The Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget. The actual name for Social Security is the Old Age, Survivors, and Disability Insurance (OASDI) program.
It consists of many parts, including guaranteed income to the retired, disabled, and qualified survivors, insurance in the form of Medicare, unemployment benefits, and other programs. Today, we’ll specifically look at what it takes to qualify for retirement and disability benefits.
Social Security Work Requirements
Your ability to receive disability and/or retirement payments primarily depends on your work history. For you and your dependents/survivors to qualify for full benefits under each program, you need to be “fully insured.” You and/or your dependents may also qualify for limited benefits if you are “currently insured.”
Each status requires a certain number of social security quarters of employment earnings. This number changes from year to year. In 2010, a quarter of earnings is $1,120. You can earn up to 4 quarters per calendar year, regardless of when the earnings were actually earned – once you make $4,480 in a year, you have 4 quarters for that year, whether you earned that money in January or December. Current requirements are as follows:
- Fully Insured means that you have 40 quarters of qualified earnings after the age of 21.
- Currently Insured workers have at least six quarters of coverage out of the previous 13 calendar quarters.
- Disability Insured varies based on age. Those between 21 and 24 have to have 6 quarters of coverage in the last 12 quarters. If you are 24-30, you have to be covered for half of the available quarters after age 21. If you are over 31, you have to be fully insured (40 quarters of coverage) AND have earned 20 of those quarters in the last 40 calendar quarters.
Other Social Security Requirements
In addition to a certain number of quarters/years of work experience, you have to meet additional qualifications to actually claim and receive your benefits:
- Retirement: To claim your social security retirement benefits, you have to be fully insured and reach full retirement age, which varies from 65 (for those born before 1938) to 67 (for those born after 1960). You may receive reduced benefits before full retirement age or increased benefits if you defer receipt past retirement age. Your spouse and dependents may also claim benefits based on your work history.
- Survivor: When you die, your survivors (spouse and dependents) may be able to claim social security death benefits based on your retirement benefits. Amounts and eligibility will vary depending on whether you were fully or currently insured at death. This benefit applies regardless of your age at death.
- Disability: To receive social security disability benefits, which are notoriously hard to qualify for, you must meet the definition of disability insured above AND prove that you meet the government’s definition of disabled. Because this definition is so hard to meet, most people should carry supplemental disability insurance.
Social Security Benefits
If you have met all requirements, you will receive a percentage of your highest years of income, based on many very complicated calculations completed by the Social Security Administration. You can see an estimate of your benefits using the social security calculator. The system is calibrated so that lower-paid workers receive a higher percentage of their income than higher-paid workers.
As mentioned earlier, your spouse and dependents may also receive benefits based on your work history. Your Social Security Statement, received annually about 3 months before your birthday, will provide personalized details about your potential benefits.
Social Security Benefits Adjustments
Update: Social Security benefits are based on the cost of living (COLA) index. Social Security benefits increases are available for the current year.
Once you begin receiving Social Security benefits you may need to pay tax on the amount you receive. For more details, see Do You Have to Pay Income Tax on Social Security?
The Future of Social Security
As we all know, Social Security will have to undergo major changes to stay solvent in the future. So while you should be aware of this information, you should also make sure you are using retirement accounts to plan for the future on your own!