18.4 Review and Practice

1. How is Social Security financed?
2. From time to time, you may hear that Social Security is in financial trouble and that you may not receive the benefits you expect. Do you think this is true? If it is true, what should be done about it?

3. C. J. Abbott worked hard all his life and built up a successful business. His daily routine involves helping with management decisions in the business, even though the majority of it is now owned and managed by his sons. He continues to draw a salary from the company sufficient to cover his expenses each month. C. J. is fully insured under Social Security and applied for benefits at age sixty-two. However, he does not presently receive, nor has he ever received, Social Security benefits. He celebrated his sixty-fourth birthday last May.

   1. Why hasn’t C. J. received any Social Security benefits? Does this tell you anything about how much he is earning at the business?
   2. Why do you think C. J. continues to work?
   3. Will C. J.’s benefits be increased for his work beyond age sixty-five? (Assume that he starts drawing benefits at age seventy.)
   4. What is the logic behind the provision in the Social Security law that leads to a fully insured individual like C. J. not receiving Social Security retirement benefits after age sixty-five?
4. Your father-in-law was employed by a state agency for forty years before his retirement last year. He was not covered by Social Security on his state job. During the last five years of his career with the state government, however, you employed him on a part-time basis to do some surveying work on a housing development for which you had an engineering contract. You withheld Social Security tax from his wages and turned his share, plus yours as his employer, over to the government.

5. When your father-in-law retired, he applied for Social Security retirement benefits. Several months later, he was notified that he was not entitled to benefits because the work he did for you was in the family and not bona fide employment. The implication in the notice he received was that the job you gave him was designed to qualify him for Social Security benefits rather than to provide him with real employment.

   1. What should your father-in-law do?
   2. How can you help him?
6. Does the economic recession beginning in 2007 tell you anything about the merits, or the risks, of shifting Social Security funding to individual private accounts?