7/6/2016. Social Security Update: Agenda. Social Security Question Preview

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1 Social Security Update: New Rules Require New Strategies Jonathan Dumas, CFP Advisor Dean, Jacobson Financial Services Insurance Sales Presentation Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. Slide 1 of 43 Agenda Question Preview Individual Benefits Spousal Benefits Bipartisan Budget Act of 2015: What s Changed? Strategies Question Review Slide 2 of 43 Social Security Question Preview 1. Waiting to age 70 to take your Social Security is the only way to guarantee you the maximum benefits available? TRUE or False Slide 3 of 43 1

2 Social Security Question Preview 2. A married individual who has always been the primary wage earner can potentially enhance their total Social Security benefit by: a) Waiting to age 70 to file b) Filing and suspending to allow spouse to receive benefits c) Filing a restricted application to receive spousal benefits 1 d) Both A and C 1 Filing a restricted application is only an option for individuals born on or before January 1, Slide 4 of 43 Social Security Question Preview 3. If you are late to file for benefits, the Social Security Administration provides recovery payment for: a) All missed benefits, paid as a lump sum b) Up to 6 months of missed benefits, paid as a lump sum c) Up to $5,000 of missed benefits, paid as a lump sum d) Nothing, you are not eligible for any missed benefits Slide 5 of 43 Funding and Calculation of Benefits Becoming eligible 40 quarters of wages that were subject to Social Security payroll taxes Quarters do not need to be consecutive Benefits calculated based on average of the 35 highest years of earnings $0 used in all years less than 35 Will result in a lower benefit Source: SSA Publication No , ICN , January 2016 Slide 6 of 43 2

3 When Is My Full Retirement Age (FRA)? Date of Birth Full Retirement Age and 2 months and 4 months and 6 months and 8 months and 10 months 1960 and later 67 Slide 7 of 43 Can I Take My Benefits Early? Age FRA % reduction 63 20% reduction % reduction % reduction 66 full benefits Age FRA % reduction 63 25% reduction 64 20% reduction % reduction % reduction 67 full benefits Slide 8 of 43 Taking Benefits and Working Retirement Earnings Test Under Full Retirement Age (FRA) In the year you reach Full Retirement Age (FRA) If you are at Full Retirement Age (FRA) Give up $1 in benefits for every $2 you earn above a $15,720 limit Give up $1 in benefits for every $3 you earn above a $41,880 limit No penalty SSA Publication No , How Work Affects Your Benefits, January 2016 Slide 9 of 43 3

4 Working While Collecting Social Security John is age 62 with a $12,000 annual benefit Still working, earns $25,000 per year $9,280 over the earnings threshold Will give up $4,640 of benefits Receives only $7,360 in benefits this year At full retirement age, no longer any benefit reduction Slide 10 of 43 Benefits of Waiting Increase in benefits for clients with Full Retirement Age (FRA) of 66/67 Age FRA % increase 68 16% increase 69 24% increase Age FRA % increase 69 16% increase 70 24% increase 70 32% increase Slide 11 of 43 Strategy Break even Points: Age 70 vs. 66: Age 81 Age 66 vs. 62: Age 76 Age 70 vs. 62: Age 79 This assumes a full retirement age benefit of $24,000 a year, an annual cost of living adjust of 3%, and the client living to age 95. Slide 12 of 43 4

5 Taxation of Social Security Benefits Benefits may be taxable depending on the amount of your provisional income Provisional Income includes: ½ Social Security benefits Income from municipal bonds Wages Business income Interest Capital gains Dividends Traditional IRA distributions Rental income And more Provisional Income does not include: Tax-deferred build-up inside IRAs, 401(k)s and annuities Income from Roth IRAs Non-taxable income from life insurance Slide 13 of 43 Taxation of Social Security Benefits Benefits only taxable if provisional income exceeds: Single or Head of Household $25,000 = Social Security not taxable $25,000 - $34,000 = up to 50% taxable Above $34,000 = up to 85% taxable Married Filing Jointly $32,000 = Social Security not taxable $32,000 - $44,000 = up to 50% taxable Above $44,000 = up to 85% taxable Dean, Jacobson Financial Services and it s partners do not provide tax, accounting, or legal advice. Please consult an attorney or tax professional for your specific situation. Slide 14 of 43 Spousal Benefits Slide 15 of 43 5

