The Social Security program has eight special provisions:
The Spousal Benefit. In addition to the retirement benefits that a worker can receive, the worker’s spouse can also receive a benefit in some circumstances. Most spouses who qualify for the full benefit come either from single-earner families in which one spouse was employed and the other stayed at home to care for the family or from situations where there was a large difference between the earnings of the two. The spousal benefit is equal to 50 percent of the employed spouse’s benefit, which means that such families could receive a total Social Security income of 150 percent of the working spouse’s benefit while both are still alive.
The “dual-entitlement rule” prevents spouses who qualify for their own Social Security retirement benefits from receiving both their own benefits and a spousal benefit. An exception is made if the lower-earning spouse’s benefits are less than 50 percent of the higher-earning spouse’s benefits. In that case, the lower-earning spouse would also qualify for a spousal benefit equal to the difference between his or her retirement benefits and 50 percent of the higher-earning spouse’s benefits.
Some special circumstances—for example, if one spouse was employed by a state or local government that does not participate in the Social Security program—can make it appear that someone qualifies for spousal benefits even though he may have substantial income or retirement benefits from the job not covered by Social Security. The Government Pension Offset addresses this circumstance and limits spousal benefits to families that qualify for it.
Survivors Benefits. The amount of the survivors benefits paid to spouses, including divorced spouses if the marriage lasted at least 10 years, and children under the age of 18 (19 if still attending high school) depends on the earnings history of the deceased worker. The same formula that calculates retirement benefits is also used for survivors benefits. They are usually calculated as a percentage of the benefit for which a worker would have been eligible at the time of death.
Surviving spouses who are near retirement age receive a benefit that is based on the worker’s retirement benefit. If the worker began to receive benefits at full retirement age, the surviving spouse will receive an amount equal to 100 percent of the worker’s benefits. This is also true if the worker died before receiving Social Security. However, if the surviving spouse is also entitled to receive benefits, he or she will receive only the larger of the two amounts. The survivor will not receive both the worker’s benefit and his or her own benefit.
If the deceased worker received a reduced amount of retirement benefits before full retirement age, the surviving spouse will also receive a reduced monthly benefit. The exact amount depends on the survivor’s age and the level of the worker’s benefit. A surviving spouse can receive benefits as young as age 60 (50 if the surviving spouse is disabled) but in that case would receive only 71.5 percent of the worker’s full retirement benefit.
In addition to the monthly benefit, surviving spouses receive a one-time $255 death benefit. This benefit is payable only to spouses or children eligible to receive benefits.
Another situation occurs if the worker dies leaving children under the age of 18. In that case, both the children and the surviving spouse are eligible to receive a benefit equal to 75 percent of the retirement benefit for which the worker qualified at the time of death. Children and the spouse continue to receive this benefit until the last child reaches age 18 (19 if the child is in high school at that date or at any age if the child is disabled before turning age 22). The total annual amount that the family can receive from Social Security depends on a number of factors and lies between 150 percent and 180 percent of the worker’s full retirement benefit. Once the last child has reached an age at which benefits end, benefits also end for the surviving spouse until he or she qualifies for retirement benefits.
Disability Benefits. Disability benefits are calculated using the same formula as the one used to calculate retirement benefits. However, disability benefits for a worker who is disabled before having worked 35 years are calculated using a shorter work history so that the worker is not penalized.
Obtaining approval for Social Security disability benefits is not easy. The Social Security Administration’s definition of disability is extremely strict, and about half of the workers who apply for benefits are turned down. Some of these applicants will be approved on appeal, but the process can be long and complicated.
To qualify, a worker must be unable to do any kind of substantial work because of physical or mental disabilities, which are expected either to last at least 12 months or to result in death. Merely being unable to do the job that he or she held before the disability does not automatically qualify someone for disability benefits. Depending on the worker’s age, experience, and education, a person may be regarded as qualified for other work and thus be denied disability benefits, even if the work is at a lower salary. Family members may also be eligible to receive benefits because of a worker’s disability.
Because the disability insurance program functions as a true insurance program with its own tax, trust fund, and eligibility process, it is considered separate from Social Security’s retirement and survivors program.
The Retirement Earnings Limit: Working During Retirement. At one time, any worker under the age of 70 who received Social Security retirement benefits and chose to return to work would lose a substantial portion of his or her Social Security benefits. In 2000, Congress eliminated this penalty for workers who have reached full retirement. Workers between 62 and full retirement age still risk losing much or most of their benefits if they choose to work after applying for retirement benefits.
In 2014, workers under full retirement age can earn up to $15,480 without any consequences. However, for every two dollars they earn over that amount, their Social Security benefits are reduced by one dollar. A higher limit of $41,400 applies to the year in which the worker reaches full retirement age.
Rather than reducing each monthly benefit equally, Social Security frontloads the reduction until the full amount of the reduction is reached. Thus, if annual benefits were to be reduced by $4,500 and a worker’s monthly benefit was $1,000 per month, that person would not receive Social Security checks for the first four months, and the check for May would be for only $500. Starting in June, the worker would again receive $1,000 per month through December.
The Government Pension Offset. The Government Pension Offset affects the Social Security benefits for spouses of workers who held jobs that were not covered by Social Security. Most of these workers were either state or local government employees or were federal employees prior to 1984. Since government workers who were not covered by Social Security do not have an earnings record for those jobs or any Social Security benefits based on that employment, they would theoretically qualify for a full spousal benefit, even though the spouse would not qualify if both workers had been part of Social Security.
