Everything You Want to Know About Social Security

Transcription

1 2015 CliftonLarsonAllen Wealth Advisors, LLC Everything You Want to Know About Social Security CliftonLarsonAllen Wealth Advisors, LLC James P. Clemensen, CFP CLAconnect.com/privateclient

2 Table Of Contents I. Social Security Finances II. Social Security Benefits III. When To Take Social Security Benefits IV. Spousal Benefits V. File & Suspend VI. Claim Now, Claim More Later VII. Combination File & Suspend and Claim Now, Claim More Later VIII. Divorce & Social Security IX. Surviving Spouse & Social Security X. Benefits For Children XI. WEP & GPO XII. Medicare Income-Related Monthly Adjustment Amount (IRMAA)

3 Social Security Finances 2015 CliftonLarsonAllen Wealth Advisors, LLC

4 Long-Term Trust Fund Projections 25% 20% 15% Cost: Scheduled and payable benefits Cost: Scheduled but not fully payable benefits 10% 5% Payable benefits as percent of scheduled benefits: Current 100% % % Expenditure: Payable benefits after trust fund exhaustion 0% Calendar Year Source: 2013 OASDI Trustees Report

5 Social Security Benefits 2015 CliftonLarsonAllen Wealth Advisors, LLC

6 Keywords Full Retirement Age (FRA) Primary Insurance Amount (PIA) Average Indexed Monthly Earnings (AIME) Procedure Operations Manual System (POMS) Retirement Benefit Spousal Benefit Survivor Benefit Application Suspend Restrict

7 Example of Benefit Formula PIA formula: $826 x.90 = $743 $4,154 x.32 = $1,329 ($4,980 - $826 = $4,154) $4,086 x.15 = $613 ($9,066 - $4,980 = $4,086) $2,685 PIA = $2,685 (Amount worker will receive at full retirement age)

8 When To Take Social Security Benefits 2015 CliftonLarsonAllen Wealth Advisors, LLC

9 Factors To Consider Life expectancy (longevity risk) Survivor needs (value of second to die benefit) Need for income (liquidity risk) Inflation protection Investment risk/return Public policy risk

10 Life Expectancy 2015 CliftonLarsonAllen Wealth Advisors, LLC

11 Delaying Benefits Age Benefits Are Claimed % of PIA Benefit without COLAs ($/mo) Benefit with 2% COLAs ($/mo) ,014 2, ,148 2, ,328 2, ,505 2, ,685 2, ,900 3, ,115 3, ,329 3, ,544 4,152 Assumes PIA = $2,685

12 Full Retirement Age Year of Birth Full Retirement Age (FRA) & 2mo & 4mo & 6mo & 8mo &10mo & 2mo & 4mo & 6mo & 8mo &10mo

13 Delaying Benefits Age of Application FRA = 66 FRA = % 70.0% % 75.0% % 80.0% % 86.7% % 93.3% % 100.0% % 108.0% % 116.0% % 124.0%

14 Breakeven Analysis 2015 CliftonLarsonAllen Wealth Advisors, LLC

15 Spousal Benefits 2015 CliftonLarsonAllen Wealth Advisors, LLC

16 Spousal Benefits A spouse may receive their own benefit, or 50% of their spouse s benefit Spousal benefits rules: Primary worker must have applied for benefits (but can suspend to build delayed credits if over FRA) Spousal benefit is based on worker s PIA, not his actual benefit Spouse must be at least 62 for reduced benefit or 66 for full benefit No delayed credits on spousal benefits after 66 Marriage requirement is one year

17 Spousal Benefits Age FRA = 66 FRA = % 32.5% % 35.0% % 37.5% % 41.7% % 45.8% % 50.0% % 50.0% % 50.0% % 50.0%

18 Social Security Spousal Strategies File & Suspend Use when wife wants to claim spousal benefit while husband delays his benefit (or vice versa) Claim Now, Claim More Later Use when husband wants to claim spousal benefit off wife s record (or vice versa) Combination File & Suspend and Claim Now, Claim More Later Use for two high-earning spouses One Files & Suspends, the other files a restricted application for the spousal benefit

