Your Customized Social Security Spousal Planning Analysis

Transcription

1 Your Customized Social Security Spousal Planning Analysis Prepared For John and Mary Boomer September 29, 2015 Prepared By Steven Van Metre Steven Van Metre Financial 5901 Sundale Ave Ste B Bakersfield CA (661) svmfin@gmail.com Page 1

2 Your Customized Social Security Spousal Planning Analysis This report shows the Social Security income stream you can expect to receive under differing claiming scenarios based on your primary insurance amount (PIA) as estimated by the Social Security Administration and certain assumptions for life expectancy and future cost-of-living adjustments. Married couples have several decisions to make. When will the husband claim his retirement based on his earnings record? When will the wife claim her retirement based on her earnings record? When will the wife claim her spousal based on her husband's earnings record? Or will the husband claim his spousal based on his wife's earnings record? Will either spouse need to file and suspend in order for the other spouse to become entitled to a spousal? The interplay of earned s and spousal s makes for some interesting opportunities for married couples as long as you understand the rules and know which spouse can do what and when. Another important consideration is survivor s. If one spouse dies while both spouses are receiving Social Security, the deceased spouse's stops and the surviving spouse may receive the higher of the two amounts. The income streams shown here incorporate life expectancies for husband and wife. If the husband is expected to die first, for example, the analysis shows his going to zero while the wife either continues with her own or switches to the husband's, depending on which is higher. Part of Social Security planning is survivor planning for when one spouse becomes widowed. Will the survivor be enough to live on? What other resources will be available? As you will see, the lifetime value of Social Security can vary greatly depending on when you decide to claim s. When your only interest is maximizing Social Security s, there is usually one optimal analysis that can provide the most s based on the assumptions you enter. However, it is also important to consider your own personal circumstances your need for income, your health status and life expectancy, and your other resources such as retirement and investment accounts when deciding when to claim Social Security. This report should therefore be viewed within the context of your overall retirement income plan. Page 2

3 Key Terms Full retirement age (FRA). This is the age at which you may claim full, unreduced Social Security s. Certain strategies, such as suspending s to earn delayed credits, and filing a restricted application for spousal s, can only be done at full retirement age or later. Year of Birth Full Retirement Age months months months months months 1960 and later 67 Primary Insurance Amount (PIA). Your estimated as shown on this report is based on the PIA you provided. Your PIA is the amount you would receive if you were to claim your at your full retirement age. Each person's PIA is determined by the Social Security Administration at age 62. It is based on an average of your highest 35 years of earnings as applied to a formula. Please note that until you actually apply for Social Security, your exact PIA is unknown. The estimate you received from Social Security via your statement or the Retirement Estimator could change based on your continued earnings (or lack thereof) and future cost-of-living adjustments. Reductions or credits based on claiming age. If you file for Social Security before FRA, your will be some fraction of your PIA. If you file after FRA, your will include delayed credits. These reductions and credits are based on your FRA. Once the reductions or credits are applied, your amount is permanent, affected only by cost-of-living adjustments and additional earnings. That is, if you file at 62 and receive a reduced, it will not go up when you turn FRA. If your full retirement age is 66: Filing Age Benefit = % of PIA If your full retirement age is 67: Filing Age Benefit = % of PIA Page 3

4 Key Terms (continued) Cost-of-Living Adjustments (COLAs). Each year there is a rise in the Consumer Price Index (CPI-W), Social Security amounts are increased to keep up with inflation. The cost-of-living adjustment varies each year, and it is impossible to know what future COLAs will be. To give you an idea of how your might keep up with inflation, this report assumes a fixed COLA in the years ahead. Naturally, the amounts shown in this report will be different if the actual COLAs vary from the assumptions used here. Life Expectancy. Social Security s continue for life. A key purpose of this report is to put your Social Security s in perspective by estimating the amount of s you stand to receive over your lifetime based on claiming decisions you make in your 60s. Your life expectancy is therefore a key assumption in this report. You can look up the average life expectancy for your age by referring to this table: or using this calculator: Keep in mind that there is a 50% chance you will outlive the average life expectancy. Depending on your genes, your lifestyle, and your health status, you could live many years beyond the average. See LivingTo100 ( for a more accurate estimate of your individual life expectancy. Naturally, if your actual life expectancy differs from the assumption used in this report, your lifetime s will be different from the amounts shown here. Spousal s. If you are married, you may qualify for a spousal based on your spouse's work record. If you claim this at your full retirement age, the will be 50% of your spouse's PIA. If you claim it before your FRA, the will be reduced. Your spouse must have filed for his or her in order for you to receive a spousal. Please note that if you also qualify for a retirement on your own work record, and if you file before FRA, you will receive your own reduced first. If you would like to receive a spousal while your own builds delayed credits to age 70, you must file a restricted application for the spousal. This can only be done at FRA or later. Survivor s. If your spouse dies, the your spouse was receiving will stop. As the surviving spouse, you will become eligible for a survivor approximately equal to the amount your spouse was receiving at his death. If this amount is higher than your own, you may switch to the higher amount (note: if you are under FRA when you claim, the survivor will be reduced). The important thing to know about survivor s is that the amount the surviving spouse eventually receives is determined by the age at which the deceased spouse originally started his. You will see in this report that scenarios calling for a later claiming age for the higherearning spouse result in a higher survivor to the surviving spouse. Page 4

