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I pay a lot of money into Social Security. Why can’t I depend on that for my retirement?

You can probably depend on some form of Social Security when you reach retirement age, but you cannot afford to rely solely on Social Security to fund all of your retirement expenses. Americans are living longer, which means they are draining the system by collecting payments longer. The first of the Baby Boomers haven’t even begun drawing Social Security benefits yet, and there are fewer young people to pay the taxes that fund payments to older retirees. A cut in future Social Security benefits is inevitable. Sums up "Wealth Enhancement & Preservation" (The Institute Inc., Denver): "Times have changed. When we began the Social Security system, we had many more workers paying into the system than we had workers drawing funds out. Today, we have only three workers for every two people drawing funds out of the system. Essentially, our children cannot afford us. Social Security was never intended to provide 100 percent of a person’s retirement income. It really cannot be expected to do so in the future."

What are cost of living adjustments (COLAs) for Social Security payments?

Social Security payments, as well as many labor agreements, have regular "cost-of-living adjustments." Commonly referred to as "COLAs," they’re designed to prevent inflation from devouring an ever-growing piece of your income and savings. COLAs for Social Security recipients are based on increases in the government’s Consumer Price Index. The government calculates the CPI increase every fall and then raises every recipient’s check in January.

Is there any way to estimate what my Social Security benefits will be before I retire?

The Social Security system has the difficult task of tracking the earnings of more than 100 million American workers and making sure that the Social Security taxes those workers pay are credited properly to their individual accounts. The tracking system is good, but not infallible. To make sure you’re getting proper credit for Social Security taxes you have paid, check every few years. You simply call the agency at (800) 772-1213 or order your PEBES online at the Social Security Web site. A few weeks after you complete the one-page form, the Social Security Administration will mail a report that lists how much you have paid into the system, how many credits you have built up and an estimate of the monthly benefits you will receive when you retire. If there’s an error, you can submit copies of W-2 forms or income tax returns to have the figures adjusted upward.

Is there any way for me to get online information about Social Security?

The Social Security Administration is one of the federal government’s largest and oldest agencies. However, the Social Security Web site is surprisingly handy and easy to use. It has answers to hundreds of frequently asked questions, forms that you can download and a variety of other helpful features.

Is the Social Security retirement age likely to be raised because people are living longer?

Most financial experts agree that some form of Social Security will always be available, but that the system of the future will be very different. People are living longer, the first of the Baby Boomers are only now reaching retirement age, and fewer young people are entering the work force and paying Social Security taxes. The current system has to be changed or the whole thing will go bankrupt. Some in Congress have already talked about ways to change the Social Security system to ensure it will remain solvent enough for everyone to get at least some of their money back. One way would be to increase the age at which you would become eligible to start collecting benefits. Another would be to reduce the amount you can collect. The list of suggestions goes on and on, but one thing is certain: Change is coming, and benefits will be cut. That’s one more reason why you need a retirement plan of your own instead of relying solely on Social Security.

Does receiving Social Security affect my ability to make a deductible IRA contribution?

Social Security payments you receive could restrict your ability to deduct contributions to your IRA. According to "Wealth Enhancement & Preservation" (The Institute Inc., Denver), "If you are covered by a qualified pension plan where you work, Social Security benefits can affect your deductible contribution to an IRA. Deductibility of an IRA contribution depends on your adjusted gross income, which includes the taxable portion of Social Security benefits. So your Social Security can reduce the deductible portion of an IRA contribution."

When can I collect my Social Security retirement benefits?

You have some options here, but the longer you wait to start collecting, the bigger your monthly checks will be. According to "Building Your Nest Egg with Your 401(k)" (American Press Inc., Washington Depot, Conn.), "When to apply is a decision you’ll want to consider with some care. Currently, you become eligible to collect 80% of your Social Security benefit at age 62; but if you do, you’re locked in to that 80% benefit for the rest of your life. If you start collecting the benefit at age 63, you’ll receive about 87%; if you start at age 65, you’re eligible to collect 100% of your benefit. If you wait until age 70 to start collecting benefits and you have worked continuously until that point, you’re eligible to collect between 115% and 140% of your benefit, depending on your date of birth."

What type of documents will I need when I first apply for Social Security benefits?

Here’s a list of the most common documents needed to claim benefits: 1. Your Social Security card, or at least a record of your number. 2. Your birth certificate. 3. Your child’s birth certificate, if you’re applying for benefits on behalf of your son or daughter. 4. A marriage certificate, if you’re signing up on a spouse’s record. 5. Your most recent W-2 form from your employer, or your tax return if you’re self-employed. 6. Your military discharge papers, if you had military service. Remember, you must supply either the original documents or certified copies of the originals. The Social Security Administration won’t accept photocopies or carbons.

