Top 10 Social Security Questions Asked by Baby Boomers... And How To Answer Them By Elaine Floyd, CFP Director of Retirement and Life Planning, Horsesmouth, LLC 1
Elaine Floyd, CFP Director of Retirement and Life Planning Horsesmouth, LLC 2
Question #1 I applied for early benefits and now regret the decision. Is there anything I can do? 3
The unintended consequences of early claiming Lower lifetime benefits Earnings test Limited spousal strategies 4
How to rectify the mistake of early claiming Withdraw and repay (within 12 months) If you change your mind: http://www.socialsecurity.gov/planners/retire/withdrawal.html Go back to work Suspend at FRA 5
Question #2 Can I file and suspend and collect a spousal benefit? 6
Answer: No To receive a spousal benefit while your own benefit builds delayed credits, you must file a restricted application for your spousal benefit. You must NOT file for your own benefit 7
Question #3 Can I claim my spousal benefit at 62 and switch to my own benefit at 70? 8
Answer: No Deemed filing rule: If you file before FRA, you must file for all the benefits you are entitled to (except survivor) This means you will be paid your own reduced benefit first To receive a spousal benefit while your own benefit builds delayed credits, you must file a restricted application for the spousal benefit at FRA or later 9
Question #4 Can I claim my own small benefit at 62 and jump up to 50% of my spouse s benefit at FRA? 10
Answer: No If you claim your own benefit at 62 and your spousal benefit at FRA, you will receive a combination benefit comprising your own reduced benefit and a spousal add-on Example: Jill s PIA is $800. Jack s PIA is $2,600 Jill files at 62 and receives 75% of $800 = $600 At FRA Jill files for her spousal benefit. She will receive the difference between her PIA and onehalf of Jack s PIA: $1,300 - $800 = $500 Her combination benefit: $600 + $500 = $1,100 11
Question #5 What happens if I keep working? 12
Benefits based on highest 35 years of earnings up to taxable maximum Table of maximum earnings Year Maximum Maximum Maximum Year Year earnings $ earnings $ earnings $ 1968 7,800 1984 37,800 2000 76,200 1969 7,800 1985 39,600 2001 80,400 1970 7,800 1986 42,000 2002 84,900 1971 7,800 1987 43,800 2003 87,000 1972 9,000 1988 45,000 2004 87,900 1973 10,800 1989 48,000 2005 90,000 1974 13,200 1990 51,300 2006 94,200 1975 14,100 1991 53,400 2007 97,500 1976 15,300 1992 55,500 2008 102,000 1977 16,500 1993 57,600 2009 106,800 1978 17,700 1994 60,600 2010 106,800 1979 22,900 1995 61,200 2011 106,800 1980 25,900 1996 62,700 2012 110,100 1981 29,700 1997 65,400 2013 113,700 1982 32,400 1998 68,400 2014 117,000 1983 35,700 1999 72,600 2015 118,500 13
Year Age Nominal earnings Indexing factor Indexed earnings Average Indexed Monthly Earnings (AIME) for baby boomer born in 1953 Maximum earnings since 1975 $3,807,775 in total indexed earnings 420 months = $9,066 AIME 1975 22 14,100 5.2008546 73,332 1976 23 15,300 4.8651447 74,437 1977 24 16,500 4.5900542 75,736 1978 25 17,700 4.2523714 75,267 1979 26 22,900 3.9103024 89,546 1980 27 25,900 3.5871901 92,908 1981 28 29,700 3.2591181 96,796 1982 29 32,400 3.0890585 100,085 1983 30 35,700 2.9455642 105,157 1984 31 37,800 2.7820245 105,161 1985 32 39,600 2.6683390 105,666 1986 33 42,000 2.5914228 108,840 1987 34 43,800 2.4360641 106,700 1988 35 45,000 2.3217165 104,477 1989 36 48,000 2.2332918 107,198 1990 37 51,300 2.1346872 109,509 1991 38 53,400 2.0579948 109,897 1992 39 55,500 1.9571545 108,622 1993 40 57,600 1.9404660 111,771 1994 41 60,600 1.8897469 114,519 1995 42 61,200 1.8169181 111,195 1996 43 62,700 1.7322040 108,609 1997 44 65,400 1.6367009 107,040 1998 45 68,400 1.5552987 106,382 1999 46 72,600 1.4731997 106,954 2000 47 76,200 1.3960010 106,375 2001 48 80,400 1.3634733 109,623 2002 49 84,900 1.3499350 114,609 2003 50 87,000 1.3177228 114,642 2004 51 87,900 1.2591861 110,682 2005 52 90,000 1.2147385 109,326 2006 53 94,200 1.1613589 109,400 2007 54 97,500 1.1109424 108,317 2008 55 102,000 1.0859609 110,768 2009 56 106,800 1.1025887 117,756 2010 57 106,800 1.0771307 115,038 2011 58 106,800 1.0444059 111,543 2012 59 110,100 1.0127813 111,507 2013 60 113,700 1.0000000 113,700 2014 61 117,000 1.0000000 117,000 14