19 File & Suspend 2015 CliftonLarsonAllen Wealth Advisors, LLC

20 Immediate Benefit Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $800 Chandler and Monica immediately file for benefits of $2,014 and $981

21 Delayed Benefit Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $800 Chandler claims his $4,152 maximum benefit at 70 Monica claims her $1,573 spousal benefit off Chandler s record at her age 70

22 Optimal Delayed Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $800 Chandler Files & Suspends at 66 Monica claims her $1,453 spousal benefit off Chandler s record at 66 Chandler claims his $4,152 maximum benefit at 70

23 Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $127,679 $0 $0 70 $337,400 $67,606 $138, $719,290 $659,474 $730, $824,597 $822,681 $893, $1,418,487 $1,743,113 $1,813, $2,142,436 $2,865,115 $2,935,901

24 Optimal Combination Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $800 Monica claims her $600 retirement benefit at 62 Chandler Files & Suspends at 66 Monica claims her $1,185 spousal benefit off Chandler s record at 66 Chandler claims his $4,152 maximum benefit at 70

25 Claim Now, Claim More Later 2015 CliftonLarsonAllen Wealth Advisors, LLC

26 Immediate Benefit Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam and Diane immediately file for their own retirement benefits of $2,014 and $981

27 Delayed Benefit Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam claims his $4,152 maximum benefit at 70 Diane claims her $1,573 maximum benefit at 70

28 Optimal Delayed Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Diane files for her own $1,082 benefit at 66 Sam files for his $541 spousal benefit at 66 At age 70, Sam claims his $4,152 full benefit and Diane switches to her higher spousal benefit of $1,573

29 Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $146,226 $0 $0 70 $346,075 $67,592 $147, $709,988 $659,337 $739, $810,337 $822,510 $902, $1,376,271 $1,742,751 $1,823, $2,066,141 $2,864,519 $2,945,419

30 Optimal Combination Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Diane claims her $750 retirement benefit at 62 Sam files for his $541 spousal benefit at 66 At age 70, Sam claims his $4,152 full benefit and Diane switches to her higher spousal benefit of $1,280

31 Combination File & Suspend and Claim Now, Claim More Later

32 Immediate Benefit Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler and Monica immediately file for their own retirement benefits of $2,014 and $1,800

33 Delayed Benefit Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler claims his $4,152 maximum benefit at 70 Monica claims her $3,712 maximum benefit at 70

34 Optimal Delayed Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler Files & Suspends at 66 Monica claims her $1,453 spousal benefit off Chandler s record at 66 Chandler claims his $4,152 maximum benefit at 70 Monica switches to her $3,712 maximum benefit at 70

35 Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $187,030 $0 $0 70 $442,646 $93,575 $164, $845,813 $803,151 $873, $1,036,459 $1,138,686 $1,209, $1,760,314 $2,412,671 $2,483, $2,642,689 $3,965,652 $4,036,374

36 Optimal Combination Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Monica immediately files for her own retirement benefits of $1,800 Chandler claims his $1,299 spousal benefit off Monica s record at 66 Chandler claims his $4,152 maximum benefit at 70

37 Spousal Benefit Option Decision Table Lower Benefit as % of Higher Benefit Spousal Benefit Option 0.0% % File & Suspend 33.0% % Claim Now, Claim More Later 37.9% % 37.9% % 70.0% % 42.0% % Claim Now, Claim More Later, OR Combination File & Suspend and Claim Now, Claim More Later Claim Now, Claim More Later (Ranges of relative attractiveness) Combination File & Suspend and Claim Now, Claim More Later (Range of relative attractiveness)

38 Divorce & Social Security 2015 CliftonLarsonAllen Wealth Advisors, LLC

39 Divorced Spouse Benefits Marriage must have lasted 10 years or more Person receiving divorced-spouse benefit is currently unmarried Ex-spouse is at least 62 If divorce occurred more than 2 years ago, ex-spouse does not need to have filed for his own benefit More than one ex-spouse can receive benefits on the same worker's record Benefits paid to one ex-spouse do not affect those paid to the worker, the current spouse, or other ex-spouses The worker will not be notified that the ex-spouse has applied for benefits