5 Comparison of Scenarios 1. FRA 2019: John claims on own record at age : Mary claims on own record at age 66. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary Spousal 2019: John claims on own record at age : Mary claims on record at age : Mary claims on own record at age 70. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary Max 2019: John files and suspends at age : Mary claims on record at age : John claims on own record at age : Mary claims on own record at age 70. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary Early 2015: John claims on own record at age : Mary claims on own record at age 62. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary 95. Page 5

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7 FRA 2019: John claims on own record at age : Mary claims on own record at age 66. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary 95. Year Age annual Mary's Age Mary's Mary's annual annual cumulative ,281 27, ,808 21,696 4,089 49,062 49, ,342 28, ,857 22,282 4,199 50,387 99, ,405 28, ,907 22,883 4,312 51, , ,470 29, ,958 23,501 4,429 53, , ,537 30, ,011 24,136 4,548 54, , ,605 31, ,066 24,787 4,671 56, , ,676 32, ,121 25,457 4,797 57, , ,748 32, ,179 26,144 4,927 59, , ,822 33, ,237 26,850 5,060 60, , ,898 34, ,298 27,575 5,196 62, , ,977 35, ,360 28,319 5,337 64, , ,057 36, ,424 29,084 5,481 65, , ,140 37, ,489 29,869 5,629 67, , ,224 38, ,556 30,676 5,781 69, , ,311 39, ,625 31,504 5,937 71, , ,401 40, ,696 32,355 6,097 73, , ,493 41, ,769 33,228 6,262 75,141 1,041, ,587 43, ,844 34,125 6,431 77,170 1,118, ,684 44, ,921 35,047 6,604 79,253 1,197, ,783 45, ,999 35,993 6,783 81,393 1,278, ,885 46, ,080 36,965 6,966 83,591 1,362, ,990 47, ,164 37,963 7,154 85,848 1,448, ,098 49, ,249 38,988 7,347 88,165 1,536, ,209 50, ,337 40,041 7,545 90,546 1,626, ,322 51, ,427 41,122 7,749 92,991 1,719, ,439 53, ,519 42,232 7,958 95,501 1,815, ,559 54, ,614 43,372 8,173 98,080 1,913, ,682 56, ,712 44,543 8, ,728 2,014, ,808 57, ,812 45,746 8, ,448 2,117, ,938 59, ,915 46,981 8, ,241 2,223,961 Page 7

8 Spousal 2019: John claims on own record at age : Mary claims on record at age : Mary claims on own record at age 70. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary 95. Year Age annual Mary's Age Mary's Mary's annual annual cumulative ,281 27, ,140 13,680 3,421 41,046 41, ,342 28, ,171 14,049 3,513 42,155 83, ,405 28, ,202 14,429 3,608 43, , ,470 29, ,235 14,818 3,705 44, , ,537 30, ,655 31,860 5,192 62, , ,605 31, ,727 32,720 5,332 63, , ,676 32, ,800 33,604 5,476 65, , ,748 32, ,876 34,511 5,624 67, , ,822 33, ,954 35,443 5,776 69, , ,898 34, ,033 36,400 5,932 71, , ,977 35, ,115 37,383 6,092 73, , ,057 36, ,199 38,392 6,256 75, , ,140 37, ,286 39,428 6,425 77, , ,224 38, ,374 40,493 6,599 79, , ,311 39, ,466 41,586 6,777 81, , ,401 40, ,559 42,709 6,960 83,520 1,040, ,493 41, ,655 43,862 7,148 85,775 1,126, ,587 43, ,754 45,047 7,341 88,091 1,214, ,684 44, ,855 46,263 7,539 90,469 1,304, ,783 45, ,959 47,512 7,743 92,912 1,397, ,885 46, ,066 48,795 7,952 95,420 1,492, ,990 47, ,176 50,112 8,166 97,997 1,590, ,098 49, ,289 51,465 8, ,643 1,691, ,209 50, ,405 52,855 8, ,360 1,794, ,322 51, ,523 54,282 8, ,151 1,901, ,439 53, ,646 55,747 9, ,017 2,010, ,559 54, ,771 57,253 9, ,960 2,122, ,682 56, ,900 58,798 9, ,983 2,237, ,808 57, ,032 60,386 9, ,088 2,355, ,938 59, ,168 62,016 10, ,276 2,476,395 Page 8

