5/15/2018. Myra O Dell, CFP Financial Advisor. Philip Bachman Financial Advisor

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1 Myra O Dell, CFP Financial Advisor Philip Bachman Financial Advisor Anti-poverty program providing retirement, disability, and survivors benefits Social insurance (not social welfare) Self-funding Posters from

2 Franklin D. Roosevelt signed the Social Security Act into law in 1935 Old-Age and Survivor Insurance Poster from

3 In 1935, the program only covered industrial workers 1950: Husbands and widowers became eligible, joining wives and widows already eligible 1956: Disability benefits added 1965: Medicare added 1975: Cost-of-living adjustments began 1983: Major amendments, including but not limited to: New federal employees required to participate in Social Security Federal taxation of Social Security benefits introduced Retirement age increased for younger workers to 66 and 67 years Over the years, farmers, professionals, the selfemployed, domestic workers, the military, and many government workers have been brought into the system Over the years, benefit payments rose These expansions of the program made higher taxes necessary 3

4 Type of Benefit Number of Beneficiaries Retired workers and their family members 45,498,000 Disabled workers and their families 10,411,000 Survivors of deceased workers 5,994,000 Data as of 12/31/2017 SSA.gov/OACT/FACTS/ SSA.gov/OACT/ProgData/icp.html 4

5 Eligibility Requirements Work requirement: 40 work credits Age requirement: Age 62 Non-Covered Work Most foreign work Federal work, hired before 1984, under the Civil Service Retirement System Certain state or municipal employees Lifetime average earnings (earnings factors) Your age when your payments begin (age factors) 5

6 Step One: Apply an inflation adjustment Step Two: Determine your lifetime average earnings Step Three: Apply a formula to that average to determine your full payment amount (amount payable at full retirement age and also known as Primary Insurance Amount) 6

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8 Early filing: A two-stage reduction applies: Stage 1: For the first 36 Reduction Months, payment is reduced 5/9 of 1% for each month. Stage 2: For any additional RMs, payment is reduced 5/12 of 1% for each month. Delayed filing: Payment raise for delaying past Full Retirement Age 8

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10 Working while over Full Retirement Age: No earning limits or penalties Working while under FRA An earnings limit is specified each year, and increases with inflation. In 2018, the earnings limit for those under FRA is $17,040 per year. If your earnings are under that limit, your Social Security benefits are not reduced $1 is deducted from your Social Security payments for every $2 you earn above the limit (one-half of your excess earnings ). Special calculation for your first year of Social Security Working in the year you turn FRA Much higher earnings limits apply, and they apply only to earnings in the months before you attain FRA. A more generous formula applies: $1 is deducted from your Social Security payments for every $3 you earn above the annual limit (one-third of your excess earnings ). Spousal Benefits Spouse Benefit Amount (Percentage of Worker s Full Payment Amount) Full Retirement Age or older 50% Age 62 (assuming FRA of 66) 35% Any age, caring for the worker s qualifying child under 16 50% Requirements: Worker must be on Social Security Claimant must be age 62+, or caring for worker s qualifying child 10

11 Benefits for Former (Divorced) Spouse Former Spouse Benefit Amount (Percentage of Worker s Full Payment Amount) Full Retirement Age or older 50% Age 62 (assuming FRA of 66) 35% Requirements: Worker must be age 62+; not necessarily on Social Security Marriage lasted 10 years or more Claimant age 62+ Claimant currently unmarried Benefits for Child Child Benefit Amount (Percentage of Worker s Full Payment Amount) Any age 50% Requirements: Worker must be on Social Security Child must be unmarried and either Under 18, or Under 19 and in high school, or Adult but disabled before age 22 Note: Family maximum may reduce total amount payable to family 11

12 The Four Types of Survivor Benefits Payments to your widow/widower, and/or your former spouse Payments to your surviving unmarried children Payments to your dependent parents A one-time, lump sum payment to your spouse or children Widow/Widower Benefits Widow or Widower Benefit Amount (Percentage of Worker s Full Payment Amount) Full Retirement Age or older 100% Age % Any age, caring for the worker s qualifying child under age 16 75% Requirements: Must be currently unmarried OR remarried after age 60 Note: Family maximum may reduce total amount payable to family 12

13 Benefits for Surviving Divorced Spouse Surviving Divorced Spouse Benefit Amount (Percentage of Worker s Full Payment Amount) Full Retirement Age or older 100% Age % Any age, caring for the worker s qualifying child (child under 16 or disabled) Requirements: 10-year marriage OR have child in care, AND Currently unmarried OR remarried after age 60 75% Note: Family maximum may reduce total amount payable to family

14 Both Social Security and Medicare face longterm financing shortfalls under currently scheduled benefits and financing. Lawmakers have a broad continuum of policy options that would close or reduce the long-term financing shortfall of both programs. SSA.gov/OACT/TRSUM/index.html 14

15 2018 Program operates at a surplus 2021 Surplus ends; Trust fund shrinks to cover benefits 2034 Trust fund exhausted; Benefits may be reduced by 25% 2091 Raise the cap on earnings subject to Social Security Raise the payroll tax Invest differently Start covering other groups of workers (approx. 6% of workers are currently not covered) Raise the age to be eligible or stiffen eligibility requirements Change the percentage increase each year someone waits to take Social Security 15

16 Raise the earnings ceiling (Plan E3.1) Shortfall eliminated: 27% Increase the payroll tax rate (Plan E1.5) Shortfall eliminated: 27% Re-invest the trust funds (Plan G2) Shortfall eliminated: 14% Cover newly-hired state and local government employees (Plan F1) Shortfall eliminated: 6% Tax Social Security as pensions are taxed (Plan H1) Shortfall eliminated: 7% Adjust the PIA formula (Plan B3.3) Shortfall eliminated: 8% Increase the computation years in the formula from 35 to 40 (Plan B4.2) Shortfall eliminated: 15% Source: Landis, Andy. Social Security: The Inside Story, 2018 Silver Anniversary Edition (pp ). Kindle Edition. 16

17 Statements are mailed only to workers over 60, and only if they haven t created a My Social Security online account or filed for payments Go to SSA.gov/myaccount and set up your own My Social Security account Review your earnings history for accuracy Get estimates of your retirement, survivors, and disability benefits See the amount of Social Security and Medicare taxes you ve paid Request a replacement Social Security Check the status of a pending claim Get a benefit verification letter saying you re not currently getting payments Obtain the traditional Social Security Statement 17

18 Change your address and phone number Change your direct deposit information Get replacement Medicare or Social Security cards Get a replacement SSA-1099 for tax reporting Get an official benefit verification statement to prove your income Review your earnings record and benefit payments Report your earnings if getting disability payments SSA.gov Detailed information about benefits, including a retirement estimator Facts and figures Trustee s report SSA.gov/OACT/solvency/provisions/summary.html Possible future provisions and changes Social Security: The Inside Story by Andy Landis Get What s Yours: The Secrets to Maxing Out Your Social Security by Kotlikoff, Moeller, and Solman 18

19 BCSWealth.com Myra O Dell, CFP Financial Advisor myra@bcswealth.com Philip Bachman Financial Advisor pbachman@bcswealth.com