Chapter 12 · Life
Social Security
OASDI: who pays for it, who qualifies, and how retirement, disability, and survivor benefits are calculated.
Before you read — prime your brain
Take a shot at these. Being wrong here is the point — it primes you for the answers, which are all in this lesson.
The Primary Insurance Amount (PIA) represents the benefit payable at
Noted — the answer comes up in this lesson.
How long is the Social Security disability waiting period?
Noted — the answer comes up in this lesson.
The Social Security lump-sum death benefit is
Noted — the answer comes up in this lesson.
Primed. Read on — then finish the lesson to see how you did.
Social Security (OASDI) is the government's baseline safety net — created in 1935 to supplement, never replace, personal insurance and savings. The exam tests this chapter through numbers: FICA percentages, quarters of coverage, claiming-age percentages, the five-month disability wait, the $255 death benefit, and the blackout period's start and end ages. Learn the numbers and the chapter is free points.
What OASDI Is & How FICA Funds It
[2]–[2.3]The Social Security Act (1935) created Old-Age, Survivors, and Disability Insurance: retirement income, disability income, a lump-sum death benefit, and survivor income. It runs on FICA payroll taxes — employee and employer each pay 7.65% (6.2% Social Security + 1.45% Medicare) and the self-employed pay both halves, 15.3%. The Social Security slice stops at the annually-indexed taxable wage base; the Medicare slice has no cap. Benefits become partly taxable above $25,000 (single) / $32,000 (joint) of combined income (AGI + tax-exempt interest + half of benefits), but at least 15% of benefits is always tax-free.
FICA breakdown is a gimme question: 7.65 / 7.65 / 15.3 — and only Medicare is uncapped.
Check yourself
Regardless of income, what portion of Social Security benefits is always income-tax free?
How sure are you?
15% is always tax-free. Higher-income beneficiaries ($25K single / $32K joint AGI) pay tax on a portion of the rest.
Check yourself
Social Security is also known as
How sure are you?
Old-Age, Survivors, and Disability Insurance — created by the Social Security Act of 1935. FICA is the TAX that funds it.
Fully vs Currently Insured
[3]–[3.1]Benefits hinge on insured status, measured in quarters of coverage. Fully insured = 40 quarters (10 years) → retirement, disability, premium-free Medicare Part A, and survivor benefits. Currently insured = 6 quarters in the last 13 → limited survivor benefits only. Disability adds a recency test: the 20/40 rule (workers 31+ need 5 of the last 10 years on the books). Not everyone participates: pre-1984 federal employees, some state/local workers, and railroad workers have their own programs — and being covered never guarantees being eligible.
Fully = 40 = everything. Currently = 6-in-13 = survivors only. If the question says 'limited survivor benefits,' the answer is currently insured.
Check yourself
To be considered fully insured, a worker needs
How sure are you?
40 quarters ≈ 10 years of work. That unlocks retirement, disability, Medicare, and survivor benefits. (6-in-13 = currently insured; 20-in-40 is the disability recency test.)
Check yourself
A worker who is only CURRENTLY insured at death entitles his family to
How sure are you?
Currently insured (6 quarters in the last 13) buys limited survivor benefits only — nothing else.
Calculating Benefits: AIME → PIA → Claiming Age
[4]–[4.2]Three steps: lifetime earnings are inflation-indexed into the AIME, which produces the Primary Insurance Amount — the benefit at full retirement age (67 for anyone born 1960+). Then claiming age adjusts it: 62 → 70% (permanent), 67 → 100%, 70 → 124% (8%/year delayed credits, capped at 70). Benefits don't start automatically — you apply, ideally three months early. Work while collecting before FRA and the earnings test claws back $1 per $2 over the limit ($1 per $3 in the FRA year, nothing at FRA+). And dual benefit liability: eligible for two benefits, collect only the greater.
Memorize the three anchors — 70% / 100% / 124% — the exam builds math questions straight off them ($2,000 PIA at 62 → $1,400).
Check yourself
Tom's PIA is $2,000 and his FRA is 67. If he claims benefits at age 62, he receives
How sure are you?
Age 62 = maximum reduction = 70% of PIA → $1,400. The cut is permanent.
Check yourself
A 63-year-old collecting benefits while still working earns $10,000 over the annual limit. Her benefits are reduced by
How sure are you?
Below FRA the test claws back $1 for every $2 over the limit → $5,000. In the FRA year it softens to $1-per-$3, and AT FRA it disappears.
Disability Benefits
[5.2]–[5.2.2]The hardest disability definition in insurance: unable to engage in ANY substantial gainful work in the national economy, with the condition expected to last at least 12 months or result in death. Total disability only — partial or short-term pays nothing. The worker must be fully insured AND pass the 20/40 recency test, then sit out a five-month waiting period (benefits accrue from month six). That gap is precisely why private disability income insurance exists.
Four tested requirements: fully insured + 20/40 · five-month wait · TOTAL disability · 12 months-or-death.
Check yourself
How long is the Social Security disability waiting period?
How sure are you?
Five months — benefits begin accruing in the sixth month. (The 12-month figure is how long the disability must be expected to LAST.)
Check yourself
Under the 20/40 rule, a 45-year-old qualifies for disability benefits only if she earned
How sure are you?
Workers 31+ need 20 of the 40 quarters ENDING with the disability quarter — recent work matters, not just lifetime totals.
Death, Survivors & the Blackout Period
[5.3]–[5.3.5]Survivor protection has two parts: the $255 lump-sum death benefit (only to a spouse living with the deceased, or a spouse/child already drawing on the record) and monthly survivor income off the worker's PIA: spouse 100% at FRA / ~71.5% at 60 / any age while caring for a child under 16 · children 75% to age 18 (19 in high school) · dependent parents 62+ get 75% each (82.5% if one). The blackout period is the gap where the spouse gets nothing — from the youngest child's 16th birthday until the spouse turns 60 — and a maximum family benefit caps the household total.
Blackout period bookends — starts at child's 16, ends at spouse's 60 — plus the $255 figure are the two most-tested facts in the chapter.
Check yourself
Children of a deceased fully insured worker receive what percentage of his PIA?
How sure are you?
Children get 75% of PIA until 18 (19 if still in high school; any age if disabled before 22) — subject to the maximum family benefit.
Check yourself
The Social Security lump-sum death benefit is
How sure are you?
$255 and ONLY to a spouse living with the deceased (or spouse/child already eligible for monthly benefits). Never to the estate.
Before the summary — recall it yourself
Close your eyes for a moment, then write everything you remember from this chapter — rules, numbers, traps. Recalling first is worth more than rereading.
Recall captured. Compare it against the summary below.
What this chapter covered
- What OASDI Is & How FICA Funds ItFICA breakdown is a gimme question: 7.65 / 7.65 / 15.3 — and only Medicare is uncapped.
- Fully vs Currently InsuredFully = 40 = everything. Currently = 6-in-13 = survivors only. If the question says 'limited survivor benefits,' the answer is currently insured.
- Calculating Benefits: AIME → PIA → Claiming AgeMemorize the three anchors — 70% / 100% / 124% — the exam builds math questions straight off them ($2,000 PIA at 62 → $1,400).
- Disability BenefitsFour tested requirements: fully insured + 20/40 · five-month wait · TOTAL disability · 12 months-or-death.
- Death, Survivors & the Blackout PeriodBlackout period bookends — starts at child's 16, ends at spouse's 60 — plus the $255 figure are the two most-tested facts in the chapter.
Lesson completion
Lesson complete — every check passed from memory. Your pretest answers above are now revealed.