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Q&A: Explaining types of Social Security benefits

Social Security benefit types

Is it possible for someone to receive Social Security benefits if they've never put any money in?

There are two major Social Security programs. The first type of Social Security is financed with Social Security taxes paid by workers, employers and self-employed individuals, according to the Social Security Administration.

Workers earn sufficient credits based on taxable work to be "insured" for Social Security purposes. But benefits also are payable to the spouse, child, widow/widower and/or the worker's surviving child. The benefit is based on the Social Security earnings record of the insured worker.

For the second type of Social Security called Supplemental Security Income, no prior earnings are required. It is financed through general revenue and payable to people who have low income and are disabled, blind or 65 or older.

Basis is adjusted gross income

When politicians talk about "couples receiving income of $250,000 a year," what does that mean?

The $200,000/$250,000 income thresholds are based on adjusted gross income, according to a U.S. Treasury spokeswoman.

Why PMI couldn't avert crisis

If everyone who bought a home without putting 20 percent down was forced to pay private mortgage insurance (PMI), why are we having this housing crisis? Shouldn't PMI have paid the bank for these foreclosures?

Private mortgage insurance was required if the loan exceeded 80 percent of the home's appraised value and the bank wanted to sell it to a government-sponsored enterprise such as Fannie Mae, Freddie Mac or a Federal Home Loan Bank, Michael Eriksen, an assistant professor of real estate at the University of Georgia, told the Atlanta Journal-Constitution.

The "borrower would pay a monthly premium to an outside company that would reimburse the lender the first 20 percent of any loss should the borrower stop making payments. However, the lender would still be responsible for any losses over the 20 percent threshold," Eriksen said.

"This limitation of loss by the PMI company explains why some banks are still incurring losses after house prices recently dropped by more than 20 percent." Eriksen added that banks didn't require borrowers with less than a 20 percent down payment to pay PMI in the past decade. Banks instead offered two loans.

The first loan would be equal to 80 percent of the home's value and that lender would be reimbursed from the proceeds of foreclosure if the borrower stopped making payments. The second loan, usually called a home equity line of credit, would be for the remainder of the balance.

Banks often sold the first loan to an outside investor and kept the higher interest payments of the second. If the borrower stopped making payments, the banks recovered losses only after the first lender was paid in full.

Q&A: Explaining types of Social Security benefits 05/10/11 [Last modified: Tuesday, May 10, 2011 12:13am]
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