Maximizing Social Security Benefits for Today s Baby Boomers

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1 Maximizing Social Security Benefits for Today s Baby Boomers George Harris, EA 2101 N Country Club, Ste 105 Tucson, AZ george@1stchoicetaxservices.com Suspended the File and Suspend provisions for all taxpayers filing for benefits 180 days after enactment of this bill. (May 1, 2016) (Sec. 831) Restricted the File a Restricted Claim provision for taxpayers turning 62 after 1/1/16. (Sec. 831) Specified payroll tax revenues are reallocated to the Disability Insurance Trust Fund to pay benefits until (Sec. 833) A new felony for conspiracy to commit Social Security fraud is created. (Sec. 813) 1

2 Retirees who are already receiving benefits are grandfathered in under the old rules. Widows and widowers are exempted. Anyone filing for benefits before May 1, 2016 Anyone 62 by 12/31/15 may still File a Restricted application at Full Retirement Age. There is no COLA Increase for 2016 Medicare Part B Premiums are increasing Tier 1 Medicare recipients are exempted from the 2016 increase in Medicare Part B premiums Medicare recipients with MAGI above the Tier 1 limits ($85K Single / $170K MFJ) will see increases Most other SS related amounts have not increased for 2016 (See last page of you handout)

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4 Born Between 1946 and 1964 Turn 65 between 2011 and 2029 Largest generation born in US History 75.4 million (as of 2015) 65+ population segment is projected to double to 71.5 million by 2030 and grow to 86.7 million by 2050 Possibly more than 80 million will be on Medicare and Social Security Due to inherit approximately $8.4 trillion May 17, U.S. Supreme Court desegregates schools in Brown v. Board of Education. June 23, The FDA approves the Pill Vietnam War, the war boomers fought in and protested against. August 15-18, Woodstock, a music festival in Bethel, New York The year the U.S. divorce rate peaks as they turn 33. March 9, Legislation passes raising the retirement age, from 65 to 67 beginning in June 25, Millennials outnumber baby boomers with 83.1 million. Worked for many years at the same company. Retired at 65 with a comfortable pension. Relied upon Social Security for supplemental income. Retirement planning was focused on money: Paying off the mortgage Saving for that rainy day Having more income during retirement than while working Viewed retirement as an extended vacation preceding death. 4

5 Early retirement Longer period of good health Increased Lifespan Look forward to spending over 25% of their lifetime in retirement Want active, independent lifestyle with purpose View retirement as a new chapter in life Increased Debt Mortgages Credit Cards Auto Loans Student Loans Fewer Pensions More Defined Contribution Plans Less savings or investments Expensive leisure activities & travel More Long Term Care needs and options How soon can I retire? How much money do I need to retire? How much money do I have to retire? How long will it last? How long will I last? How much will it cost? What effect is inflation going to have? Can I count on Social Security? How do I plan for Long Term Care? 5

6 Retirement Disability Death ($255) Spousal Benefits Survivor Benefits Widow Benefits Dependent Benefits Guardian Benefits Supplemental Security Income 6

7 40 Quarters (10 years) of eligible coverage For 2015, each $1,220 = 1 Qtr. ($4,880 = 1 yr.) Once qualified for Social Security you are automatically qualified for Medicare Qualifications for Disability (SSDI) depend upon age and recent work history. 60 Widow Benefits 62 Early (Reduced) Retirement 65 Medicare Full Retirement Age = 100% PIA 70 Maximum Delayed (Increased) Benefits Birth Year Full Retirement Age yr yr. 2 mo. +1yr +2 mo Born Benefit Start Age Benefit (% PIA) Early % % % % FRA % % % % Max Delayed % Page 7 7

8 Primary Insurance Amount (PIA) is the benefit that would be paid 100% at Full Retirement Age 1. Calculate Average Indexed Monthly Earnings 2. Apply current year Bend Points 1 & 2 3. Determine PIA 90% of AIME up to first Bend Point 1 32% of AMIE between Bend Point 1 & 2 15% of AIME between Bend Point 2 and maximum Annual Earnings are indexed for inflation for all years of employment history Add 35 highest years Divide by 35 Divide by 12 8

