03
May
12

Protecting Income – Social Security Survivor & Disability Benefits

  1. Life Insurance
  2. Disability Insurance
  3. Shopping for Life & Disability Insurance
  4. Social Security Survivor & Disability Benefits
  5. Will Life insurance benefits be taxed?
  6. Emergency Fund
  7. Umbrella Insurance

Social Security is a program often detested, but it is a program that fills many of the holes in people’s retirement and financial planning.  Our aim is to dissect the benefits one can receive if they become disabled and the benefits their dependents can receive if they kick the bucket.  We use the Social Security handbook, which is available online (www.ssa.gov/OP_Home/handbook/), and back up what we say with what is written in this resource.  We link to the pertinent parts of the handbook as we write, so if you are curious, or think we are off our rocker, you can click on the link and it will take you to the applicable section of the handbook.

You must first be eligible in the Social Security (SS) program before benefits can be paid for disability, survivor and retirement.  You become eligible by earning credits (historically referred to as “quarters”).  Since 1977, a credit is earned based the amount of money you make.  This amount of money is usually a relatively low “hurdle” amount.  For 2012, you earn 1 credit, up to the maximum of 4 per year, for each $1,130 of income.  Generally speaking, when you obtain 40 credits, you are “vested” or permanently insured in the program and have access to all benefits.  There are some exceptions to this – usually for severe disabilities such as blindness, dying at a young age or becoming disabled at a young age.

Survivor’s Benefits means you are dead and your dependents will receive some sort of benefit.  Generally speaking, benefits comprise of three main components: 1) If married and your spouse lived with you, a one time, lump-sum payment of $255 (<–That is correct, $255), 2) Widow(er) benefits beginning after the age of 60 or if there are surviving children in their care and 3) benefits for surviving children.  There is an additional 4th component where a parent(s) who receives more than one half support from you prior to your death would also get a benefit if it is more than any other current SS benefit they are now entitled to.

You must die fully insured (having earned one credit each since you turned 21) or be permanently insured with 40 earned credits.  There is an exception to the fully/permanently insured status for young workers, if you earned 6 credits in the 3 years prior to your death, your eligible spouse and childrens can receive benefits.  In general benefits will not be made to your beneficiary if you as the insured worker have been deported (and you haven’t legally been readmitted to the US), if you are an alien who has been outside the US for the last 6 consecutive months, if your beneficiary kills you, if you were granted a tax exemption as a member of a religious group Amish or you are fortunate enough to be in the Railroad retirement scheme.

The lump sum of $255 is paid to your surviving spouse.  There is no divorced spouse benefit with the lump sum.  In rare cases, you can have two legal spouses, and if that is the case, the payment will be equally divided between them (each spouse gets $127.50).  If there is no spouse, eligible surviving children(s) may receive the benefit.  The benefit is divided equally between the number of eligible and legal surviving children.  If one or more surviving children elect not to apply for their benefit, those that do apply will only receive their equal share.

If your surviving spouse is at least 60 years old, or 50 years old if disabled, they will receive up to 100% of your full benefit or no less than 71.5% if they begin benefits when they are first eligibleA surviving spouse not yet eligible for widow(er)’s benefits will receive 75% of your full benefit while an eligible children under the age of 16 or disabled  is in their careEach of your eligible childrens will get 75% of your benefitAnd dependent parents as defined above are eligible for 82.5% for one parent or 75% each up to 2 parents.

If your… Is… They receive… Comments
Spouse FRA age 100% of your PIA
60 yo 71.5% of your PIA reduced 0.3393% each month before FRA
50 yo & disabled 71.5% of your PIA
caring for your child under the age of 16 75% of your PIA child can also be deemed disabled before age 22
Child under the age of 18 75% of your PIA or 19 and still in high school or deemed disabled before age 22
Parent receives half support from you at your death 82.5% of your PIA or if 2 parents, they each receive 75%

Now, this doesn’t mean you should have 12 childrens in the hope that you die they can collect 900% of your benefit.  There is a family maximum that is calculate based on your primary benefit (benefit at full retirement age based on current work record).  It is complicated, but the gubmint publishes bend points each year for the family maximum.  You need these bend points to calculate what it would be.  For 2012, the family maximum benefit is calculated as follows:

  1. 150% of first $980 of primary benefit
  2. 272% of primary benefit between $1,415 and $980
  3. 134% of primary benefit between $1845 and $1415
  4. 175% of primary benefit over $1815

Example:  You die with a primary benefit of $2000/month.  You are survived by a spouse and 3 childrens.  Your spouse is not eligible for widow’s benefits, but does qualify for a benefit caring for your childrens.  According to above, your survivors would receive a benefit of 300% (4*75%), or $6000/month.  According to the family maximum rules, you would only receive $3,553/month.