9 Max 2019: John files and suspends at age : Mary claims on record at age : John claims on own record at age : Mary claims on own record at age 70. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary 95. Year Age annual Mary's Age Mary's Mary's annual annual cumulative ,140 13,680 1,140 13,680 13, ,171 14,049 1,171 14,049 27, ,202 14,429 1,202 14,429 42, ,235 14,818 1,235 14,818 56, ,349 40, ,655 31,860 6,004 72, , ,439 41, ,727 32,720 6,166 73, , ,532 42, ,800 33,604 6,332 75, , ,627 43, ,876 34,511 6,503 78, , ,725 44, ,954 35,443 6,679 80, , ,826 45, ,033 36,400 6,859 82, , ,929 47, ,115 37,383 7,045 84, , ,035 48, ,199 38,392 7,235 86, , ,144 49, ,286 39,428 7,430 89, , ,256 51, ,374 40,493 7,631 91, , ,371 52, ,466 41,586 7,837 94, , ,489 53, ,559 42,709 8,048 96,579 1,062, ,610 55, ,655 43,862 8,266 99,187 1,161, ,735 56, ,754 45,047 8, ,865 1,263, ,863 58, ,855 46,263 8, ,615 1,367, ,994 59, ,959 47,512 8, ,440 1,475, ,129 61, ,066 48,795 9, ,341 1,585, ,267 63, ,176 50,112 9, ,320 1,698, ,410 64, ,289 51,465 9, ,380 1,815, ,556 66, ,405 52,855 9, ,522 1,934, ,706 68, ,523 54,282 10, ,749 2,057, ,860 70, ,646 55,747 10, ,063 2,183, ,018 72, ,771 57,253 10, ,467 2,313, ,180 74, ,900 58,798 11, ,962 2,446, ,347 76, ,032 60,386 11, ,552 2,582, ,519 78, ,168 62,016 11, ,239 2,722,903 Page 9

10 Early 2015: John claims on own record at age : Mary claims on own record at age 62. Current year: 2015, COLA: 2.7%, Current age: John 62, Mary 62, PIA: John $2,050, Mary $1,625, Life expectancy: John 95, Mary 95. Year Age annual Mary's Age Mary's Mary's annual annual cumulative ,538 18, ,219 14,628 2,757 33,078 33, ,579 18, ,252 15,023 2,831 33,971 67, ,622 19, ,286 15,429 2,907 34, , ,665 19, ,320 15,845 2,986 35, , ,710 20, ,356 16,273 3,066 36, , ,757 21, ,393 16,712 3,149 37, , ,804 21, ,430 17,164 3,234 38, , ,853 22, ,469 17,627 3,322 39, , ,903 22, ,509 18,103 3,411 40, , ,954 23, ,549 18,592 3,503 42, , ,007 24, ,591 19,094 3,598 43, , ,061 24, ,634 19,609 3,695 44, , ,117 25, ,678 20,139 3,795 45, , ,174 26, ,724 20,682 3,897 46, , ,233 26, ,770 21,241 4,003 48, , ,293 27, ,818 21,814 4,111 49, , ,355 28, ,867 22,403 4,222 50, , ,418 29, ,917 23,008 4,336 52, , ,484 29, ,969 23,629 4,453 53, , ,551 30, ,022 24,267 4,573 54, , ,620 31, ,077 24,923 4,696 56, , ,690 32, ,133 25,596 4,823 57, , ,763 33, ,191 26,287 4,953 59,441 1,035, ,837 34, ,250 26,996 5,087 61,046 1,096, ,914 34, ,310 27,725 5,225 62,695 1,159, ,993 35, ,373 28,474 5,366 64,387 1,223, ,074 36, ,437 29,243 5,510 66,126 1,290, ,157 37, ,503 30,032 5,659 67,911 1,358, ,242 38, ,570 30,843 5,812 69,745 1,427, ,329 39, ,640 31,676 5,969 71,628 1,499, ,419 41, ,711 32,531 6,130 73,562 1,572, ,512 42, ,784 33,409 6,296 75,548 1,648, ,606 43, ,859 34,311 6,466 77,588 1,726, ,704 44, ,936 35,238 6,640 79,683 1,805,782 Page 10