6 Spousal Benefits Married individuals can claim Social Security benefits based on Personal earnings record, or Spouse s earnings record If electing based on spouse s earnings record Spousal benefit is up to 50% of your spouse s Social Security benefit Cannot claim spousal benefit unless your spouse files for benefits Slide 16 of 43 Spousal Benefit How is the spouse s benefit calculated? Gary s full retirement age benefit: $2,000 Amy has no earnings history Amy is entitled to the greater of: 50% of Gary s benefit: $1,000 Amy s own benefit: $0 Amy s benefit is increased to $1,000: The $1,000 increase is Amy s spousal benefit Slide 17 of 43 Taking Spousal Benefits Early Lower-earning spouse files for benefits before Full Retirement Age (FRA) Own benefit reduced Spousal benefit reduced as well Age % Reduced FRA % reduction % reduction % reduction % reduction 66 0% reduction Age % Reduced FRA % reduction % reduction % reduction % reduction % reduction 67 0% reduction Slide 18 of 43 6

7 Reduced Spousal Benefit Amy, the lower earning spouse, files for benefits before her full retirement age (67) Gary s FRA benefit: $2,000 Amy s FRA benefit: $0 Amy s FRA spousal benefit is $1,000 What if Amy takes benefits at age 62? At age 62, her spousal benefit is reduced by 35%, or $350 ($1,000 - $350 = $650) Receives $650 per month instead of $1,000 per month Slide 19 of 43 Survivor Benefits Surviving spouse can receive, or step up, to the benefit of the deceased spouse If survivor is full retirement age, 100% of spouse s benefit Generally survivor benefits can begin as early as age 60 Survivor benefits reduced if received before full retirement age by up to 28.5% Exceptions for surviving spouse with children who are under 16 (75% of benefit) Exceptions for children under 19 (75%) Survivor can switch to his or her own benefits Advantageous if greater when full retirement age is reached Slide 20 of 43 Social Security and Other Pension Benefits Government Pension Offset Affects spousal / survivor benefits if the spouse / survivor has a pension from a federal, state or local government 2/3 of what you receive from your government pension will be subtracted from your Social Security benefit Windfall Elimination Provision If you work for an employer who does not withhold Social Security taxes from your salary, such as a government agency, any pension you receive based on that work may reduce your Social Security benefits up to 50% Pension from an employer where Social Security taxes were paid is not taken into consideration Slide 21 of 43 7

8 Can I Collect Benefits from a Divorced Spouse? Possible to collect benefits from a divorced spouse Survivor benefits Retirement benefits Retirement benefits: Marriage lasted at least 10 years Still unmarried At least age 62 Ex-spouse is old enough to receive benefits Survivor benefits: Marriage lasted for 10 years You re at least age 60 or older Did not remarry until after age 60 Slide 22 of 43 Bipartisan Budget Act of 2015 What s changed? File and Suspend Individuals receiving benefits can no longer suspend benefits without effecting eligible spousal benefits (as of April 30, 2016). Once benefits are suspended, the spousal benefits are also suspended. Individuals who have already suspended their benefits are Grandfathered into the old rules and spousal benefits will remain unaffected. Filing a Restricted Application Has now been limited to individuals who are at least 62 prior to January 2, If eligible, your spouse must now be receiving benefits (not suspended) in order to file a restricted application (the exception being the above Grandfathered rule). ; SSA Office of Legislation and Congressional Affairs Slide 23 of 43 Social Security Maximization Strategies Slide 24 of 43 8

9 Strategies Scenario 1 Age Jen and Matt are married and both 62 years old Matt dies at age 85 Jen dies at age 92 Matt s full monthly Social Security benefit at age 66 will be $2,000 Jen stayed home and raised the family, so she has no earned Social Security benefits of her own Slide 25 of 43 Strategies Scenario 1 Option 1: File Early At Age 62 Matt files, lives 23 years Reduced benefit of $1,500 month / $18,000 year for 23 years Jen files, lives 30 years Reduced spousal benefit of $700 month / $8,400 year for 23 years Survivor benefit of $1,650 month / $19,800 year for 7 years 1 1 Surviving spouses are entitled to a minimum of 82.5% of the primary s FRA. Slide 26 of 43 Strategies Scenario 1 Option 2: File At Full Retirement Age Matt files at 66, lives 19 years Receives $2,640 per month / $31,680 per year Jen files at 66, lives 26 years Receives $1,000 per month / $12,000 per year for 19 years Survivor benefits of $2,000 month / $24,000 year for 7 years Slide 27 of 43 9

