widow or widower, minor or disabled children).

For over 70 years, the Social Security Administration has paid benefits from current year tax revenues. Excess revenues not needed to pay benefits are credited by Treasury to the Social Security Trust Fund and held in special issue government securities until they will be needed to pay future benefits. According to the Social Security Administration, the Trust Funds earned an effective interest rate of 5.1% in 2008.

In spite of expected increases in the number of retirees as baby boomers reach retirement age, the Social Security trustees report that current year tax revenues plus interest will be sufficient to pay 100% of benefits until 2027. At that point, Social Security will have to start drawing on the trust funds to supplement revenues. By 2041 the trust funds will be depleted and current revenues will cover about 78% of benefits if nothing is done between now and then.

Click here to see charts based on 2008 Social Security Trustee Report.

So the fact is that in the short term, the Social Security programs have a substantial surplus but there are long term challenges that must be addressed to keep the program solvent over the long term for generations to come.

And here we are at the bottom line: if we want Social Security to be there for our children as it has been for our parents and grandparents, there will have to be changes.

Stay tuned for some of the solutions that have been proposed....

Are annual cost of living raises in Social Security guaranteed?

Since 1983 annual cost of living raises for Social Security benefits have been paid based on the average % increase in the CPI-W (consumer price index for urban workers) in the third quarter over the average CPI-W in the 3rd quarter of the previous year. The COLA paid in January 2009 was 5.8% and the average over the past 20 years has been 3% per year.

The automatic COLA provisions provide retirees an important protection against the erosion of their standard of living due to inflation. For example, if the average COLA continues to be about 3% for the next 20 years, a monthly benefit of $1000 in 2009 would be increased to about $1806 in 2029.

But as we all know, these are not normal economic times. What happens if the CPI-W continues to decline as it as done since the 3rd quarter of 2008?

If that happens, Social Security benefits would not be decreased, but there would be no automatic COLA raise in January 2010.

Social Security cards from Woolworth's?

You may think that identity theft involving social security numbers is a new phenomenon. Actually, the worst case involving misuse of a single SSN began in 1938 when a wallet manufacturer decided to include an image of an employee's real social security card (minus the name) to demonstrate how the new cards could be carried in their wallets. These wallets were sold in Woolworth's and several other stores all over the country.

In 1938, the idea of a unique number to keep track of workers' earnings for the Social Security program was still new to Americans and apparently many thought this "sample" card that came with the purchase of a wallet actually belonged to them. By 1943, the Social Security Administration had identified 5,755 workers using this same number. Over the years, over 40,000 people had worked using the SSN issued to Hilda Schrader Whitcher, some as recently as 1977!

When asked about the widespread misuse of her SSN, Mrs. Whitcher was quoted as saying, "They started using the number. They thought it was their own. I can't understand how people can be so stupid. I can't understand that." I have to agree! Here is the wallet sample from Woolworth's that caused all the problem:

After Social Security discovered the mass identity theft, they issued Mrs. Whitcher a new number which I presume she kept safe at home and did not carry in her wallet!

And that is good advice for all of us. Keep your social security card in a safe place and do not carry it with you routinely. If you are asked for your number, ask why it is needed and how it will be protected from unauthorized use. And be particularly careful with your child's SSN. A child's identity is easier to assume because they have no established credit history and often the theft is not discovered until the child is an adult.

Do I have to stop work to get retirement benefits?

If you want to receive benefits for any months between age 62 and the month before you reach your Full Retirement Age (FRA), your earnings from work (wages or self-employment) must be below certain limits. Once you reach your FRA, there are no limits to what you can earn and still receive your full Social Security retirement benefit.

Simple, right? Well, there are really two different annual earnings limits based on age and one monthly limit that applies only the first year benefits are paid.

First, the annual earnings limit for people who are at least age 62 but will not reach their FRA during the calendar year. For 2009, this limit is $14,160 in gross wages or net self-employment. Any current year earnings over that limit would cause a reduction of $1 in benefits for every $2 over the limit.

Example: John is 63 years old when he decides to reduce his earnings by switching to part-time work in March 2009. He estimates his gross wages for the year will be about $22,160 ($8,000 more than the earnings limit).

If John applies for benefits in January 2009, Social Security will withhold $4,000 (1/2 of $8,000) from his benefits beginning in January before any benefits will be paid to him. If his benefit rate is $1,000/month, he will get full benefits for May-December 2009.

The alternate monthly limit applies only the first year benefits are paid and is $1,180/month in 2009. Since John plans to reduce his monthly earnings in March, he could receive full benefits for March and April if he keeps his gross monthly wages to $1,180 or less each month beginning with March. Social Security applies either the annual or monthly test, whichever pays the most money for the year!

If John keeps his annual gross wages at or below the $14,160 for 2009, he can receive full benefits for the entire year regardless of when he earns the money. He could earn the entire amount in one month or spread out over several months and still receive all his benefits.

All clear? Well what if John will reach his FRA in July 2009? OK, let's assume he will earn $200,000 during the year. We know that there is no earnings limit beginning with his FRA month, but what about the months before his FRA?

The 2009 earnings limit for people who reach their FRA anytime during the year is $37,680. As long as John does not earn more than $37,680 for months before his FRA (January through June), he can claim benefits beginning January. He can earn as much as he wants July on.

These limits change every year so be sure to check the Social Security Online web site before you retire to see what limits will apply to you.

Remember: If you receive a check for a month before your FRA month, your benefits will be permanently reduced by a certain percentage. The most important decision you will make when you apply for Social Security benefits is when to start your benefits. Do your research before you apply!