40 Surviving Spouse & Social Security 2015 CliftonLarsonAllen Wealth Advisors, LLC

41 Survivor Benefits Key Points Individual Social Security benefits stop at death The surviving spouse is entitled to a survivor benefit equal to the deceased spouse s benefit If Sam dies, Diane s original survivor benefit will equal Sam s benefit at the time of his death Diane will receive the full survivor benefit if she claims it at her full retirement age or later Diane s own benefit will stop If Diane s own retirement benefit is higher, she will keep her own benefit

42 Survivor Benefits Apply at age If FRA = % % % % % % % % % % %

43 Immediate Benefit Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam dies Diane immediately claims survivor benefits at 60, receives reduced benefits of $1,920

44 Delayed Benefit Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam dies Diane claims survivor benefits at 66, receives benefits of $3,024

45 Optimal Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam dies Diane claims retirement benefits at 62, receives reduced benefits of $780 Diane claims survivor benefits at 66, receives full benefits of $3,024

46 Immediate Benefit Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler dies Monica immediately claims survivor benefits at 60, receives reduced benefits of $1,920

47 Delayed Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler dies Monica claims retirement benefits at age 70, receives benefits of $3,862

48 Optimal Delayed Scenario Chandler & Monica Age and Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler dies Monica immediately claims survivor benefits at 60, receives reduced benefits of $1,920 Monica claims retirement benefits at age 70, receives benefits of $3,862

49 Benefits For Children 2015 CliftonLarsonAllen Wealth Advisors, LLC

50 Benefits For Children Children of retirees can also receive Social Security benefits until they complete high school (family maximum payment limits payout to 180% of retiree s full retirement age benefit)

51 Optimal Combination Scenario Sam & Diane Age and Sam s PIA = $2,685 Diane s PIA = $1,000 Sam immediately claims his $1,920 reduced benefit Norm, Cliff, and Woody (age 14) receive benefits through high school of $674 Sam suspends benefits at age 66, claims $3,146 benefit at age 70 Diane files for $1,113 spousal benefits at 62

52 Advice For Individuals By Marital Status Currently married Divorced Widowed Never married Individual With Deceased Ex-spouse Coordinate benefits with spouse; one or both spouses delay own benefit to age 70, one spouse receives spousal benefit Delay own benefit to 70, take divorced-spouse benefit from Coordinate retirement and survivor benefits; take higher benefit last Maximize own benefit by working; delay start of benefits to age 70 Consider survivor benefit as a possible resource if not remarried before age 60

53 WEP & GPO 2015 CliftonLarsonAllen Wealth Advisors, LLC

54 WEP & GPO Windfall Elimination Provision (WEP) Social Security benefit may be reduced if client worked in a non-social Security covered job (e.g., police officers, government employees) $408 maximum reduction Government Pension Offset (GPO) Applies to spousal/survivor benefits; reduction is 2/3 the amount of pension

55 Medicare Income-Related Monthly Adjustment Amount (IRMAA) 2015 CliftonLarsonAllen Wealth Advisors, LLC

56 Medicare IRMAA Joint MAGI + Tax Exempt Standard Part B Premium IRMAA Part B Premium IRMAA Part D Premium <$170,000 $ $0.00 $0.00 $170,000 - $214,000 $ $42.00 $12.30 $214,000 - $320,000 $ $ $31.80 $320,000 - $428,000 $ $ $51.30 >$428,000 $ $ $70.80 Marriage Divorce/Annulment Death of Your Spouse Work Stoppage Work Reduction Loss of Income-Producing Property Loss of Pension Income Employer Settlement Payment

57 2015 CliftonLarsonAllen Wealth Advisors, LLC James Clemensen, CFP, Wealth Advisor CliftonLarsonAllen Wealth Advisors LLC CLAconnect.com/privateclient