Maximizing Social Security Benefits and Retirement Income. Jay C. Kaufman, Esq. Kaufman Law Group LLC

Transcription

1 Maximizing Social Security Benefits and Retirement Income Jay C. Kaufman, Esq. Kaufman Law Group LLC

2 Tonight s Webinar Brief history & background of Social Security System How does the system work? When is the best time to start taking benefits? Social Security and Income Tax Other retirement benefits: Ages to remember 2

3 HISTORY OF THE SOCIAL SECURITY SYSTEM 3

4 Established 8/14/1935 Amended 1939 for spouse, child and survivor benefits. Amended 1950 and 1952 for COLA benefits. Amended 1954 to freeze worker record during disability. Amended 1956 for disability provisions. Amended 1961 reduce RA to 62 for men. Amended 1965 to add Medicare. Amended 1972 for auto COLA adjustment, increased SSI added increased tax rate amendment lowered to age 65 the ability to earn and collect benefits. 4

5 SOME IMPORTANT STATISTICS ABOUT SOCIAL SECURITY 5

6 90% of income to Statistics 20% of married elderly and 41% of unmarried elderly More than 50% of the income of 52% of married elderly and 72% of unmarried elderly 40% of the income of all elderly 6

7 Importance of Social Security Over 60 million people received benefits in 2011 totaling $706 billion. 65% retirees 21% disabled workers and their dependents 14% survivors of deceased workers The baby boom generation has just started collecting social security. 7

8 Trustees of Social Security Trust fund reserves project to the exhausted by 2033 (without legislation). After that, receipts will fund about 75% of benefits. Highest cost over the next 75 years is in 2035, a mere 20 years away. 8

9 DETERMINING YOUR SOCIAL SECURITY BENEFIT 9

10 My SS Statement, or Where Did That Number Come From? Figure out AIME: (Average Indexed Monthly Earnings). Multiply Earnings or maximum table amount (whichever is greater); add up best 35 indexed years and divide by 420 to get AIME. THEN Calculate Primary Insurance Amount (PIA). 90% of first $ % of next $ % in excess of $4517 Calculation is done at age 62 and then indexed for inflation in future years. 10

11 What Percent at Various Ages? Year of Birth Full Retirement Age Payment at Age % months 74.2% months 73.3% months 72.5% months 71.7% months 70.8% 1960 and after 67 70% 11

12 Difference in Monthly Benefit No Time Value or COLA Age % of PIA Benefit $1, $2, $2, $2, $3, $3, $3,

13 Maximum Claimed to Age 95 With 2% COLA $1,600, $1,400, $1,200, $1,000, $800, $600, $400, $200, $- AGE No Time Value of Money 13

14 Should I Take Benefits at 62? 2/3 of SS beneficiaries elect benefits at age 62. Give back $1 for every $2 earned during Take the benefit at 62 if you must due to need or due to health circumstances. If health is a problem and likely won t live to life expectancy, it makes sense to elect benefit at age

15 Take the Benefits at 66? This should be the default option. Advise most people to start by looking at electing to take benefits at 66. If in good health and family has good life expectancy (and if have income), consider waiting until age 70. The 8% increase in benefits per year is significant. 15

16 An Important Paradigm for Married Couples Look at Social Security Benefits as a couple Social Security Administration will not automatically calculate the way to maximize benefit as a couple. Only will look at one person at a time Is there one higher wage earner and one lower wage earner? Is there one wage earner and one non-wage earner? 16

17 No Wage Earner Spouse Timeline Higher wage earner 62 FRA 70 $2,000 FRA benefit File and Begin $2,640 suspend Benefit No wage earner OR Begin $750 spousal benefit Begin $1,000 spousal benefit 17

18 Significant Lower Wage Earner Spouse Timeline Higher wage earner 62 FRA 70 $2,000 FRA benefit File and Begin $2,640 suspend Benefit Lower wage earner $600 at FRA OR Begin reduced Add spousal for total own of $850 of $450 Begin $1,000 spousal benefit 18

