For and Here Presented by: Dolph Janis Phone: 74-99-49 Email: dolph@cisforlife.com
Important Notes This analysis provides only broad, general guidelines, which may be helpful in shaping your thinking about your retirement needs. It can serve as a guide for discussions with your professional advisors. Your Social Security benefits are based on the information you provided. Its purpose is to help you frame your thoughts and become better informed before filing. It shows strategies and age combinations that you might not have considered. This report is not intended to provide an exact analysis, but it will help you determine the filing method and age you want to start your benefits. This report reflects the provisions and restrictions included in the Bipartisan Budget Act of 25. Calculations contained in this analysis are estimates only, based on the information you provided, such as the value of your assets today, and the rate at which the assets appreciate. The actual values, rates of growth, and tax rates may be significantly different from those illustrated. These assumptions are only a "best guess." A portion of your Social Security benefits may be taxable. Since other sources of retirement income can affect taxation of your benefits, proper income tax planning can only be done as part of a comprehensive retirement income plan. The actual income taxation of Social Security benefits will depend on the facts and circumstances at the time the benefits are received. Any illustration of the potential income taxation of Social Security benefits is an estimate. If you have questions not covered in this report, your Social Security Administration office and its website (www.ssa.gov) are excellent sources of additional information. IMPORTANT: The projections or other information generated in this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. This tool and support materials are designed to provide general information on the subjects covered. It is not intended to provide specific legal or tax advice. You should discuss all strategies with your legal, tax, and financial advisors. Version.2. February 25, 26 of 3
Cash Flow Decisions for Retirement Cash flow describes how you use financial resources. It is a process that is always moving. All parts of cash flow affect each other. Social Security is often a major part of retirement income and you should select a benefit start age and filing method that gives you the best overall retirement income. Social Security Pensions Annuities Salary/Other Income Withdrawals Liquidations Appreciation Earnings Surplus Reinvested You receive income from both outside and inside sources. Outside sources include salary, pensions, annuities, Social Security, and other income. Inside sources include any withdrawals or liquidations of assets, and interest and dividends. Some outgoing payments may be mandatory, such as taxes. Other payments include expenses that may be essential or discretionary. The balance, or surplus, is saved or is used to acquire additional assets. The assets grow through appreciation or reinvested earnings. The following pages project how all the parts of your cash flow determine your retirement lifestyle. February 25, 26 2 of 3
Cash Flow Using Optimal Social Security Strategy YOUR NAME SPOUSE 6 6 $,5 $,2 Assume live to 8 84 Start benefits at age 7 68 Current Age Monthly benefit at FRA CASH FLOW RESULTS $247,27 Shortfall (NPV) Filing Method: File for Benefits ANNUAL CASH FLOW $8, 2 Shortfall Assets 6, 4, Salary & Other Income INCOME FLOOR Social Security 2, 6 6 7 7 75 75 8 8 ADDITIONAL ITEMS TO CONSIDER Present value today of remaining needs is $247,27. Life insurance death benefit to fund survivor needs is $88,48. Your current home is valued at $378,687 in 223 when first deficit occurs. You may consider downsizing your home or a reverse mortgage. ASSETS CONSUMED IN THIS ORDER. Savings 2. Investments 3. IRA's/4(k)'s 4. Roth IRA's Assets are assumed to grow at % before taxes. 2 Retirement expenses at % of pre-retirement amount. Expenses at first death at % of retirement expenses. Assumed rate of return is %. Preretirement effective income tax rate is 25%. Post retirement effective income tax rate is 25%. Prior to full retirement age, earnings from continuing to work may result in reduced or withheld benefits. At full retirement age, an adjustment is made to restore any reduced or withheld benefits. After full retirement age, there is no benefit reduction for wages or self-employment earnings. Present value today of remaining needs is $247,27. Life insurance death benefit of $88,48 could fund survivor needs at first death. February 25, 26 3 of 3