Thus, a person who joined the federal government prior to 1984 would, in theory, be able to receive both a full Civil Service Retirement System (CSRS) pension and a Social Security spousal benefit. To eliminate this dual benefit, Congress created the Government Pension Offset in 1977.
Under the Government Pension Offset, two-thirds of the CSRS pension (or, in other cases, the pension that comes from a state or local government that does not participate in Social Security) is treated as if it were a Social Security benefit, and the worker’s Social Security spousal benefit is reduced dollar for dollar by this amount.
For example, if the CSRS worker’s spouse receives $1,200 per month from Social Security, the worker would technically be eligible for a Social Security spousal benefit of $600 (one-half of the spouse’s basic retirement benefit). However, if the worker has a $1,200 per month CSRS pension, $800 of his or her pension (two-thirds) would be treated as coming from Social Security. This would eliminate the spousal benefit because two-thirds of the CSRS pension ($800) is larger than the potential spousal benefit ($600).
As a result of the Government Pension Offset, the CSRS worker and the worker’s spouse are treated the same as married workers who are both covered by Social Security. The Government Pension Offset affects about 600,000 retirees and reduces Social Security’s aggregate benefits by approximately $4 billion annually. A major proportion of those affected by this rule are retired federal workers; most of the rest were employed by state and local governments that do not participate in Social Security. The vast majority of these workers come from eight states: Alaska, California, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio.
The Windfall Elimination Provision. The Windfall Elimination Provision is similar to the Government Pension Offset, except that it applies to the worker’s retirement benefits instead of spousal benefits. It applies only to workers who have both a Social Security retirement benefit and a pension from a job that was not part of Social Security.
Under the Windfall Elimination Provision, only 40 percent (as opposed to the usual 90 percent) of the first $816 (the first bend point in 2014) of the AIME is counted toward the worker’s monthly retirement benefit. This in turn lowers the affected worker’s total monthly benefit. For example, the monthly benefit for a worker with an AIME of $1,200 would be reduced from $857 to $449, and a worker with an AIME of $4,000 would receive $1,345 per month instead of $1,753.
There are exceptions to this provision that take into account how long the worker was employed in a job covered by Social Security. The longer a worker was employed in a job covered by Social Security, the lower the benefit reduction. If the worker received “substantial” Social Security–covered earnings for 30 years or more, there is no reduction in benefits. In the case of a worker covered by Social Security for 21 years to 29 years, the 90 percent multiplier would be reduced to between 45 percent and 85 percent, depending on the exact number of years worked.
The Windfall Elimination Provision adjusts the benefit formula to reflect retirement income from employment not covered by Social Security. It was created because the basic Social Security benefit formula is designed to give lower-income workers more for their Social Security taxes than higher-income workers. If a government worker spent 30 years in a job not covered by Social Security and only 12 years in one that is covered, his or her Social Security earnings record (AIME) would appear to be very low when compared to his or her actual average income from both jobs. This is because all of the income not covered by Social Security would be excluded from the AIME calculation. Without this provision, a middle-income or even upper-income worker would receive a Social Security benefit based on a low-income worker’s higher replacement rate.
The Dual-Entitlement Rule. A long-standing principle of Social Security holds that a worker cannot qualify for both full retirement benefits and full spousal benefits. Accordingly, although a married worker theoretically qualifies for both retirement benefits from his or her own earnings record and a spousal benefit equal to 50 percent of the spouse’s retirement benefit, the dual-entitlement rule limits the spousal benefit.
The dual-entitlement rule reduces the spousal benefit dollar for dollar by the amount of the retirement benefits for which a worker qualifies under his or her own earnings record. Thus, if two spouses each qualify for $1,200 per month from their own earnings records and for spousal benefits of $600 per month (one-half of the basic retirement benefit), they would still receive a total benefit of only $2,400 ($1,200 per person). Both spouses are ineligible for the $600 spousal benefit because their individual retirement benefits are greater.
On the other hand, if one spouse received $1,200 per month and the other received $400 per month from Social Security, the lower-earning spouse would qualify for a $200 spousal benefit. In this case, the $600 spousal benefit from the higher-earning spouse would be reduced by the lower-earning spouse’s benefit ($600–$400), leaving a $200 spousal benefit. Currently, 27 of 100 women who receive Social Security payments are affected by the dual-entitlement rule. As even more women enter the workforce and stay in it longer, the dual-entitlement rule is projected to affect over one-third of women by 2025.
Notch Babies. “Notch babies” are workers who were born between 1917 and 1921. Due to a technical error in a 1972 law, they receive slightly lower benefits than workers born before 1917, although they also receive slightly higher benefits based on their earnings record than workers born after 1921. As a result, legislation was regularly introduced in Congress that would have either raised their benefits or provided them with a lump-sum payment.
However, a 1994 commission found that, although notch babies do receive slightly lower benefits than workers born before them, notch babies receive a fair return for their taxes. As a result, no legislation concerning notch babies has been passed, a situation that is unlikely to change.
Notch babies get their name from a line graph showing average benefits by age of birth. Because those born between 1917 and 1921 tend to receive slightly lower benefits than those born before them, the line has a slight notch for those years.
The problem was caused in 1972 when benefits were first indexed for inflation. Congress made a technical error in writing the law that resulted in workers receiving a double adjustment for inflation. By the time Congress corrected this error in 1977, some workers had already retired with higher benefits than they should have received. Rather than lowering their benefits, Congress decided to correct the problem only for those who had not yet retired. In addition, rather than just correcting the law to lower benefits to where they should have been, Congress phased in the change over five years, affecting retirees born between 1917 to 1921.