Primary Insurance Amount (PIA) Baby Boomer born in 1953 Maximum Social Security earnings every year since age 22 AIME = $9,066 PIA formula: $826 x.90 = $743.40 $4,154 x.32 = $1,329.28 ($4,980 - $826 = $4,154) $4,086 x.15 = $612.90 ($9,066 - $4,980 = $4,086) Total = $2,685.58 PIA = $2,685.50 Amount worker will receive at full retirement age 15
Answer: Your earnings record will continue to be updated Impact on benefit will vary If you already have 35 years of high earnings the impact will be minimal If you replace zero or low earnings years with higher earnings, your benefit will increase If you work part time or at a low salary, there will be no effect 16
Effect of working longer if more than 35 years of earnings Maximum earner born in 1953 age 62 in 2015 If he works until age: Years of earnings used in benefit computation Age-70 benefit 62 1980 2014 $4,318 66 1984 2018 $4,382 70 1988 2022 $4,488 17
Question #6 I m divorced. Can I collect Social Security off my ex-spouse s record while my own benefit builds delayed credits? 18
Rules for divorced-spouse benefits Marriage must have lasted at least 10 years Claimant must be currently unmarried Ex-spouse must be at least 62 If divorce occurred over 2 years ago, ex-spouse does not need to have filed for own benefit Benefit = 50% of ex-spouse s PIA if claimant files at FRA Both ex-spouses can claim divorced-spouse benefits on each other! 19
Optimal strategy for divorced client: Claim divorced-spouse benefit at FRA and switch to own maximum benefit at 70 20
Question #7 My husband has died. Can I take a survivor benefit now and switch to my own benefit later? 21
Optimal strategy for high-earning widows: Take reduced survivor benefit at 60 and switch to maximum retirement benefit at 70 22
Question #8 I am 66. My wife is 45. We have two young children. Can my wife and kids get Social Security benefits? 23
Rules for dependent benefits Worker must have filed (can suspend if over FRA) Children can receive benefits to age 18 Spouse can receive child-in-care benefits until youngest child turns 16 Each benefit = 50% of worker s PIA All benefits are limited by the maximum family benefit $4,200 MFB -2,400 subtract worker s PIA $1,800 amount available to family members (evenly divided) 24
Question #9 I don t qualify for Social Security because in my teaching job I paid into an alternate retirement system. Can I get spousal benefits? 25
Government Pension Offset (GPO) reduces spousal and survivor benefits by two-thirds of the non-covered pension Example Teacher receives a pension of $3,000/month Spousal benefit = $1,200 (50% of $2,400) Two-thirds of pension is $2,000 $1,200 - $2,000 = negative number Therefore no spousal benefits 26
Question #10 How can I maximize my Social Security benefit? 27
Strategy #1 for maximizing Social Security benefits Work longer, earn more 28
Strategy #2 for maximizing Social Security benefits Apply at the optimal time 29
Full retirement age Year of birth 1924-37 65 Full Retirement Age (FRA) 1938 65 & 2 mos. 1939 65 & 4 mos. 1940 65 & 6 mos. 1941 65 & 8 mos. 1942 65 & 10 mos. 1943 54 66 1955 66 & 2 mos. 1956 66 & 4 mos. 1957 66 & 6 mos. 1958 66 & 8 mos. 1959 66 & 10 mos. 1960 & later 67 30
Effect of early or delayed claiming Age % of PIA if FRA = 66 Benefit in today's dollars if PIA is $2,685 Benefit adjusted for annual COLAs* 62 75 2,014 2,014 63 80 2,148 2,206 64 86.67 2,327 2,454 65 93.33 2,506 2,714 66 100 2,685 2,987 67 108 2,900 3,313 68 116 3,115 3,654 69 124 3,329 4,012 70 132 3,544 4,386 *Assumes age 62 now; 2.7% annual COLAs 31
Effect of early or delayed claiming Age % of PIA if FRA = 67 Benefit in today's dollars if PIA is $2,685 Benefit adjusted for annual COLAs* 62 70 $1,880 $2,326 63 75 2,014 2,559 64 80 2,148 2,804 65 86.7 2,327 3,119 66 90.5 2,506 3,450 67 100 2,685 3,796 68 108 2,900 4,211 69 116 3,115 4,645 70 124 3,329 5,099 *Assumes age 54 now; 2.7% annual COLAs 32
