The Foreign Service Journal, January-February 2014

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 ASGEIRSIGFUSSON