Most of us are familiar with Social Security, a government program begun in the early 20th century to provide income for people who are disabled, people who are older than a certain age, survivors of certain people who have died and dependents of certain people.
Most recipients of Social Security receive Social Security benefits because of their age. Social Security is a tax and benefit program, sometimes called an “entitlement,” but that term can be misleading. Social Security is funded from taxes that are assessed from the money made by people who work (in contrast to money received from inheritances or money gained from selling assets that have increased in value).
Taxes are assessed against the earnings of people under a very similar structure for America’s Medicare program, but Social Security and Medicare are distinct government programs that operate separately from each other, including by having individualized requirements and conditions to participation.
Social Security is designed to provide a financial safety net for people whose income may not be sufficient to otherwise survive in our society. Social Security is unlike traditional retirement plans. In fact, Social Security is more like a pension program. This is because there is only an indirect correlation between the amount paid in by any particular person compared to the amount ultimately received by that person.
For instance, after a person has satisfied all requirements to be eligible for Social Security benefits (i.e. having paid Social Security tax into the system for at least 10 years, meeting the age requirement, etc.) that person may begin to receive benefits. Based upon actuarial tables and other factors, the program sets a monthly financial benefit “level” that is provided to that person. Under this example, if the person dies very soon after starting to receive benefits, the person may have paid more into the system than the person would receive. Vice versa, if a person lives a very long time after beginning to receive benefits, the person could receive significantly more money back than the person paid into the system.
The system is always “behind” on its funding, because the first recipients of benefits never paid into the system before receiving benefits. If the Social Security structure, requirements, benefits or taxes are not adjusted, the program is expected to run “out of money” within 15 years, due to the impending payment of benefits to millions of newly retired baby boomers contemporaneously coupled with fewer people paying taxes into the system.
If someone is receiving Social Security benefits and died while married, the surviving spouse may be eligible to receive the deceased person’s monthly payment amount instead of the surviving spouse’s monthly payment amount.
Perhaps surprisingly, the ability to replace a lower monthly benefit with a higher monthly benefit of someone else is also sometimes a right granted to divorced spouses who have not remarried. Illustratively, presume spouses divorce and later, one spouse dies. The surviving former spouse may be able to collect the deceased former spouse’s benefits instead of the surviving former spouse’s own benefits.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.