The Foreign Service Journal - January/February 2014 - page 59

THE FOREIGN SERVICE JOURNAL
|
JANUARY-FEBRUARY 2014
59
AFSA NEWS
On Nov. 14, AFSA hosted the
seventh installment of its
speaker series on federal
benefits. Edward Zurndorfer,
a certified financial planner,
spoke on what you need to
know about Social Security,
a subject that brought many
attendees to AFSA, our larg-
est turnout to date.
Ed began with a history of
the Social Security program,
followed by a comprehensive
overview of the program.
Signed into law in 1935 by
President Franklin D. Roo-
sevelt, he noted, Social
Security was established as
a government insurance pro-
gram, not a welfare program.
The benefits received by
enrollees are in proportion to
the amount of contributions
they paid into the system
through payroll taxes.
Social Security is meant
to be a supplement to retire-
ment savings, investments
and pensions. Currently,
30 to 45 percent of income
after retirement comes from
Social Security. The lower
your income, the higher likeli-
hood you will rely on Social
Security in retirement.
HOW DOES ITWORK?
Social Security works
when X number of individuals
are paying into the system,
while Y number are receiving
payments. In 1940—when the
first Social Security check
was issued for $25—the ratio
of X to Y was 16 to 1. Today
AFSA BENEF I TS SER I ES
What You Need to Know About Social Security
BY MATTHEW SUMRAK, ASSISTANT COORDINATOR FOR RETIREE COUNSELING AND LEGISLATION
the ratio is 2 to 1.
Zurndorfer discussed
possible changes to the
system (quickly allaying fears
by saying that any changes
would not pertain to anyone
currently receiving Social
Security). The most likely
changes might be to raise
the full retirement age to 69,
increase the FICA tax (Social
Security payroll taxes are
collected under the author-
ity of the
Federal Insurance
Contributions Act
) or remove
the cap on wages taxed. (This
year, $115,100 is the Social
Security earnings limit; any
wages earned above that
amount will not be taxed for
Social Security.)
Ed told the audience not
to worry about the system
going broke or being taken
away because “If any Con-
gress or administration tried
to take away Social Security,
there would be riots.”
HOWARE BENEFITS
EARNED?
Individuals are entitled
to Social Security benefits
after earning 40 work credits,
sometimes known as “quar-
ters of coverage” or QCs.
Credits are earned when
an individual pays Social
Security taxes (FICA tax is
currently 6.2 percent of sal-
ary/wages) on income that
is subject to Social Security
taxes (includes wages and
self-employment income).
Since 1978, a credit of
coverage is earned any time a
worker receives a QC amount
in covered wages—no matter
when the wages were earned,
but no more than 4 QCs in
any calendar year. In 2013,
the amount of covered wages
to earn a credit of coverage
was $1,160. QCs are never
lost, even if one stops work-
ing.
Individuals are guaranteed
a Social Security check at
age 62 only if they are “fully
insured,” meaning they have
at least 40 QCs. From age
62 until their full retirement
age of 66, they will receive a
reduced benefit, lowered by
a percentage based on the
year they were born. At FRA,
they begin receiving their full
retirement benefit.
Until they turn 70, individ-
uals can receive an additional
benefit of 8 percent per year
for each year they wait past
their FRA. For individuals still
working past their FRA, it
makes sense to wait until 70
to start receiving your Social
Security benefit to gain the
Ed Zurndorfer fields questions
from the audience during AFSA’s
benefits seminar on Social Security.
additional 8 percent. Under
no circumstances does it
make sense to wait past 70
to start taking your Social
Security benefit.
Ed advised listeners
to base their decision on
health and career. If you are
still working and relatively
healthy, you should wait until
70 to take your benefit. If
not, you should take your full
benefit at your FRA.
HOW DO I FIGURE MY
BENEFIT?
All retirement benefits
are based on one’s Primary
Insurance Amount. To
determine your PIA, you will
need to know your Averaged
Indexed Monthly Earnings,
which is based on your
lifetime earnings history.
PIA is the amount payable
at your FRA. If you start your
benefits earlier, it will be less
than the PIA. If you start your
benefits later, it will be more
than the PIA.
The Social Security
Administration recomputes
an individual’s AIME every
year by taking their 35 high-
est years of largest indexed
earnings and adding them
up. They call this total T
35
.
They then divide by 420 (35
years times 12 months per
year equals 420 months). So
AIME equals T
35
divided by
420.
Social Security continued on page 84
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