10 Strategies Scenario 1 Option 3: File At Max age of 70 Matt files at 70, lives 15 years At age 70 receives $2,640 per month / $31,680 per year Jen files at 70, lives 22 years Receives $1,000 per month / $12,000 per year for 15 years Survivor benefits of $2,640 month / $31,680 year for 7 years Slide 28 of 43 Strategies Scenario 1 Matt and Jen Claim at 62 $414,000 in his benefits $193,200 in spousal benefits $138,600 in survivor benefit Matt and Jen Claim at 66 $456,000 in his benefits $228,000 in spousal benefits $168,000 in survivor benefit Matt and Jen Claim at 70 $475,200 in his benefits $180,000 in spousal benefits $221,760 in survivor benefit Total Payout: $745,800 Total Payout: $852,000 Total Payout: $876,960 Slide 29 of 43 Strategies Scenario 2 Age Adam and Meghan are married and both 66 years old Adam dies at age 85 Meghan dies at age 92 Meghan s full monthly Social Security benefit at age 66 will be $1,500 per month Adam is looking to retire at age 70, his Social Security benefit will be $2,640 per month Slide 30 of 43 10

11 Strategies Scenario 2 Option 1: Meghan files and Adam waits Meghan files for benefits at age 66 She receives $1,500 per month / $18,000 per year for 19 years Survivor benefits of $2,640 month / $31,680 per year for 7 years Adam files in four years at age 70 Adam receives $2,640 per month / $31,680 per year for 15 years Slide 31 of 43 Strategies Scenario 2 Option 2: Adam files a Restricted Application Meghan files at 66, her benefits are unaffected At age 66 Adam files a Restricted Application 1 Entitled to 50% of Meghan s benefit In the first four years he receives $750 per month / $9,000 per year At age 70, he switches to his own benefit Over the next 15 years, he receives $2,640 per month / $31,680 per year 1 Filing a restricted application is only an option for individuals born on or before January 1, Slide 32 of 43 Strategies Scenario 2 Meghan Files At 66 / Adam Files At 70 $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit Total Payout: $1,038,960 Adam Uses Restricted Application 1 $36,000 in spousal benefits $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit Total Payout: $1,074,960 1 Filing a restricted application is only an option for individuals born on or before January 1, Slide 33 of 43 11

12 was never intended to be your only source of cents for each dollar of scheduled benefits.* File a Restricted Application Increases benefits for couples with their own earnings history who may be retiring at different ages Things to remember Individuals can collect spousal benefits and allow their personal earnings history benefits to receive delayed retirement credits You cannot collect benefits on your spouse s earnings history until your spouse begins receiving benefits You cannot file a restricted application until you have reached full retirement age Eligibility is limited to individuals 62 year old before January 2, 2016 Slide 34 of 43 Retirement Income Then and Now Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire. Social Security is the largest source of income for most elderly Americans today, but Social Security income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire. Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits.* *The 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, May 2013 Slide 35 of 43 Retirement Income Then and Now Slide 36 of 43 12

13 Summary Monitor your Social Security statements Statements are available online. Go to ssa.gov to create a secure user account and view your statement Evaluate impact of commencement dates on your retirement plan Work with a Financial Professional to review your income sources and evaluate options for retirement income flexibility Slide 37 of 43 Social Security Questions 1. Waiting to age 70 to take your Social Security is the only way to guarantee you the maximum benefits available? TRUE or False Slide 38 of 43 Social Security Questions 2. A married individual who has always been the primary wage earner can potentially enhance their total Social Security benefit by: a) Waiting to age 70 to file b) Filing and suspending to allow spouse to receive benefits c) Filing a restricted application to receive spousal benefits 1 d) Both A and C 1 Filing a restricted application is only an option for individuals born on or before January 1, Slide 39 of 43 13

14 Social Security Questions 3. If you are late to file for benefits, the Social Security Administration provides recovery payment for: a) All missed benefits, paid as a lump sum b) Up to 6 months of missed benefits, paid as a lump sum c) Up to $5,000 of missed benefits, paid as a lump sum d) Nothing, you are not eligible for any missed benefits Slide 40 of 43 Questions? Slide 41 of 43 Disclosures This guide presents a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time. Please consult your personal financial professional before making a decision. Slide 42 of 43 14

15 Disclosures Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Other advisory services and investment advice offered through Dean, Jacobson Financial Services, LLC, a Registered Investment Advisor, and separate entity from LPL Financial. Portions of this material were prepared by Prudential Financial. Prudential Financial is not affiliated with Dean, Jacobson Financial Services, LLC, nor with LPL Financial. Dean, Jacobson Financial Services, LLC, located at: 3112 W 4 th Street, Fort Worth, TX Slide 43 of 43 15