Can I hire someone to pursue a Social Security claim on my behalf, or do I have to do it myself?

It’s relatively easy to apply for Social Security benefits, but sometimes the applicant and the Social Security Administration don’t see eye-to-eye. Existing recipients can also get into a dispute. By law, you have the right to have a representative when you deal with the Social Security Administration. It could be your spouse, your son or daughter, or anyone else you choose. To use a representative, you must file form SSA-1696-U4. You can download it, pick one up at the nearest Social Security office, or they will mail one to you. If you pay for representation, the Social Security Administration must provide its written approval first. As a general rule, the representative’s fee cannot total more than 25 percent of any past-due payments that are made, plus out-of-pocket expenses.

Should I hire an attorney to file a disability claim with Social Security?

For most people, hiring an attorney to help file a disability claim makes a lot of sense. The Social Security Administration routinely denies virtually all claims on first filing. An attorney gives the agency a reason to take your claim seriously and ultimately provides expert help in dealing with the hearing process.

What are Social Security credits?

Your eligibility to collect Social Security benefits will depend on your earnings history. You receive Social Security "credits" based on the amount that you earned during your working years and the number of years that you actually paid Social Security taxes. If you’ve worked for a decade or more, you won’t have any trouble meeting the credit requirement, according to "Building Your Nest Egg with Your 401(k)" (American Press Inc., Washington Depot, Conn.). The book goes on to say that, "Currently, 40 credits are required to collect benefits. If you don’t have enough credits because you didn’t pay Social Security taxes long enough, you don’t qualify for a retirement benefit. There’s no partial benefit for fewer credits. Congress has slowly but steadily been increasing the number of credits needed for retirement benefit eligibility. The most recent rule is that people who reach age 62 after 1990 need 40 credits to be eligible."

How much will I get from Social Security?

The exact size of your monthly payments from Social Security will depend on a variety of factors, including how much you earned over your career and how much money you have paid into the Social Security system through taxes. The size of your monthly benefits check will also depend on when you choose to start taking your payments. You can start collecting as early as age 62 or as late as age 70. The sooner you begin collecting, the smaller your benefits check will be. You can order a copy of your Personal Earnings and Benefit Estimate Statement (PEBES), which contains your earnings history and an estimate of your retirement and disability benefits directly from the Social Security Administration. The order can be placed online, but delivery is via snail mail for security reasons.

When can I collect my Social Security retirement benefits?

You have some options here, but the longer you wait to start collecting, the bigger your monthly checks will be. According to "Building Your Nest Egg with Your 401(k)" (American Press Inc., Washington Depot, Conn.), "When to apply is a decision you’ll want to consider with some care. Currently, you become eligible to collect 80% of your Social Security benefit at age 62; but if you do, you’re locked in to that 80% benefit for the rest of your life. If you start collecting the benefit at age 63, you’ll receive about 87%; if you start at age 65, you’re eligible to collect 100% of your benefit. If you wait until age 70 to start collecting benefits and you have worked continuously until that point, you’re eligible to collect between 115% and 140% of your benefit, depending on your date of birth."

What is the full retirement age for Social Security?

The full retirement age for Social Security benefits is 65. You can retire sooner, but your monthly benefits will be reduced. It’s worth noting that 65 is the full retirement age only for those who plan on retiring relatively soon. According to "The Truth About Money" (Georgetown University Press, Washington, D.C.), "For younger workers, Congress already has cut back the benefits. . . . Those born after 1959 are not eligible for full Social Security benefits until age 67." Those younger workers can start receiving benefits at 62, but they will get 30% less than if they wait until 67 -- not 20% less, like those retiring today. Considering the sorry shape that the Social Security system is in today, it’s probable that further cutbacks will have to be made.

Should I begin my Social Security benefits at age 62, 65 or 70?

The longer you wait to begin collecting Social Security payments, the higher your monthly checks will be. Most Americans are eligible to begin drawing full benefits at age 65. But you can start drawing benefits as early as 62 if you’re willing to accept smaller monthly payments. Although people who wait until age 62 get 20% lower payments, they also get 36 more monthly checks than they would if they waited the additional three years to collect. If they continue working, their earnings over $10,680 in 2001 will reduce their benefit $1 for every $2 in excess earnings. Because of this complication, we need to consider two cases: 1. You will not need to work and you will save the benefit checks until the latest age in the comparison (either 65 or 70). 2. You will need or want to continue working as long as possible and you will save the benefit checks until the latest comparison age(either age 65 or 70). For case 1, the the time weighted value of the income stream for beginning early (62) exceeds the value of beginning at 65 or 70 until an assumed age of death at 90. Thus, for case 1, beginning at 62 is the preferred choice. For case 2, we assume that the need to work creates enough income to reduce the early retirement benefit to zero (assuming a $12,000 benefit and earnings greater than $34,680). Therefore, the comparison is between beginning at 65 or delaying until 70 since earnings prior to 65 reduces the benefit to zero. Because there is no longer a benefit reduction for earnings after age 65 and because the time weighted value of the benefit income stream is greater for beginning at age 65 even though the benefits at age 70 are 40% larger we must conclude that beginning benefits at 65 is the best option for case 2.