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10 Choices for a Single Taxpayer: Claim reduced benefits at 62 (75%) Claim full benefits at FRA 66 (100%) Claim increased benefits at 70 (132%) Break Even is usually 73.5 and 84 Employment / Unemployment Cash Flow Needs Other sources of income Marital Status Earnings History Life Expectancy Health & Lifestyle Genetics Risk tolerance Market Risk Longevity Risk Taxes 10

11 A spouse may claim benefits = 50% of the PIA of their spouse who qualifies for SS. The non-working spouse does not have to have qualified for SS on their own work record to claim. For spouses who have their own work record, their benefit on their record is increased by the spousal benefit to = 50% Eligibility begin at 62 at a reduced rate Spousal Benefits do not increase for delays beyond FRA. Divorced spouses can claim on their exspouses record if: Were married for at least 10 years Are NOT currently remarried Ex-spouse has reached FRA Spouses who are FRA can even claim spousal benefits on their ex-spouse while their own benefit increases until age 70. (Filing a Restricted Application) 11

12 When a spouse becomes deceased, the surviving spouse receives the larger of their own benefit or the benefit of the deceased spouse Even an ex-spouse can claim Survivor Benefits on a deceased ex-spouse as long as They were married for 10 years Neither has remarried A surviving spouse may claim spousal Widow Benefits at 60 Benefits are reduced if claimed earlier than 2 years before FRA A widow can claim widow benefits on their deceased spouse while their own benefits increase beyond FRA. 12

13 An additional benefit is available for dependents under 18 This can be claimed when Parent is Deceased Parent is Disabled Parent is Retired There is a family maximum that can not be exceeded, regardless of the number of dependents In the case of a deceased taxpayer, the surviving spouse (or other caregiver) may be entitled to a benefit. Earnings limitations apply to restrict the amount of earned income the caregiver may receive and still receive benefits. There is no age restriction on the caregiver only the dependent child. Jose and Cecelia are married for 30 years. Jose is 60, and Cecelia is 55. Cecelia just retired to spend more time with their 13 year old daughter, Maria. Jose is diagnosed with stage 4 pancreatic cancer and passes away 6 months later. Jose s PIA is $2000. Cecelia s PIA is the same $2,000 Family Survivor benefits are $1,400 13

14 $1400 Dependent Benefits - Maria $1400 Caregiver Benefits - Cecelia At 60 Cecelia begins Widow/Survivor Benefits on Jose s record $1, At 70 Cecelia files for her 132% PIA benefits $2.600 If under FRA, a SS beneficiary is limited in the amount of earned income SS benefits must be repaid (reduced in future years) by $1 for every $2 they exceed the limit. For 2015 the earnings limit is $15,720 If a taxpayer is under FRA and expect to earn over this limit, it is usually inadvisable to draw early (reduced) benefits 14

15 In the year the taxpayer reaches FRA SS benefits must be repaid (reduced in future years) by $1 for every $3 they exceed the limit. For 2015 the earnings limit is $41,800 Once FRA is reached, there is NO Income Limitation or repayment. Do not underestimate the long term benefits of at least 15% or more of SS being non-taxable. Jane is 62 and just retired She needs $3000/mo. ($36K/yr.) to live She has a pension of $1000/mo. Her PIA is 1500/mo. 62 Benefit $1125/mo. 70 Benefit $1980/mo. She has $200K in her IRA She received $50K inheritance from her Dad who just passed away at 92 15

16 62-92 $$ Taxable Pension 12,000 12,000 SS 13,500 2,125 IRA 10,500 10,500 Total 36,000 24,625 - Std & PE 10,300 - Taxable 14,025 Tax 1,625 Investment $ ($364K) v $$ Taxable Taxable Pension 12,000 12,000 12,000 SS 13,500 2,125 0 IRA 10,500 10,500 24,000 Total 36,000 24,625 36,000 - Std & PE 10,300 10,300 - Taxable 14,025 25,700 Tax 1,625 3, v $$ Taxable Taxable $$ Taxable Pension 12,000 12,000 12,000 12,000 12,000 SS 13,500 2, ,000 0 IRA 10,500 10,500 24,000 0 Total 36,000 24,625 36,000 36,000 12,000 - Std & PE 10,300 10,300 12,600 - Taxable 14,025 25,700 0 Tax 1,625 3,398 0 Investment $ ($364K) ($219K) $31K Lifetime SS Benefits $405K $528k +$123 16

