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Understanding Your Social Security Benefits

Understanding Your Social Security Benefits – Part 1

By James R. Cook, CFP®
Senior Manager

When most people think of Social Security benefits, they think of their potential income benefit in retirement. It is true that this is an important benefit that can provide retirement income for many individuals. What most people are less familiar with are the important benefits that Social Security provides that are not directly related to retirement income. This two-part article will provide an overview of all Social Security benefits. Part I will focus on Social Security basics and on non-retirement benefits, Part II will focus on retirement benefits.

The information in this article is provided as a general overview of Social Security benefits. For a complete explanation of benefits and to register for online access to your Social Security benefits, see the official Social Security website .

Social Security Basics

If you are working, you are most likely contributing to Social Security through payroll taxes. If you are considered an employee, you pay taxes known as Federal Insurance Contributions Act (FICA) taxes. If you are considered self-employed or a clergy person, you pay Self-Employed Contributions Act (SECA) taxes. You only pay these taxes on income associated with employment, such as wages, tips, and bonuses. These taxes fund the Social Security and Medicare programs.

  • Employees participate through FICA and pay half of the Social Security tax through automatic withholding from their pay check at a rate of 7.65%. Their employer pays the other half. Of this total tax, 6.2% is for Social Security and 1.45% is for Medicare. In 2017 individuals only pay the Social Security portion on the first $127,200 of individual income. There is no income cap on the Medicare portion.
  • Self-employed or clergy pay into Social Security through SECA and must pay the whole tax of 15.3% out of their wage income. Of the total tax, 12.4% is for Social Security and 2.9% is for Medicare. The Social Security portion only applies to the first $127,200 of individual income. There is no income cap on the Medicare portion.

Social Security was designed to provide economic security for American families. As we explore all Social Security benefits in these two articles, you will see that Social Security protects individuals who are either retired, deceased or unable to work and their families.


Social Security disability benefits are available to individuals who have a medical condition that is expected to last at least one year, or to result in death.

To receive disability benefits, you must meet two earning requirements:

  • The first requirement is a test of recent work. The requirement is age dependent, but you must demonstrate that you have had work during a portion of a recent period. As an example, individuals age 31 and older must have worked five years out of the 10-year period ending with the quarter their disability began.
  • The second requirement is a duration of work test, wherein an individual must have worked long enough under Social Security to be eligible for benefits. This requirement is also age-based.

If you believe that you are eligible for Social Security disability benefits, you should contact the Social Security administration as soon as possible to begin the application process. Processing an application can take several months.

If an application for disability benefits is approved, benefits are payable for the sixth full month after the date your disability began (not the date of your application). Benefits are paid monthly.

Your actual benefit is based on your average lifetime earnings. In addition to the benefits for the disabled worker, your family may be eligible for benefits. Spouses are eligible for benefits under certain circumstances, as are minor children who are under your care. An older child who meets the definition of a disabled adult may also be eligible for benefits.

Once a disability claim is approved and you have been receiving disability benefits for two years, you are automatically eligible for Medicare.

Additional Benefits for Children

Related to disability and retirement benefits, an adult child who was disabled prior to age 22 may be eligible for a child benefit paid under a parent’s benefit if the parent is receiving disability or retirement benefits under their own record.

Disabled children under age 18 may also be eligible for disability benefits in their own right. Eligibility includes consideration of family income and other resources.

Medicare (For detailed information click here )

Medicare is the U.S. federal health insurance program, primarily for people age 65 or older. Medicare also covers individuals with permanent kidney failure, and as previously noted, individuals on Social Security disability after two years.

Medicare has two parts:

  • Part A, commonly referred to as hospital insurance, is the core benefit of Medicare that everyone eligible for Medicare receives. Part A covers a portion of hospital-related costs and medically necessary skilled care, with limits. There is no fee for this coverage if you have met the minimum coverage requirement of 30 quarters.
  • Part B of Medicare is optional and pays a portion of non-hospital medical care, such as doctor visits and out-patient care. There is a monthly fee for this program. In 2017, the standard Part B premium amount is $134 a month.

An alternative to traditional Medicare Parts A and B are plans known as Medicare Advantage Plans. These plans use private insurers to provide coverage equivalent to Parts A and B and operate like the plans you may have prior to retirement. A variety of options are available that allow choice in coverage options, co-payments and monthly costs. Some Medicare Advantage Plans also include prescription drug coverage.

Beyond the core components of Parts A and B, Medicare also makes available Part D – Prescription Drug coverage plans. Prescription drugs are not covered under Parts A and B. Costs for Part D plans vary by the plan you choose. Different prescription drug plans often cover different drugs. Plans with more extensive benefits and a wider range of covered drugs, will cost more than plans with narrower benefits.

Beyond the coverage provided by the various components of Medicare parts A and B, you may elect to enroll in a private supplemental insurance plan, often referred to as a “Medigap” plan. These plans, offered by private insurance companies, provide additional coverage for expenses not covered by Parts A and B. The cost of these plans is dependent upon the type of coverage you choose. If you enroll in a Medicare Advantage plan you do not need to enroll in a Medigap plan, as those plans are already designed to account for coverage options beyond what is included in Parts A and B.

Healthcare is frequently one of the largest expenses people experience in their retirement years. Planning carefully and choosing your options wisely is critical to both an emotionally and financially secure retirement.

Educate yourself on your options well before your 65th birthday and don’t delay when it comes to the actual Medicare enrollment process; you may be subject to a penalty for late enrollment in Part B. You can begin the enrollment process three months before you turn 65.

Understanding all the benefits available to you through Social Security may seem overwhelming, but MMBB is here to guide you. Give MMBB a call at 800.986.6222 and ask to speak to one of our Financial Planners. We’re here to help!