19 Not Significant Lower Wage Earner Spouse Timeline Higher wage earner 62 FRA 70 $2,000 FRA benefit File for $700 spousal benefit only Begin $2,640 benefit Lower wage earner $1,400 at FRA Begin reduced $1,050 benefit 19

20 Factors that Impact Decisions Health Family History Need Earnings Potential from 62 to FRA to 70 Marital Status Other Retirement Savings 20

21 File and Suspend Same Age Assume higher earning spouse has maximum PIA of $2,640. Assume lower earning spouse has PIA of $600. Lower earning spouse can collect own benefit at 62, but not collect spousal benefit until spouse files for his/her own benefit. Higher earning spouse files for benefit at 66 then immediately suspends which allows lower earning spouse to begin spousal benefit at age

22 File & Suspend Instead of collecting $600 per month, lower earning spouse collect ½ of $2,533 or $1,267 per month. Four Year Difference of $32, /mo 1267/mo $ 22

23 File & Suspend? Same age spouses: file and suspend or just file at FRA 66? 2,000,000 1,500,000 1,000,000 Start at Age 70 Start at Age ,000 0 Live to 75 Live to 85 Live to 95 23

24 WHO OWES INCOME TAXES ON SOCIAL SECURITY BENEFITS 24

25 Who Owes Income Tax on Social Security Benefits? 50% 85% Single or Head of Household $25,000 $34,000 Married Filing Jointly $32,000 $44,000 Married Filing Separately $0 $0 25

26 Some Planning Ideas Take some income from IRA s and 401K plans before age 70 to: Reduce amount of required distributions at age Allow for 8% per year increase in social security benefits from age 66 through age 70. (Note this is against the grain of conventional wisdom.) 26

27 Another Planning Idea Convert some regular IRA money to Roth IRA. Make the conversion in a lower income year to minimize the tax exposure. Best if there is money outside the IRA to pay the tax on the conversion. 27

28 More Important Numbers Taxable Wage Base: $117,000 Medicare tax withholding limit: NO limit Retirees who are younger than 66 can earn up to $15,480 in 2014 before part or all of their Social Security benefit will be temporarily withheld, $360 more than in Social Security recipients who earn more than that amount will have $1 in benefits withheld for every $2 they earn above the limit. 28

29 About Medicare Medicare is available at age 65, not at age 66. Premium is $104.90/month for couples who file a joint return with income under $170,000. Progressively increases to $333.70/month for incomes up to $428,

30 Social Security Benefits Are: Exempt from creditors. Can be garnished for child support and alimony and IRS can levy for taxes owed. Totalization agreements with 21 countries (including most European countries, Australia, Japan, South Korea, Canada, Chile) avoid double taxation. 30

31 SOME NEW THINGS 31

32 Rollovers: New Law Recent court decision: Can only do one rollover (between IRAs) per year. Must now be very careful otherwise can be stuck with a deemed distribution. Can only go from investment A to investment B once. Aggregates all a taxpayers IRAs into one for this purpose. 32

33 Proposed New Laws 5 year mandatory distribution for inherited IRAs. No more stretch IRA. Maximum retirement plan accumulations for one individual limited to approximately $3,200,000 in all plans. 33

34 QUESTIONS? Thanks for Listening! Save the Date: 34

35 Future Client Webinars: Save the Dates Watch for your registration. Wednesday, April 09, 2014, 7 pm to 8 pm Back to Basics 1: The Estate Plan Cast of Characters- Who Does What & When Wednesday, July 9, 2014, 7 pm to 8 pm Back to Basics 2: Why Do I Have a Trust? Tuesday, December 09, 2014, 7 pm to 8 pm Back to Basics 3: What Assets Go Where? Funding Your Estate Plan Correctly 35

36 Follow Kaufman Law Group: (Jay s direct line) FaceBook: Kaufmanlawgroup 36