17 Increased Monthly Benefit for LIFE! Guaranteed COLA adjustments Survivor Benefits Reduced Longevity Risk Married couples Maximizing Strategies Backed by US Govt. She can immediately call her local SS office. They tell her she can file for benefits and back date the application by 6 months She will get a lump sum check for $11,160 ($1860/mo. benefit at age 69 X 6 months) At FRA (66) Jane should have Filed & Suspended her benefit claim. She can immediately call her local SS office. They tell her because she Filed & Suspended, she is allowed to revoke the Suspension. She will get a lump sum check for $54,000 ($1500/mo. benefit at age 66 X 3 years) 17

18 Do NOT claim early benefits while still working. Most taxpayer should delay as long as possible. Double that for Married Couples Dependent benefits should be considered. PIA amounts of each spouse can vary results. Survivor Benefits base calculations upon the life expectancy of the spouse with the longer life expectancy. Spouse B has little or no earnings history and benefits by claiming Spousal Benefits. Spouse B can NOT claim Spousal Benefits until Spouse A has filed for benefits. Spouse A wishes to delay claiming benefits until 70 to get the increased benefits. Spouse A can File and Suspend their benefits. Spouse A s benefits continue to increase until 70 Spouse B is now able to file for Spousal Benefits on A s earnings record. Spousal Benefits do not increase beyond FRA. Spouse B has earnings history but significantly lower than Spouse A. Spouse A wishes to delay benefits until 70. Spouse B files for reduced benefits at 62 At 66, Spouse A files for restricted benefits (Only Spousal Benefits on B s record), allowing Spouse A s earnings to accrue delayed retirement credit until age 70 Spouse A then files for benefits on their record at age

19 ($2,904/mo) No Double Dipping You can not BOTH File & Suspend and File & Restrict You must be FRA to employ either of these Maximizing Strategies. Maximizing Strategies should be based upon the Life Expectancy of the Longer Living spouse. 19

20 The Facts: They are the same age Fred s PIA is $2,200 Ethel s PIA is $1,400 Fred will die at 78 Ethel will die at Both draw reduced benefits (75%)at Both draw 100% PIA at FRA 3. Maximizing Strategy At 66 Fred Files & Suspends He delays to accrue 132% of PIA at 70 At 66 Ethyl Files & Restricts She draws spousal benefits of 50% of Fred s PIA At 70 Fred unsuspends and draws 132% PIA At 70 Ethyl switches to 132% of her benefits Total Combined Lifetime Benefits 1. $626, $650,400 ($23,760 more) 3. $683,232 ($32,832 and $56,592) NOTE: Fred & Ethel both lived to average life expectancy. Had the surviving spouse lived considerably longer, the differences would have increased significantly 20

21 Henry is 62 Brittany is 42 They have no children. Both have Life Expectancies of 85 Henry s PIA is $2,550 Brittany s PIA is $700 Henry retires at 62 Henry claims SS at 62 Henry s benefit is $1,912 When Henry dies, the larger (or reduced larger) check continues for Brittany s life time If they both die at 85: Brittany lives 20 years longer than Henry Spousal Benefit is like Henry Lived to 105 Better Strategy: Henry delays benefits until 70 Brittany claims Spousal benefits (50% Henry) at 62 Henry dies at 85 and at 65 Brittany claims Survivor Benefits for 20 more years until she dies at 85 $386,765 more if Brittany lives to 85 $628,867 more if Brittany lives to 95 Soc. Sec Disability Inc. xxxx

22 Delaying FRA beyond 67 Reducing COLA Reducing Benefits Increasing Payroll Taxes Most likely any changes will be: Announced long in advance of effective date Lifetime Retirement Income COLA adjustments Spousal Benefits 100% Joint Survivor Benefits Dependent & Caregiver Benefits Disability Insurance Death Benefit 22