Cash Flow Using Optimal Social Security Strategy YOUR NAME Current Age SPOUSE 6 6 $,5 $,2 Assume live to 8 84 Start benefits at age 7 68 Monthly benefit at FRA CUMULATIVE VALUE OF BENEFITS $686,556 File for Benefits ANNUAL BENEFITS BY YEAR Assumes.5% Cost of Living Adjustments $6, 4, 2, 6 6 7 7 75 75 DATE AGE2 CHANGE FOR Jan 224 68 Jan 226 7 Jan 237 8 2 8 8 NEW MONTHLY BENEFITS YOUR NAME SPOUSE TOTAL REASON $ $,55 $,55 Start own retirement benefits $2,275 $,597 $3,872 Start own retirement benefits $ $2,68 $2,68 Survivor benefits start Prior to full retirement age, earnings from continuing to work may result in reduced or withheld benefits. At full retirement age, an adjustment is made to restore any reduced or withheld benefits. After full retirement age, there is no benefit reduction for wages or self-employment earnings. Age at end of year illustrated. February 25, 26 4 of 3
Cash Flow Using Optimal Social Security Strategy Cash Flow INCOME FLOOR OTHER INCOME SOURCES Ages Annual Expenses Annuity Pensions Social Security Salary & Other Withdrawal from Assets Shortfall 6/ 6 6/ 6 62/ 62 63/ 63 64/ 64 $6,5 66,9 67,823 68,768 69,737 $ $ $ $4,29 43,778 43,778 43,778 43,778 $2,37 23,23 24,45 24,99 25,96 $ / 66/ 66 67/ 67 68/ 68 69/ 69 7,73 7,749 72,793 73,863 74,959 8,6 8,876 7,73 7,749 5,532 2,26 55,263 56,83 7/ 7 7/ 7 72/ 72 73/ 73 74/ 74 48,583 47,235 48,46 49,626 5,867 46,464 47,6 47,856 48,588 49,38 2,9 75 56,38,559 75/ 75 76/ 76 77/ 77 78/ 78 79/ 79 52,39 53,442 54,778 56,48 57,55 5,52 5,796 5,564 52,332 53,24 2,87 2,646 3,24 3,86 4,427 8/ 8 8 82 83 58,99 6,4 6,977 63,526 53,96 32,6 32,64 33,2 5,74 28,35 29,337 3,46 February 25, 26 5 of 3
Cash Flow Using Optimal Social Security Strategy Retirement Assets Beginning of Year Balance Contributions/ Reinvestment Growth and Earnings Withdrawals End of Year Balance 6/6 6/6 62/62 63/63 64/64 75, 697,838 678,247 3,792 627,995 3,28 3,532 3,567 3,63 3,639 2,37 23,23 28,22 29,4 3,54 697,838 678,247 3,792 627,995 6,93 / 66/66 67/67 68/68 69/69 6,93 58,933 426,98 378,687 382,474 3,676 3,72 3,749 3,787 3,825 85,835 95,6 52,43 58,933 426,98 378,687 382,474 386,299 7/7 7/7 72/72 73/73 74/74 386,299 39,62 394,63 398,4 4,984 3,863 3,92 3,94 3,98 4,2 39,62 394,63 398,4 4,984 46,4 75/75 76/76 77/77 78/78 79/79 46,4 4,64 44, 48,36 422,489 4,6 4, 4,42 4,83 4,225 4,64 44, 48,36 422,489 426,74 8/8 8/8 82/82 83/83 426,74 43,98 435,29 439,644 4,267 4,3 4,353 4,396 43,98 435,29 439,644 444,4 Ages February 25, 26 6 of 3
Cash Flow Using Optimal Social Security Strategy Annual Social Security Benefits Assumes.5% Cost of Living Adjustment YOUR NAME Year Age 26 27 28 29 22 SPOUSE Age TOTAL Retirement Spousal Retirement Spousal Survivor Annual Total Cumulative 6 6 62 63 64 6 6 62 63 64 22 222 223 224 225 66 67 68 69 66 67 68 69 8,6 8,876 8,6 8,876 8,6 37,476 226 227 228 229 23 7 7 72 73 74 27,3 27,78 28,6 28,548 28,968 7 7 72 73 74 9,64 9,452 9,74 2,4 2,34 46,464 47,6 47,856 48,588 49,38 83,94 3, 78,956 227,544 276,852 23 232 233 234 235 75 76 77 78 79 29,42 29,844 3,3 3,744 3,22 75 76 77 78 79 2,64 2,952 2,264 2,588 2,92 5,52 5,796 5,564 52,332 53,24 326,94 377,7 429,264 48,596 534,72 236 237 238 239 8 3,68 8 8 82 83 22,236 22,584 22,92 23,244 9,576 9,72 9,876 53,96 32,6 32,64 33,2 588,636 62,796 3,436 686,556 Age at end of year illustrated. February 25, 26 7 of 3
Cash Flow Using Optimal Social Security Strategy Cash Flow Taxation INCOME TAXES Social Security Other Taxable On Social Security Ordinary Income Capital Gains Total Taxes 6/6 6/6 62/62 63/63 64/64 59,583, 9,55 94,4 95,54 9,454 2,223 2,223 2,223 2,223 3,977 4,4 4,58 9,454 2,223 25,2 25,633 25,84 % % % % % / 66/66 67/67 68/68 69/69 8,6 8,876 85,835 95,6 2,43 5,573 23,96 5 9,53 5,4 23,96 5 % % % % % 7/7 7/7 72/72 73/73 74/74 46,464 47,6 47,856 48,588 49,38 % % % % % 75/75 76/76 77/77 78/78 79/79 5,52 5,796 5,564 52,332 53,24 % % % % % 8/8 8/8 82/82 83/83 53,96 32,6 32,64 33,2 % % % % Ages Social Security Subject to Taxes February 25, 26 8 of 3
