The U.S. Social Security system is largely financed by taxes on
earnings (currently totaling 15.3%) shared equally between employers and
employees or paid in full by a self-employed person. Benefits for both Social
Security and Medicare are generally available at age 65. Reduced Social Security
Retirement Benefits can be received beginning at age 62, but the medical
insurance begins at age 65.
However, by law, ordained, licensed, or commissioned ministers are
always treated as self-employed for Social Security purposes, and self-employed
persons pay the full 15.3% tax quarterly using Form 1040-ES. This tax is paid
quarterly on both salary and the clergy housing allowance.
Benefits are based on the highest 35 years of earnings, and
usually replaces from 25 to 40 percent of pre-retirement income. Drawing
benefits at age 62 instead of age 65 reduces benefits by approximately 20
percent for the rest of one's life. Conversely, delaying drawing benefits after
age 65 results in an increase of about 5 percent per year. There is no advantage
to delaying taking benefits after age 70.
The standard benefit for a non-working spouse is 50 percent of the worker's
full benefit, unless the spouse qualifies for a higher benefit based on his or
her own earnings. Social Security law currently provides for automatic
cost-of-living increases. The Social Security Administration will prepare an
Earnings and Benefits Estimate Statement upon request. Call (800) 772-1213
every few years to request IRS Form SSA-7004 and obtain an updated report, or see the Social Security Administration for the same information.
Up to 85% of Social Security benefits may be taxable as ordinary income
depending upon one's annual individual or family income. As of 2000, the Social
Security Retirement Benefits of workers age 65 and older are not diminished by
earnings from employment, which may induce workers with inadequate retirement
savings to continue to work beyond age 65.
Medicare is a health insurance plan for people who are 65 or older, or
who are disabled, or have kidney failure. Part A covers inpatient hospital care
and is paid for by taxes; Part B (optional) pays for physician care, and the
premiums are deducted from a recipient's monthly Social Security check. Persons
should sign up for Medicare three months before their 65th birthday, even if
they plan to continue working; there is a penalty for late enrollment.
Supplementary "Medigap" insurance plans such as those offered by AARP are
recommended; these pay for deductibles, prescriptions, and other costs Medicare
doesn't cover. The U.S. Health Care Financing Administration publishes an annual
Guide to Health Insurance for People with Medicare. Copies are available
from (800) 638-6833 or the UUA Office of Church Staff Finances.
For more information contact ocsf @ uua.org.
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Last updated on Tuesday, April 16, 2013.
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