23 Fact Sheet SOCIAL SECURITY 2016 SOCIAL SECURITY CHANGES o o o Cost-of-Living Adjustment (COLA): Monthly Social Security and Supplemental Security Income (SSI) benefits will not automatically increase in 2016 as there was no increase in the Consumer Price Index (CPI-W) from the third quarter of 2014 to the third quarter of Other important 2016 Social Security information is as follows: Tax Rate: Employee 7.65% 7.65% Self-Employed 15.30% 15.30% NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings. Also, as of January 2013, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9 percent in Medicare taxes. The tax rates shown above do not include the 0.9 percent. Maximum Taxable Earnings: Social Security (OASDI only) $118,500 $118,500* Medicare (HI only) N o L i m i t o Quarter of Coverage: $1,220 $1,260 o Retirement Earnings Test Exempt Amounts: Under full retirement age $15,720/yr. $15,720/yr.* ($1,310/mo.) ($1,310/mo.) NOTE: One dollar in benefits will be withheld for every $2 in earnings above the limit. The year an individual reaches full $41,880/yr. $41,880/yr.* retirement age ($3,490/mo.) ($3,490/mo.) NOTE: Applies only to earnings for months prior to attaining full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. SSA Press Office 440 Altmeyer Building 6401 Security Blvd. Baltimore, MD FAX

24 There is no limit on earnings beginning the month an individual attains full retirement age. o Social Security Disability Thresholds: Substantial Gainful Activity (SGA) Non-Blind $1,090/mo. $1,130/mo. Blind $1,820/mo. $1,820/mo.* Trial Work Period (TWP) $ 780/mo. $ 810/mo. o o o o Maximum Social Security Benefit: Worker Retiring at Full Retirement Age: $2,663/mo. $2,639/mo.** SSI Federal Payment Standard: Individual $ 733/mo. $ 733/mo.* Couple $1,100/mo. $1,100/mo.* SSI Resources Limits: Individual $2,000 $2,000 Couple $3,000 $3,000 SSI Student Exclusion: Monthly limit $1,780 $1,780* Annual limit $7,180 $7,180* o Estimated Average Monthly Social Security Benefits Payable in January 2016: All Retired Workers $1,341 Aged Couple, Both Receiving Benefits $2,212 Widowed Mother and Two Children $2,680 Aged Widow(er) Alone $1,285 Disabled Worker, Spouse and $1,983 One or More Children All Disabled Workers $1,166 * Because there is no COLA, by law these amounts remain unchanged in ** A decrease in full maximum benefits occurs when there is no COLA, but there is an increase in the national average wage index.

25 Socia al Securi Soc ity Bene cial S efit Amo numb Secu ounts ber urity Ben AIME nefits s

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27 Primary Insurance Amount year $ % 32% $826 90%

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31 When To Start Receiving Retirement Benefits At Social Security, we re often asked, What is the best age to start receiving retirement benefits? The answer is that there s no one best age for everyone and, ultimately, it s your choice. You should make an informed decision about when to apply for benefits based on your individual and family circumstances. We hope the following information will help you understand how Social Security can fit into your retirement decision. Your decision is a personal one Would it be better for you to begin receiving benefits early with a smaller monthly amount or to wait for a larger monthly payment later that you may not receive as long? The answer is personal and depends on several factors, such as your current cash needs, your current health and family longevity. Also, consider if you plan to work in retirement or if you have other retirement income sources. You must also study your future financial needs and obligations, and, of course, calculate your future Social Security benefit. We hope you ll weigh all the facts carefully and consider your own circumstances before making the important decision about when to begin receiving Social Security benefits. Monthly payments differ substantially based on when you start receiving benefits If you live to the average life expectancy for someone your age, you ll receive about the same amount in lifetime benefits. It doesn t matter if you choose to start receiving benefits at age 62, full retirement age, age 70, or any age between. The amount of your monthly benefit, however, can differ considerably based on your retirement age. You can get lower monthly payments for a longer period of time or higher monthly payments over a shorter period of time. The amount you receive when you first get benefits sets the base for the benefits you ll get for the rest of your life. You ll get annual cost-of-living adjustments and, depending on your work history, may receive higher benefits if you continue to work. The following chart provides an example of how your monthly benefit can differ based on the age you decide to start receiving benefits. Monthly Benefit Amount $1,500 $1,200 $900 $600 $300 $0 Monthly Benefit Amounts Differ Based on the Age You Decide to Start Receiving Benefits This example assumes a benefit of $1,000 at a full retirement age of 66 $1,240 $1,320 $1,160 $1,080 $1,000 $933 $866 $750 $ Age You Choose to Start Receiving Benefits Let s say your full retirement age is 66 and your monthly benefit starting at that age is $1,000. If you choose to start getting benefits at age 62, we ll reduce your monthly benefit 25 percent to $750 to account for the longer period of time you receive benefits. This decrease is usually permanent. If you choose to delay getting benefits until age 70, you would increase your monthly benefit to $1,320. This increase is from delayed retirement credits you earn for your decision to postpone receiving benefits past your full retirement age. The benefit at age 70 in this example is 32 percent more than you would receive each month if you had chosen to start getting benefits at full retirement age. Retirement may be longer than you think When thinking about retirement, be sure to plan for the long term. Many of us will live much longer than the average retiree, and most women live longer than men. More than one in three 65 year olds today will live to age 90, and more than one in seven will live to age 95. Social Security benefits, which last as long as you live, provide valuable protection against outliving savings and other sources of retirement income. Again, you ll want to choose a retirement age based on your circumstances so you ll have enough income when you need it. (over) When To Start Receiving Retirement Benefits

