Monday, February 2, 2009

The kind of question Social Security probably doesn’t want to answer…

A financial Q&A column in the Associated Press answers an uncomfortable question regarding Social Security spousal benefits:

Q: A friend has been a stay-at-home mom while I have worked most of my adult life and raised my children. My friend and I and our husbands have recently signed up for Social Security benefits and I've discovered that my friend will get as much as I will. How, since she hasn't contributed to Social Security, can she get as much as I will?

A: As the spouse of an eligible worker, your friend is entitled to half of her husband's benefit amount when she reaches full retirement age, which could be as early as 65. Her husband, at full retirement age, will receive his full benefit amount and she will get a check for half of that amount, even though she's never worked.

So, your friend could feasibly be entitled to as much as you are. Your benefit amount is based on the number of years you've worked, how much you earned and the age at which you begin drawing benefits. Hers is based on half of whatever her husband's benefit is.

The Social Security Administration uses a mathematical formula to figure benefits based on your average monthly earnings during the 35 years in which you earned the most.

This is the amount you would receive at full retirement age, which for most people is age 65. Beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born in 1962 or later.

The average monthly Social Security benefit for a retired worker is about $1,153 this year.

In addition, your friend can get Medicare when she reaches 65. Medicare provides hospital insurance, medical insurance and prescription drug coverage.

Here's how I see it: Social Security was built on the principles of equity and adequacy. Equity means that benefits are based on what you pay in, while adequacy provides a tilt to the benefit formula so low earners receive higher benefits relative to their contributions than do high earners. Neither principle justifies the payment of a benefit to the spouse of a high earner, who neither needs the money nor has paid anything into the program.

Social Security benefits need to be reduced in the future in order to balance the program's books. Here's a nice place to start.

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