Can I lose my Social Security benefits?

It’s possible to lose all of your Social Security benefits. If you start benefits at 62 and continue working, your benefits will be reduced by $1 for every $2 you earn over $10,680 in 2001. Thus if you earn $34,680 or more and your benefit was $12,000 per year, you will lose all of your benefits until you reach age 65 if your earnings remain that high.

What is a Social Security representative payee?

When someone who receives Social Security or Supplemental Security Income (SSI) checks becomes unable to manage his or her own benefits, the Social Security Administration can appoint a representative payee to assume the responsibilities. A representative payee can be a spouse, son or daughter, close friend or even a nursing-home operator. The monthly check is sent directly to the representative payee, who must make sure the funds are used for the personal care and well-being of the beneficiary. The representative payee is also responsible for letting the government know about any event that could affect the beneficiary’s monthly payments. For more information about representative payees, contact your local Social Security office.

How do I sign up for the Social Security Administration’s Direct Deposit program?

You can have your monthly Social Security check automatically deposited at your bank or similar financial institution through the Social Security Administration’s free Direct Deposit program. Call your bank to sign up for the plan. Have your Social Security number and your checkbook or bank statement handy.

If I move to another country after I retire, can I still be eligible to receive Social Security benefits?

A growing number of older Americans are choosing to spend their retirement years abroad, either traveling or settling down where living expenses are much lower. But before you pack your bags, make sure you understand how a move to a foreign country -- or even just an extended visit -- may affect your ability to collect Social Security benefits. For example, U.S. Treasury Department regulations prohibit sending payments to you if you are in Cuba, Cambodia, North Korea or Vietnam. In addition, Social Security restrictions prohibit sending payments to countries other than Armenia, Estonia, Latvia, Lithuania and Russia that were part of the former Soviet Union. You can’t receive payments while you are in one of these countries, and Social Security can’t send payments to anyone for you. For more information about receiving checks abroad, contact the nearest Social Security office. If you’re already abroad, ask the U.S. Embassy or Consulate. Or visit the Social Security Administration’s Web site and review a document titled. Your Payments While You Are Outside the United States.

My disability income policy has a Social Security benefit. What does this mean?

Many disability income policies, which will provide payments to the policyholder if he or she becomes unable to work, include a Social Security benefit. Social Security pays long-term benefits only if you are not able to perform any substantial, gainful activity for more than a year or if your disability is expected to result in death. According to "Wealth Enhancement & Preservation" (The Institute Inc., Denver), "Social Security riders are added to disability income policies to recognize that the Social Security Administration may or may not deem your disability sufficiently severe to warrant a monthly payment from the federal government. This rider provides a stated monthly benefit in addition to the base payment if a payment is not awarded by the Social Security Administration." Such riders can be expensive, but note that roughly half of all claims for Social Security disability benefits are initially rejected. However, the results are much better when the claimant uses an attorney to file.

How can I find out if I qualify for disability payments from the Social Security Administration?

If you are sick, or if you are partially or totally disabled, you may qualify for disability payments from the Social Security Administration. The list of qualifying health problems is relatively short. You’re not automatically eligible to begin collecting just because your employer or doctor says you are unable to work. The decision to award disability payments will be rendered by your state’s Disability Determination Service, which will examine your medical and work records before rendering its decision. If your claim is approved, payments will begin about six months after you become disabled. However, there’s no waiting period for children or for people who are eligible for the government’s Supplemental Security Income (SSI) program.

What types of medical problems qualify for Social Security disability payments?

If you’re disabled or too sick to work, you may be eligible to collect disability payments from the Social Security Administration regardless of your age. The list of health problems the SSA considers serious enough to trigger disability payments is relatively short. It includes heart disease, emphysema, cancer, stroke, paralysis, loss of a limb and kidney failure. You may also be eligible to collect SSA disability payments if you lose some or all of your sight, suffer from chronic arthritis, are mentally retarded, chronically obese, have multiple personalities or are schizophrenic. Those who suffer from AIDS or are HIV-positive may also qualify. Other medical problems may also qualify you to receive SSA disability payments. The decision to award payments will be made by your state’s Disability Determination Service. You would be well advised to use an attorney to file such claims due to the complexity and legal nature of the procedure.