32 Your decision could affect your family Your spouse may be eligible for a benefit based on your work record (we reduce spouse benefits if claimed before the spouse s full retirement age). If you earned more over your lifetime and die before your spouse, he or she may be eligible for a higher survivor benefit based on your work record. If you begin receiving Social Security benefits early, we can t pay your surviving spouse a full benefit from your record. But, if you wait until full retirement age to get benefits, your surviving spouse if he or she is at least full retirement age will get the same benefit you would have received. Your children may also be eligible for a benefit on your work record if they re under age 18 or if they have a disability that began before age 22. For them to receive benefits, you must be getting benefits, too. You can keep working When you reach your full retirement age, you can work and earn as much as you want and still get your full Social Security benefit payment. If you re younger than full retirement age and if your earnings exceed certain dollar amounts, some of your benefit payments during the year will be withheld. This doesn t mean you must try to limit your earnings. If we withhold some of your benefits because you continue to work, we ll pay you a higher monthly benefit when you reach your full retirement age. So, if you work and earn more than the exempt amount, it won t, on average, decrease the total value of your lifetime benefits from Social Security and may increase them. Here is how this works: When you reach full retirement age, we ll recalculate your benefit to give you credit for months you didn t get a benefit because of your earnings. In addition, as long as you continue to work and receive benefits, we ll check your record every year to see whether the extra earnings will increase your monthly benefit. Printed on recycled paper Don t forget Medicare If you plan to delay receiving benefits because you re working, you should still sign up for Medicare three months before reaching age 65, regardless of when you reach full retirement age. If you don t enroll in Medicare medical insurance or prescription drug coverage when you re first eligible, it can be delayed, and you may have to pay a late enrollment penalty for as long as you have coverage. Additional resources You can estimate benefit amounts and find more information to help you decide when to start receiving retirement benefits by using our benefits planners online at You can also use our Retirement Estimator at or create a my Social Security account and get your Social Security Statement at Both tools provide retirement benefit estimates based on your actual earnings record. When you re ready for benefits, you can also apply online at Many people can continue to work and still receive retirement benefits. If you want more information about how your earnings affect your retirement benefits, read How Work Affects Your Benefits (Publication No ), which has current annual and monthly earnings limits. More information including copies of our publications is available at You can also call our toll-free number, (for the deaf or hard of hearing, call our TTY number, ). We can answer specific questions from 7 a.m. to 7 p.m., Monday through Friday. Generally, you ll have a shorter wait time if you call during the week after Tuesday. We treat all calls confidentially. We also want to make sure you receive accurate and courteous service, so a second Social Security representative monitors some telephone calls. We can provide general information by automated phone service 24 hours a day. And, remember, our website, is available to you anytime and anywhere! Social Security Administration SSA Publication No ICN Unit of Issue - HD (one hundred) August 2015 (Recycle prior editions)