11 How to claim your Social Security s The scenarios shown in this report indicate the ages at which each spouse might claim his or her retirement, and the age at which one spouse may claim a spousal. Both spouses may not receive a spousal at the same time. This is because in order for the wife, say, to receive a spousal based on the husband's work record, the husband must file for his own retirement. Once he files for his own retirement, he may not receive a spousal if his own is higher. So an important part of Social Security scenario planning is determining which spouse should claim the spousal. Another important part is knowing the rules about when you can and can't claim a spousal. File and suspend. In order for a spouse to claim a spousal, the spouse on whose work record the spousal is based usually the higher-earning spouse must have filed for s. But the higher-earning spouse often wants to delay his or her to age 70 in order to earn maximum delayed credits. In that case, the higher-earning spouse can file for Social Security at full retirement age or later and then immediately suspend his. Filing will entitle his spouse to her spousal. Suspending will allow his own to earn 8% annual delayed credits. SSA representatives are familiar with this strategy. When filing by phone or in person at your local office, all you have to do is tell them that you want to file and suspend so your spouse will be entitled to a spousal and so your own can earn delayed credits. Please note that file-and-suspend cannot be done before full retirement age. Here is an SSA publication that tells about suspending s: Claim-now-claim-more-later. Another strategy may call for one spouse to claim his or her spousal off the other spouse's work record when his or her own retirement is higher. For example, let's say the husband wants to delay his to age 70. When he turns full retirement age, he may restrict his application to his spousal and receive one-half of his wife's primary insurance amount for four years while his own retirement increases by 8% per year to age 70. As always, the other spouse, on whose record the spousal is based, must have filed for s. Please note that it is not possible to file a restricted application before full retirement age. Here is some information on s for you as a spouse: How to file. The easiest way to file for Social Security s is online. Just go to and click on Apply online for Retirement Benefits. However, if you are implementing file-and-suspend or claim-nowclaim-more-later, which involve voluntary suspension or restriction of application, you will need to talk with a representative to make sure your intentions are carried out. The safest way to do this is to make an appointment at your local office. Explain to the representative what you are trying to accomplish. If you are delaying your to age 70 in order to earn maximum delayed credits, make sure the representative understands this. If there is any doubt, ask to speak to a supervisor. It is not unheard of for claimants to receive wrong information from Social Security representatives who have not been adequately trained in the nuances of Social Security claiming strategies. A couple of weeks after you have completed your application you will receive an award letter. Make sure the letter matches your intentions. For example, if you are expecting to receive a spousal equal to 50% of your spouse's PIA and the letter indicates a higher amount, the suspension or application restriction may not have been processed properly. In order not to jeopardize your delayed credits, you should notify SSA immediately and have the application corrected. Page 11

12 What this report does not include You should know that this report has a number of limitations: The numbers you see here are not exact. No one can ever know the exact amount of their Social Security until it is actually received. But by making certain assumptions and trying out different claiming analyses, you can see how your lifetime Social Security income may change depending on when you claim s. The purpose of this report is to give you a long-term perspective on Social Security, which is one of the few sources of retirement income that continues for life. Scenarios are not exhaustive. There are many possible claiming scenarios. This report shows you a handful of scenarios which seem appropriate based on your personal circumstances. We can run additional scenarios if you wish. Results are based on assumptions. The key assumptions used are: 1) the primary insurance amounts for husband and wife as estimated by the Social Security Administration; 2) life expectancies for husband and wife; and 3) future cost-of-living adjustments. If any of these numbers turn out to be different from the assumptions, your actual Social Security income stream will be different. If you wish to use different assumptions from the ones used in this report, please let us know and we can re-run the analysis for you. Social Security may be reformed. It is possible that the Social Security system could be reformed by Congress in the future. Possible reforms may include raising the full retirement age, changing the formula, changing the formula for cost-of-living adjustments, and others. There is no way to know when or how Social Security might be reformed in the future. WEP and/or GPO may not be incorporated. If you ever worked in a job that did not pay into Social Security and you are entitled to a pension from that job, your Social Security may be reduced. The applicable reduction in retirement, spousal, or survivor s may not be reflected in this report. Earnings test is not incorporated. If you file for s before full retirement age and you work, some or all of your s may be withheld due to the earnings test. These reductions are not incorporated into these estimates. Children's s are not included. If you have a child under 18, the child may be entitled to children's s. These amounts are not incorporated into this report. Survivor assumptions assume that the deceased spouse claimed at full retirement age or later and that the surviving spouse claimed the survivor at full retirement age or later. If either spouse claimed earlier, the survivor could be different. Taxes are not incorporated. If your modified adjusted gross income is over a certain threshold, up to 85% of your Social Security s may be reportable as income on your federal income tax return. The estimates in this report do not account for taxes. Please see your tax advisor for more information. This report is for informational purposes only. The purpose of the report is to educate and give general guidance to help craft a personalized approach to taking Social Security. The use of different assumptions, particularly life expectancy, could change the outcome. It is therefore important for you to consider a wide variety of factors and decide for yourself when is the optimal time to claim Social Security. This report was generated by software developed by Horsesmouth, LLC. Neither we, nor Horsesmouth assumes any liability nor responsibility to any person or entity with respect to any loss or damage caused by information contained in this report. Copyright 2015 Horsesmouth, LLC. All Rights Reserved. Page 12