Old-Age benefits, Survivor benefits, and Disability Income (OASDI)
MR. WATSON: It's broken down like this. 6.20% of the 7.65% goes towards funding
1.45% goes towards funding Medicare (Medicare is a federal program providing health benefits for people age 65 and over and certain other circumstances).
There's a wage limit on the 6.20. It is called the maximum taxable wage base. Once you earn $168,600 in the year, they stop taking out the 6.20%. But they continue to take out the 1.45% for Medicare, no matter how much money you make. A person making $1,000,000 per year and someone making $200,000 will pay the same amount into their O.A.S.D.I. They pay the same. They will get back the same. Because once they reach $168,600, they stop taking out for the retirement benefits.
MR. WATSON: If they paid in the same, they will get back the same.
MR. WATSON: Benefits are based on the Average Indexed Monthly Earnings (AIME). It is an average of your lifetime earnings that have been subjected to the FICA tax. (Indexed means adjusted for inflation). This method "weights" or adjusts past earnings to bring them up to current economic standards. If S.S. didn't index (average) the earnings, then a guy receiving retirement benefits today (grandpa) would be receiving a ridiculously small check because of what he earned in the 60s and 70s. So, they adjust those earnings by indexing them.
MR. WATSON: Every year you guys should be receiving something in the mail from social security that tells you your primary insurance amount (PIA). It's a dollar amount that you are going to get at full retirement age (FRA). Social Security applies a formula to the AIME to get the PIA. In our example, we are going to use age 65 for Full Retirement Age (FRA). But, if you were born after 1959 you can't retire for full retirement until you are age 67. Your F.R.A. is age 67.
MR. WATSON: The PIA is a dollar amount that you are going to get at Full Retirement Age (FRA). Let's just say for laughs it's $1000 a month when you are 67. All your benefits are going to be based upon this PIA.
Old Age (Retirement) Benefits
MR. WATSON: OLD AGE (Retirement) note...Full Retirement Age (FRA) is age 65 for those born before 1938. FRA is increased gradually to age 67 for those born after 1939. FRA is the age one will receive 100% of their PIA. We will use age 65 simply as a "point" to illustrate. Regardless of one's FRA, one can still take early retirement at age 62.
- Worker- 65 or 62
- Spouse- 65 or 62
- Child until 18
MR. WATSON: Old age.
Worker's benefit
MR. WATSON: Worker's benefit - (Note: Again, most who are reading this can not retire until 67). Who gets the benefit when I retire? The worker, I can retire at what age, and still get the full benefit? 65, full benefit. Or I retire at what age? 62. I would get a reduced benefit because I am going to receive benefits for a longer period of time.
MR. WATSON: If I continue to work when I start receiving Social Security Retirement benefits, if I take the benefits before (FRA) Full Retirement Age, my Social Security retirement check will be reduced. Say what? My Social Security check will be reduced by $1.00 for every $2.00 I earn above the annual limit, which in 2023 was $21,240. Holy Smokes! That is why a lot people just wait until full retirement age (FRA) to receive their benefits. No reduction then. Again, if one takes retirement benefits early, and continues to work, there is a limit on how much he can earn without having his Social Security benefits reduced. There is no reduction in benefits if a worker waits to receive benefits at their Full Retirement Age (F.R.A.)
MR. WATSON: And....if you make too much money at retirement, up to 85% of Social Security benefits can be treated as taxable income.
MR. WATSON: Retirement is 65 or 62. If born after 1959 it is age 67 or 62. If I retire at 62, I'm going to get a reduced benefit. If I can labor until I'm 68, can I get a higher benefit? Yes, because they are paying me over a smaller period of time.
Spouse's benefit
MR. WATSON: Spouse's benefit. When she turns 65, my spouse will get 50 percent of whatever I'm getting. Let's say I'm getting $1,500 a month. When Elizabeth turns 65, she's going to get $750. She hasn't put in anything. If she had, she could draw upon her benefits, which would probably be higher. If there is a dependent child under age 16 (or disabled before age 22) the spouse is eligible to receive the 50% spousal benefit, regardless of the spouse's age.
MR. WATSON: Or she can retire as early as age 62 and get a reduced amount.
WOMAN: Is the $750 deducted from the $1,500?
MR. WATSON: No. It is in addition to. Holy smokes!!! One wonders where all this money is coming from.
Child's benefit
MR. WATSON: Child's benefit. The child gets a benefit too. If I am retired and receiving a S.S. retirement check, my child gets a benefit until they are 18. For the child's benefit, children will receive a benefit until they reach age 18. If the child is disabled before age 22, the child's benefit will continue indefinitely.