Simple breakeven analysis 33
Strategy #3 for maximizing Social Security benefits Coordinate spousal benefits 34
Spousal Strategies File and suspend One spouse files for own benefit at FRA to entitle other spouse to spousal benefit First spouse suspends benefit to earn DRCs to age 70 Important: Must be FRA to suspend Claim now, claim more later One spouse files a restricted application for spousal benefit at 66 (other spouse must have filed for own benefit) Switches to his own benefit at 70 Important: Must be FRA to file restricted application How to decide: Customized scenario planning for each couple based on individual ages and benefit amounts 35
Example of scenario planning Andy & Alice Both age 62 Andy s PIA = $2,600 Alice s PIA = $1,200 Which strategy will give them the most in lifetime benefits? 36
Scenarios for Andy & Alice Scenario 1 Andy and Alice both file now, at age 62 Scenario 2 Alice files for her own benefit now, at 62 Andy files for his benefit at age 70 Scenario 3 Alice files and suspends at 66 Andy files a restricted application for his spousal benefit Both switch to their maximum benefit at age 70 Scenario 4 Andy files and suspends at 66 Alice files a restricted application for her spousal benefit Both switch to their maximum benefit at age 70 37
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Strategy #4 for maximizing Social Security benefits Maximize survivor income 39
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Strategy #5 for maximizing Social Security benefits Minimize taxes on benefits 41
Taxation of Social Security benefits Filing status Provisional income* Amount of SS subject to tax Married filing jointly Under $32,000 $32,000 - $44,000 Over $44,000 0 Up to 50% Up to 85% Single, head of household, qualifying widow(er), married filing separately & living apart from spouse Under $25,000 $25,000 - $34,000 Over $34,000 0 Up to 50% Up to 85% Married filing separately and living with spouse Over 0 Up to 85% *Provisional income = AGI + one-half of SS benefit + tax-exempt interest 42
Tax planning strategies Start drawing down IRAs before age 70-1/2 to reduce RMDs Convert traditional IRAs to Roth Delay Social Security: reduces number of years benefits are subject to tax Reduce expenses: pay down debt, adopt simpler lifestyle Continue to manage taxes throughout retirement 43
What is Savvy Social Security Planning? 44
Savvy Social Security Planning is Teaching baby boomers through seminars, workshops, and individual consultations Baby boomers want to know... Will Social Security be there for me? How much can I expect to receive? When should I apply for Social Security? How can I maximize my benefits? Will Social Security be enough to live on in retirement? 45
Savvy Social Security Planning is Helping baby boomers avoid common mistakes Applying too early Not understanding the interplay of earned, spousal, and survivor benefits Failing to understand the long-term impact of decisions made today 46
Savvy Social Security Planning is Guiding clients decisions through in-depth scenario planning Shows year-by-year income and cumulative benefits using clients actual ages and benefit amounts Enables clients to make their own decisions; you provide guidance, but the ultimate decision is theirs Shows income shortfalls that will need to be made up from other sources, leading to comprehensive retirement income planning 47
Establishing yourself as an expert on Social Security Learn the rules and stay on top of the literature and new developments Identify a niche: Boomers approaching age 62 Women Married couples Communicate and educate: seminars, workshops, newsletters Develop a referral strategy 48
Opportunities abound for advisors knowledgeable about Social Security Baby boomers are turning 62 at the rate of 10,000 per day Social Security is more complicated than people realize Decisions made early in the process have farreaching impact The strain on Social Security personnel will increase Advisors who understand Social Security will be in great demand 49
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