Social Security Using Social Security The Red Headed Step Child, in Retirement Planning.

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1 Social Security Using Social Security The Red Headed Step Child, in Retirement Planning.

2 History of Social Security Started in 1935 under President Roosevelt In Response to the Great Depression Benefits were to be paid out at age 65 Mortality was to age 67

3 Let s start with what is on everyone s mind

4 Yes, but may be different. Currently running surplus Will continue running a surplus through 2019 The 2.79 trillion trust fund will be tapped and expected to be exhausted by 2034 In 2034 if nothing is done it is estimated that based on current contributions they would be able to pay out 79% of benefits. There are several options on the table and any of them would help bolster the system. Source Congressional Budget Office 2015

5 Significant Changes to Social Security

6 1954 Added Farm Workers, Self Employed, Homemakers, State and Local Government workers 1956 Disability benefits 1961 Benefit begin age changed from 65 to 62 with reduced benefits 1965 HiTax added to Social Security separate from OASDI 1972 Indexing of benefits 1977 Financial troubles identified start of change of Full Retirement Age 1983 Official Change of Full Retirement Age to 67. Gradually implemented 1989 Children's benefits added 1993 Establishment of Provisional Income for taxation of Social Security Determines how much of your benefit is subject to income tax (85,50 or 0) 2000 Elimination of earnings test implementation of File and Suspend and Restricted Application 2015 Elimination of Restricted Application and File and Suspend.

7 Important Grandfathered Provisions File and Suspend grandfathered provision has expired Restricted Application grandfathered provision applies if you turned 62 by December 31,2015 Must be Full Retirement Age (66) Spouse must have either already Filed and Suspended benefits or currently receiving benefits. Strategy will depend on Ages and mortality to determine if best option Source Bipartisan Budget Act 2015

8 Medicare and Disability Separate programs from Social Security Retirement Benefits Medicare is paid for through Social Security like health insurance at your employer If you are not receiving Social Security benefits you have to pay Medicare premiums directly Your income determines premium Disability is determined by courts and often requires an attorney

9 Benefits How are they calculated

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11 Primary insurance amount (PIA) is basis for most benefits. Based on highest 35 years of income Monthly retirement benefit = 100% of PIA at FRA Full retirement age (FRA) is 66 for retirement and spousal benefits for those born For widow(er) s it s 66 for those born All three benefits have separate reduction factors if claimed before FRA.

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13 Marital Status It matters

14 Single For single individuals it is all about mortality The longer you think you will live the longer you should wait to start You need to find your break even point and determine if you think you will live that long Continuing to work is also an important factor

15 Married For married couples it is about longest mortality There are special benefits that need to be considered You can choose the greater of your own benefit or ½ of your spouses FRA at your FRA You need to find your break even point and determine if you think you will live that long Continuing to work is also an important factor You may be grandfathered in under old rules if you turned 62 by December 31,2015 No two couples are the same

16 Divorced Must have been married for at least 10 years and not currently remarried Qualify for benefits as if you were still married Does not effect ex-spouses benefit or current relationship Continuing to work is also an important factor You may be grandfathered in under old rules if you turned 62 by December 31,2015 Can step up to ex-spouses benefit at their death

17 Widow Can receive benefits as early as age 60 Have 2 independent records to choose when to file Is reduced if taken prior to FRA Continuing to work is also an important factor Determining when to use each benefit is complicated Can use personal benefit then switch to Widow benefit or vice versa Children s benefits are factors too There is a blackout period between last child to turn 16 and widow s age 60

18 Death Benefit Social Security will pay a death benefit to surviving spouse of $255

19 Children s Benefits Eligibility Parent must be entitled to Social Security or died after having worked long enough to qualify for benefits Child must be unmarried and younger than age 18 ( full time student not out of HS 18 or older and disabled Benefits are paid to parent up to age 16 and to the child to age 18 Subject to Family Max

20 Optimized Benefits Optimizing Benefits is using all the rules of Social Security to your advantage. It is similar to using deductions on your taxes. Simply put it is using the 4 variables (Date of Birth, Earnings Record, Marital Status, and Mortality) that are unique to every person and mathematically calculating the best time to start benefits. The difference can be thousands of dollars.

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22 Fred and Wilma Breakeven Point Survivor Benefit Gross Difference

23 Analysis provided by SSANALYZER

24 Increased Benefit for Surviving Spouse $1605 more a month Breakeven Point 79 2 mo and 77 3 mo Difference in Early and Optimal $242,868 Fred was grandfathered in and the optimal time to file created the primary strategy.

25 Taxation of Social Security Provisional Income determines how much of your Social Security benefit will be subject to income taxes. It is calculated by ½ of your Social Security benefit plus adjusted gross income. 1. If the total is below $32,000 then none of your Social Security benefit is taxed. 2. If the total is between $32,000 and $44,000 then 50% of your benefit is subject to income tax. 3. If the total is above $44,000 then 85% is subject to income taxes. This amount is then applied to your marginal tax bracket

26 Provisional Income Calculation

27 Social Security Traps Earnings Test Working in Retirement Required Minimum Distributions

28 Earnings Test One area that is often missed is the earnings test. It applies to all earnings above $16,920 between ages 62-FRA or 60-FRA for widows. One dollar of benefits is withheld for every two dollars above this threshold. This money is added back slowly after FRA but may take many years to recoup the withheld benefits. Widows are most commonly impacted by this test and is an important factor in calculating optimal benefits.

29 Working in Retirement Who can work can impact benefits from Social Security. It is important to know that for tax purposes benefits are combined but the earnings test is applied individually. If you have the ability to shift income this can be another way to optimize benefits.

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31 Required Minimum Distributions At age 70 qualified assets are subject to Required Minimum Distributions. These distributions can impact the taxation of Social Security and the tax bracket that they are subject too. This can create an unexpected tax burden and can be minimized with proper planning

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34 Non Covered Pensions There is a group of people that have opted out of Social Security. These people did not actually do this but their employer did and they do not contribute to Social Security. This has a big impact on benefits and eligible spousal benefits. Calculations are complicated and each case is different. The best way to see if you are in a non covered plan is to see if FICA is withheld from your paycheck.

35 Putting it all together Social Security is complex and each person is unique. For this reason an analysis of your particular situation is necessary to evaluate your best strategy. There are many factors to consider such as earnings test, taxation and location of investments. How you put them together can provide much more guaranteed income in retirement. This will put less stress on your assets and may make the assets you have last longer.

36 Sample Reports

37 Sample Reports

38 We are here to help Statistics show that most people have not saved enough for retirement. This fact alone makes it critical to get all you can out of the resources you have available. It is not only Social Security but how you position your existing assets to minimize taxes in the future and then having a clear withdrawal strategy to execute your withdrawals both before age 70 and after age 70. Let us run an analysis so you can see how you can benefit from our knowledge.

39 Retirement Resource Management Steve Gaito (919) Website

40 Disclaimer Retirement Resource Management provides education to help you make the best possible decisions based on current rules and regulations. Rules and tax laws change and you should consult a qualified tax advisor, financial advisor and estate attorney if you have specific questions.