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Your Money | MONEY 101

Boon and Bane : New Benefits Law Helps Working Seniors and Hurts Addicts

April 21, 1996|KATHY M. KRISTOF | TIMES STAFF WRITER

About 650,000 working seniors are likely to receive a small windfall this summer thanks to a law passed last month. Meanwhile, many alcoholics and drug addicts who rely on government disability payments are likely to be cut off the federal dole.

The law, which was included in budget ceiling legislation, raises earnings limitations on Social Security benefits, allowing seniors to earn more before their government retirement benefits are reduced. Since the new rules were retroactive to the beginning of 1996, some retirees who work will get lump sums up to $327 this summer, when Social Security officials expect to have their computers reprogrammed to handle the change.

How will the new law work and how will it affect you?

Q: How does the law affect Social Security recipients?

A: It gradually raises the earnings limit on Social Security benefits. Until the law was passed last month, seniors between the ages of 65 and 69 who earned more than $11,520 would see their Social Security benefits reduced by $1 for every $3 they earned above that limit.

Starting this year, the earnings limit will rise to $12,500. After that, it will creep up in $1,000 increments each year through 1999, but then jump to $17,000 in 2000, to $25,000 in 2001 and to $30,000 in 2002.

About 650,000 current retirees are expected to benefit from the change.

Q: What about Social Security recipients who are younger or older than that? Are they affected too?

A: No. Under current law, a 70-year-old can earn an unlimited amount and still claim full Social Security benefits. Meanwhile, a 62-year-old who claims benefits, but continues to work, loses $1 Social Security dollar for every $2 in wages exceeding $8,280, says Leslie Walker, a Social Security spokeswoman in San Francisco. Those rules remain in effect.

Q: How does this work out in dollars and cents?

A: Consider a 66-year-old retiree who has a part-time job paying $15,000 annually and who is entitled to $600 in monthly Social Security benefits. Under the old rules, this retiree would lose about $1,160 in annual Social Security benefits (a third of the $3,480 that he earned in excess of the $11,520 wage threshold).

This deduction is taken out upfront, eliminating this recipient's January Social Security check and reducing his February check to just $40, government officials say.

Under the new law, Social Security benefits would be reduced for wages above $12,500, which costs this retiree about $833 a year, or $327 less than under the old rules.

Q: Does that mean this person will get a refund of the $327 that was withheld under the old rules, but wouldn't have been withheld under the new law?

A: Yes. The Social Security Administration expects to be issuing these refund checks in June. Officials don't yet know whether the refund will be tacked onto monthly Social Security benefit payments or if they'll be sent in a separate check.

Q: What about drug addicts and alcoholics? How are they affected by the new law?

A: Under current law, they may be able to qualify for Social Security or Supplemental Security Income disability payments, which are fairly generous. Under the new law, they will be denied disability income if the drug or alcohol addiction is "a contributing factor material to the finding of disability."

Those who are receiving drug- and alcohol-related disability benefits now will not be immediately cut off.

However, they will be expected to submit to an examination sometime this year to determine whether they would still qualify under the new rules. If they don't get the exam, their disability benefits are terminated starting in January 1997.

Those who are applying for drug- and alcohol-related disability but have not yet received approval are likely to be denied benefits, Walker adds.

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Q: What exactly does "contributing factor material to the . . . disability" mean?

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A: No one knows for sure. However, government officials speculate that they'll go to a system that looks for damage to organs. If the alcohol or drug addiction caused brain damage, liver or kidney failure, for example, the individual would continue to receive disability payments. However, if the addiction is the only problem, the individual would no longer qualify for government disability.

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Q: Can a drug addict then just claim some other kind of government relief?

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A: Probably. State and county governments administer general welfare programs, such as food stamps and cash "general relief" payments. However, some county governments are considering mirroring the new federal rule.

Still, even if a drug addict or an alcoholic can qualify for general relief, they'll find the payments are far less generous than disability. The average recipient of Social Security disability gets $682 a month, for example. General relief payments--the primary form of welfare for childless individuals--varies by state and county. However, in Los Angeles, the maximum general relief payment is $212 a month.

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