Fact or Myth? The Answer

Yesterday I posed a question I have heard often over the years, usually preceded by the phrase "If Social Security is so good".........


"Why don't federal officials like U.S. Congressmen and Senators pay Social Security taxes on their salaries? And what about the President and the Vice-President? They don't pay into Social Security either!"


The Answer: This is a myth.

The President and Vice-President of the United States as well as most executive-level political appointees, and all U.S. Congressman and Senators pay Social Security taxes on their salaries up to the annual maximum ($106,800 in 2009) just like private sector employees. In addition career federal employees hired after January 1, 1984, also pay into the Social Security trust fund.

According to the Social Security Administration, about 94% of employees and self-employed individuals in the United States are covered by Social Security. The most notable exception are some state and local government employees who only pay Medicare taxes because they are covered by a government retirement plan. In Texas, the majority of these individuals work for school districts who have chosen not to cover their employees.

Social Security Fact or Myth?

Have you heard this one?

"Why don't federal officials like U.S. Congressmen and Senators pay Social Security taxes on their salaries? And what about the President and the Vice-President? They don't pay into Social Security either!"

What do you think? Fact or Myth?

Check this blog tomorrow for the correct answer!

Can a woman draw retirement benefits on her own work record and on her husband's?

The answer to this question is a definite maybe!

A woman who has worked under Social Security and earned the minimum 40 credits can apply for retirement benefits as early as age 62. If she is married and her husband has already applied for benefits, she may be able to receive a higher benefit based on his Social Security record.

The best way to explain how this works is to give an example: Mary was born between 1943 & 1954 so her Full Retirement Age (FRA) is age 66.

• Her unreduced benefit at 66 would be $1000.
• If her husband Joe already gets benefits, the maximum spouse's benefit she could get is 50% of his unreduced benefit ($1600), in this case $800.

Mary can apply as early as age 62 but her retirement benefits will be permanently reduced by 25% to $750 if she does. She cannot receive benefits as Joe's wife because at 62 the spouse's benefit is reduced by 30% to $560. Her own retirement benefit is higher so that is all she will receive.

The same would apply if Mary had been divorced from Joe after at least 10 years of marriage and remained single when she applied for retirement. She can only draw benefits as a divorced spouse if those benefits are higher than her own.

There is a way Mary can get both benefits, but to do so she would have to wait until her FRA (age 66) to apply. Then she can choose between applying for her own retirement or benefits as a spouse (or ex-spouse).

In this example, Mary could get unreduced wife's benefits of $800 per month from age 66 through 69, then at age 70 apply for delayed retirement at a higher rate of $1320 per month.

Confusing? Maybe a little, but remember that applying for a lower spouse's benefit at your FRA and then switching to a higher retirement benefit at age 70 is a good way to maximize your Social Security income as you age.

Why are retirement benefits reduced at age 62?

First, a little history - When Social Security started, the only benefits payable were for retired workers who had reached age 65.

The first monthly payment was issued in January 1940 to a retired legal secretary named Ida May Fuller. She worked 3 years under Social Security before retiring at age 65. Her first check was $22.54 and she continued to receive benefits until she died at 100 years of age.

Miss Fuller's longevity was very unusual at the time, but is much more common now. According to the Social Security Administration's 2007 Annual Statistical Supplement, there were 43,100 centenarians receiving benefits in 2006.

In 1956, the law was changed to allow women to receive early retirement at age 62 and this was extended to men in 1961. Since these early retirees could be expected to receive benefits over a longer period of time than someone who first applied at age 65, the monthly rate was actuarily reduced to ensure that on average the lifetime benefits paid would be about the same.

Of course, no one knows how long they will live and taking early retirement at 62 will result in permanent reduction of your benefits ranging from 25% to 30% depending on your year of birth (see chart). So deciding whether to retire early or wait until your full retirement age (FRA) or later is probably the most important decision you will make to ensure an adequate income in your later years!

Some things to consider:

• Women live about 3 years longer than men
• Your health and family history may affect your longevity
• The value of your other retirement income may not keep pace with inflation and you may be more dependent on Social Security income as you age
• Health care expenses tend to rise as you age

If you live longer than the average life expectancy for your age group, you will receive a higher monthly benefit and more benefits over your lifetime if you wait until your FRA or later to start your Social Security checks.

If you take reduced early retirement benefits, the benefits payable to your widow or widower when you die may be less than if you had waited until your FRA or later to start your Social Securty checks.

Can I still start my Social Security at 62?

Maybe you have heard that the retirement age is going up. That is true but only for full (unreduced) retirement benefits and only for people born after 1937. You can still start your Social Security benefits at age 62 if you meet all requirements, but the amount of your monthly benefit will be reduced permanently if you choose to start before your Full Retirement Age.

The longer you wait to start your benefits, the higher your monthly benefit will be. So the first thing you need to know is what your full retirement age (FRA) is and how much your benefits will be reduced if you retire at 62:

For birth years 1943-1954, FRA is 66 and reduction at age 62 is 25%

For birth year 1955, FRA is 66 plus 2 months and reduction at 62 is 25.83%

For birth year 1956, FRA is 66 plus 4 months and reduction at 62 is 26.67%

For birth year 1957, FRA is 66 plus 6 months and reduction at 62 is 27.50%

For birth year 1958, FRA is 66 plus 8 months and reduction at 62 is 28.33%

For birth year 1959, FRA is 66 plus 10 months and reduction at 62 is 29.17%

For birth years 1960 and later, FRA is 67 and reduction at 62 is 30%

You can start your benefits with any month after age 62. The longer you wait the less the reduction will be. If you delay past your full retirement age, your benefit will even higher, but more on that later!