What happens in the event that I’m only partially disabled?

Some policies pay a partial benefit. The exact amounts and types of partial disability covered are spelled out in the policy. It’s important to realize, too, that if you are partially disabled, you will not be eligible for any Social Security benefit. Without coverage of your own for partial disabilities, you’re likely to receive no benefit payments at all.

Is there a limit on the length of time that Social Security disability benefits can last?

Unlike some private disability-insurance programs, there is limit to the duration of Social Security disability benefits. If you qualify, you will keep collecting as long as your condition prevents you from working. Of course, the Social Security Administration will periodically review your case to see if there has been an improvement in your condition. If you’re once again deemed healthy enough to work, your benefits will be cut. If you are still receiving benefits when you reach age 65, your disability benefit will be automatically converted to retirement benefits.

Should I hire an attorney to file a disability claim with Social Security?

For most people, hiring an attorney to help file a disability claim makes a lot of sense. The Social Security Administration routinely denies virtually all claims on first filing. An attorney gives the agency a reason to take your claim seriously and ultimately provides expert help in dealing with the hearing process.

What is Supplemental Security Income (SSI)?

If you don’t qualify for Social Security benefits, or if your benefits are unusually small, you may be eligible for the federal Supplemental Security Income (SSI) program. Unlike Social Security benefits, SSI payments are funded completely out of the federal budget. Those payments are small, typically about $450 for a single person or $650 for a couple. People who live in New York, California and other expensive areas can get a little more. Only U.S. citizens qualify for SSI payments. You must either be 65 years old, blind or disabled. Eligibility is also affected by your income and assets.

How do I qualify for SSI?

The federal Supplemental Security Income (SSI) program was designed only for the neediest of older people and the disabled. If you don’t qualify for Social Security benefits, or if your benefits are small, you may be eligible for SSI payments. Only U.S. citizens qualify for SSI payments. In addition, you must either be 65 years old, blind or disabled. The SSI program is restricted to those who don’t have a financial safety net of their own. In general, that means singles who have less than $2,000 in assets and couples who have less than $3,000. Your home and car aren’t included in eligibility calculations, but the value of any savings accounts or other investments you hold is. You can work and still be eligible for SSI payments, but income limits are relatively low and vary from state to state.

How do I apply for survivor benefits from Social Security?

When someone who is receiving Social Security payments dies, the surviving spouse is eligible for "survivor" benefits. Apply for those benefits as quickly as possible. You’ll need a copy of the deceased’s death certificate and evidence of your relationship, marital situation and age. In addition to monthly checks, the Social Security Administration will give you a one-time $255 payment to help meet burial or other expenses. Survivor benefits are also available to minor children when a parent dies, even if the parent wasn’t old enough to collect Social Security retirement benefits. These monthly payments can be quite substantial, subject to the maximum allowable earnings limit prior to taxation, and are a good source of cash to meet the child’s living expenses and savings for college.

Will I lose the survivor benefits I collect from Social Security if I remarry?

If your spouse has died and you are receiving Social Security survivor benefits, you won’t lose those benefits if you marry as long as you have already reached the age of 60. If you’re blind, you can continue receiving survivor benefits as long as you have reached 50. In fact, if you remarry, you might even see your monthly Social Security check increase. That’s because you may qualify for higher benefits based on your new spouse’s earnings history. You get to choose the higher of the two figures. If you have children who are also receiving benefits, their status will be unaffected by remarriage.

My wife and I are both drawing Social Security checks, what will happen when one of us dies?

When both partners in a marriage are receiving Social Security payments and one dies, the survivor is entitled to receive the greater of 100% of the late spouse’s monthly benefit or his or her own monthly benefit. This does not mean that you will begin receiving two monthly checks when your spouse dies. Instead, it means that you will be able to choose whether to continue collecting the same monthly benefit that you have always received, or start collecting the amount that your spouse received when he or she was alive. For example, if your spouse’s monthly check was $1,100 and yours is $600, you would choose to collect payments under your spouse’s plan so you could receive $1,100 a month.

What is the so-called Social Security tax zone, and why is it so important?

If you make under a certain amount of money every year, you don’t have to pay any income taxes on your Social Security benefits. If you make over a certain amount, you will have to pay taxes on up to 85 percent of your benefits. The vast area between those high and low points is the so-called Social Security tax zone. What makes this zone so important is that within this zone, the earning of any additional taxable or tax-free income triggers the taxation of additional Social Security benefits.

