On Social Security and Medicare (Part III)
3/29/2004
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Before we move on to the survivor and disability benefits, let’s answer a common question on social security: when I draw the benefit, do I pay tax on it?
Many assume the answer is “No” as it would make us pay tax during our retirement on taxes we have paid in (as FICA) during our working years. But Uncle Sam, at least partially, does not agree with that “common sense”.
When the total of your certain income exceeds a government pre-set dollar amount (which is fairly low) during retirement, you will have to pay tax on the benefit. To better plan so that you can escape or minimize tax on it, please call us.
Now, about disability and survivor benefits. Once again, a snapshot at the dollar amounts in 2003.
If a worker who is 40 becomes disabled in 2004, with an annul earnings of $35,000, his monthly benefit will be about $1,217. If his annual earnings are $50,000 or $87,900 and more, his monthly benefits will be $1,552 and $1,976, respectively.
For a worker at age 50 in 2004, with annual earnings of $35,000, $50,000 or $87,900 and up, the monthly disability benefit will be $1,216, $1,551, and $1,952, respectively.
A disabled worker’s spouse at full retirement age (FRA) and under age children can also receive disability benefits. Generally, the amount is half of the disabled worker’s benefit, but there is a cap for a family’s benefits.
On the other hand, survivor benefit amounts are very similar to that of disability benefits except that the benefits for an under aged child is about three-quarters of the widow(er)’s amount.
Again, you’ve got the picture. But it’s not pretty at all.
Worse yet, it’s not easy to qualify for disabled-worker benefits. There are two conditions that must be met.
First, a worker must have worked the required length of time in employment covered by Social Security. Young workers can qualify with as few as 6 credits (about 6 quarters of working history). Older workers may need as many as 40 credits (about 10 years working history).
Second, the disability must prevent the worker from being able to perform any substantial work and must be expected to last for at least twelve months.
Even a worker qualifies for disability benefits, the government program is simply not providing enough to deal with the hardship.
So, what to do?
Get disability-income-protection plan in your insurance program. Many employers offer it in the group insurance and that should be your first choice. Then, add your own if you do not get enough coverage. As a worker stands much higher chances to become disabled before reaching retirement age comparing with death (based on government statistics), it’s only wise to get disability-income insurance for the bread-earner of the family.
If you have any questions concerning the Social Security benefits, disability-income insurance and other related issues, feel free to contact us.
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