Parents who depended on you are also part of this equation.  So, if your surviving spouse has to deal with an in-law after your death, and more than likely, your parents will take more of the money.  For example, a surviving dependent parent (just one) will receive up to 82.5%.  Well, a children only get 75%.  So, if you have the same example above (a spouse and 3 eligible children for benefits) + a parent, the parent would take 21.6% of the family maximum or $766/month of the $3553/month benefit above.

If you plan to work and benefit as a survivor of an insured worker, there is an exempt amount you can make before before SS begins withholding $1 for every $2 you make over the exempt amount.  If under retirement age, the exempt amount in 2012 is $14,640 per year.

Of course, if all this hurts your head, you can just use this calculator.

Disability Benefits are much more difficult and will most likely require a lawyer who specializes in this area.  First, you must be fully or permanently insured in Social Security.  As there are exceptions to everything, the table below shows the number of credits in the number of years you need to qualify for disability benefits.

Disabled At Age Credits Needed Years Of Work
before 24 6 3
24 through 30 (Age Disabled-21)*2 Age Disabled-21
31 through 42 20 5
44 22 5 1/2
46 24 6
48 26 6 1/2
50 28 7
52 30 7 1/2
54 32 8
56 34 8 1/2
58 36 9
60 38 9 1/2
62 or older 40 10

Next, you must be disabled by SS standards.  The Social Security Administration uses a 5 step process to determine if you are disabled or not.  You must satisfy all the steps.

  1. Are you working?  If you worked at all this year and have earnings avg more than $1,010/month, you have a tough road ahead of you.
  2. Is your condition “severe”?  Your disability must prevent you from doing your basic job duties.
  3. Is your condition on the SSA’s list of disabilities?  They maintain two lists, one for those over the age of 18 and one for those under the age of 18.  Of course, just because you have some symptoms of some of the conditions on the lists, you aren’t a “shoe-in” for SSD.  They have a computer program which can identify “cases with a high probability of allowance.”
  4. Can you do the work you did prior to your disability?  See here.
  5. Can you do any other work?  See here.

As you can see, a lot of this is relative.  But, it is our opinion that qualifying for SSD is incredibly difficult.  You can read chapter 6 of the SS handbook if you don’t believe us.  And because of this, you should not depend on SSD the same you would for survivor benefits.

Disability benefits are similar to survivor benefits.  Generally, your disability benefit will equal your full retirement age benefit.  And your spouse, if at least 62 years of age or cares for the disabled worker’s childrens who are under the age of 16, is eligible for a spouse’s benefit of up to 50% the worker’s full retirement benefitAnd childrens are eligible for up to 50% of the worker’s full retirement benefit.

If… Are/Is… You/They receive… Comments
You Disabled 100% of your PIA
Your Spouse FRA age 50% of your PIA
62 yo 32.5% of your PIA reduced 25/36 of 1%/month for first 36 months then 5/12 of 1%/month
caring for a child under 16 yo or disabled 50% of your PIA
 Your Childrens under the age of 18 50% of your PIA or 19 and still in high school or deemed disabled before age 22

If you qualify for disability benefits under the Social Security program, you are subject to a family maximum benefit just as your family was if you died.  It is computed the same way as survivor family benefits with a few caveats.  The family maximum benefit for a disabled worker can be no more than 150% of primary insurance amount (benefit at full retirement age) or no more than 85% of your average indexed monthly earnings and it can’t be less than 100 of your primary insurance amount.

Also, excess amounts of income earned by your spouse over the exempt amount can result in a deduction of your benefits.

Simple eh?!  The important parts are the tables.  If nothing else, do understand that there are protections for you and your family if catastrophic events happen.

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