How do I determine the taxation of my Social Security benefits?

All of your Social Security benefits are tax-free if your modified adjusted gross income (AGI) plus one-half of your benefits is below the base amount of $25,000 if you are single, or $32,000 if you are married and file a joint return. If your modified AGI plus one-half of your benefits exceeds the base amount, up to 85% of your Social Security benefits are taxable. Modified AGI is the sum of your adjusted gross income (excluding Social Security benefits), tax-exempt interest, any amounts of excluded foreign earned income or housing and any interest excluded from gross income because qualified U.S. Series EE bonds were redeemed to pay qualified education expenses. As a Social Security benefits recipient, you receive a Form SSA-1099 by Jan. 31 each year. The net benefits figure shown on the form is used to determine taxable benefits. The IRS provides a worksheet you can use to figure precisely how much is taxable. For more information, see IRS Publication 915. Social Security and Equivalent Railroad Retirement Benefits. You can download it from the IRS Web site or order by calling 1-800-TAX-FORM (829-3676).

How do reverse mortgages affect income tax, Social Security and Medicare benefits?

If you take out a reverse mortgage, you don’t have to worry about the loan affecting your ability to collect Social Security or Medicare benefits. (However, if you are receiving Supplemental Security Income payments, you must spend the proceeds from the reverse mortgage and not accumulate the payments.) Nor will the mortgage have much effect on your income taxes. According to "Wealth Enhancement & Preservation" (The Institute Inc., Denver, Colo.), "Reverse mortgage advances do not affect eligibility for Social Security and Medicare benefits and will not affect SSI benefits as long as the recipient spends the advances within the month they are received. The loan advances from a reverse mortgage are not taxable, and the interest which is credited on a reverse mortgage is not deductible for income tax purposes until it is paid. This does not occur until all the reverse mortgage debt is paid."

Is investment income taxed by Social Security?

The Social Security Administration taxes your wages, salaries, tips, commissions, bonuses, and self-employment income to fund the Social Security system. Most other forms of income are not subject to Social Security taxes. Income from pension plans, most types of investments, unemployment benefits and sick pay escapes the long arm of the Social Security Administration. So do alimony payments.

Do I have to pay Social Security taxes on the money I contribute to the 401(k) plan?

Many 401(k) investors mistakenly believe that the money they contribute to the plan isn’t taxed at all. But contributions are not exempt from Social Security taxes. For example, if you contribute $2,000 to a 401(k), you will pay Social Security taxes on the entire amount unless you have already paid the maximum Social Security taxes for the year. The silver lining is that your Social Security benefits won’t be reduced by your participation in a 401(k). Of course, one of the great things about contributing to a 401(k) is that the money you contribute will be exempt from federal income taxes. It will also be exempt from any state taxes, unless you live in Pennsylvania. Contributions are also exempt from local taxes in many municipalities.

Can I work while collecting Social Security benefits?

You can continue to work while you collect Social Security benefits, but your benefits will be reduced if you earn more than a certain amount of money. As of 2001, retirees under 65 lose one dollar in Social Security benefits for every two they earn over $10,680. In the year retirees turn age 65, they lose one dollar for every three they earn over $25,000 duing the months preceding the month of their birthday. For the month of their 65th birthday and after, retirees have no reduction in their benefits, regardless of how much they earn from their job. These ceilings rise with inflation every year, but not by much.

How much can I earn from my part-time job before I start losing some of my monthly Social Security benefits?

You can work and still draw Social Security benefits, but those benefits are reduced if you earn too much money from your job. The earnings ceiling rises annually to keep pace with inflation. The maximum amount you can earn without losing benefits is also based on your age. As of 2001, retirees under 65 lose one dollar in Social Security benefits for every two they earn over $10,680. In the year retirees turn age 65, they lose one dollar for every three they earn over $25,000 duing the months preceding the month of their birthday. For the month of their 65th birthday and after, retirees have no reduction in their benefits, regardless of how much they earn from their job. These ceilings rise with inflation every year, but not by much. You should have your company’s personnel department or a Social Security representative do the calculations for you.

What’s the purpose of Social Security’s annual report of earnings form?

If you’re older and have begun drawing Social Security checks, there’s a limit to how much you can earn from a job and still collect full benefits. You must notify the Social Security Administration if you are working using the agency’s Annual Report of Earnings form. Use it to estimate your earnings and then mail it back to the SSA. Based on your estimate, the agency will reduce the number of monthly checks you get the following year. If you earn less than you estimated, Social Security will send you a check for the amount of benefits you are owed. But if you earn more than expected, you’ll have to pay back the excess.