Cash Flow Using Optimal Social Security Strategy Social Security Action Plan For starting benefits at age 7 and starting benefits at age 68 WHEN WHO ACTION NOTES October 223 File for benefits. Apply 3 months prior to date benefits would start. Application may be made any time during this month. October 225 File for benefits. Apply 3 months prior to date benefits would start. Application may be made any time during this month. When a spouse dies, the surviving spouse should notify the Social Security Administration of spouse's death. Social Security provides a onetime payment of $255 plus potential monthly survivors' benefits. At death of a spouse This schedule was prepared on February 25, 26. All items should be reviewed regularly and adjusted for any changes in Social Security rules, tax laws, or major life events of either or. A review with your financial advisors annually is recommended. February 25, 26 9 of 3
Cash Flow Using Custom Social Security Strategy YOUR NAME SPOUSE 6 6 $,5 $,2 Assume live to 8 84 Start benefits at age 62 62 Current Age Monthly benefit at FRA CASH FLOW RESULTS $337,569 Shortfall (NPV) Filing Method: File for Benefits ANNUAL CASH FLOW $8, 2 Shortfall Assets 6, 4, Salary & Other Income INCOME FLOOR Social Security 2, 6 6 7 7 75 75 8 8 ADDITIONAL ITEMS TO CONSIDER Social Security benefits have been reduced due to excess earnings. Present value today of remaining needs is $337,569. Life insurance death benefit to fund survivor needs is $2,864. Optimizing Social Security cash flow would reduce remaining needs today to $247,27 (9,299 less). Optimal would be age 7, age 68; File for Benefits. Your current home is valued at $386,298 in 225 when first deficit occurs. You may consider downsizing your home or a reverse mortgage. Consider reducing your monthly expenses. Consider working longer. 2 Retirement expenses at % of pre-retirement amount. Expenses at first death at % of retirement expenses. Assumed rate of return is %. Preretirement effective income tax rate is 25%. Post retirement effective income tax rate is 25%. Social Security benefits have been reduced due to excess earnings. At full retirement age, an adjustment is made to restore any reduced or withheld benefits. After full retirement age, there is no benefit reduction for wages or self-employment earnings. Present value today of remaining needs is $337,569. Life insurance death benefit of $2,864 could fund survivor needs at first death. February 25, 26 of 3
Cash Flow Using Custom Social Security Strategy ASSETS CONSUMED IN THIS ORDER. Savings 2. Investments 3. IRA's/4(k)'s 4. Roth IRA's Assets are assumed to grow at % before taxes. February 25, 26 of 3
Cash Flow Using Custom Social Security Strategy YOUR NAME Current Age SPOUSE 6 6 $,5 $,2 Assume live to 8 84 Start benefits at age 62 62 Monthly benefit at FRA CUMULATIVE VALUE OF BENEFITS $62,26 File for Benefits ANNUAL BENEFITS BY YEAR Assumes.5% Cost of Living Adjustments $6, 4, 2, 6 6 2 7 7 75 75 (Withheld) (Withheld) NEW MONTHLY BENEFITS YOUR NAME SPOUSE DATE AGE CHANGE FOR Feb 28 62 $,53 Feb 28 62 Jan 237 8 2 8 8 TOTAL REASON $922 $2,75 Start own retirement benefits $,53 $922 $2,75 Start own retirement benefits $ $,754 $,754 Survivor benefits start Social Security benefits have been reduced due to excess earnings. At full retirement age, an adjustment is made to restore any reduced or withheld benefits. After full retirement age, there is no benefit reduction for wages or self-employment earnings. Age at end of year illustrated. February 25, 26 2 of 3
Cash Flow Using Custom Social Security Strategy Cash Flow INCOME FLOOR OTHER INCOME SOURCES Ages Annual Expenses Annuity Pensions Social Security Salary & Other Withdrawal from Assets Shortfall 6/ 6 6/ 6 62/ 62 63/ 63 64/ 64 $6,5 66,9 67,823 68,768 69,737 $ $ $ 6,283 7,253 7,74 $4,29 43,778 43,778 43,778 43,778 $2,37 23,23 7,762 7,738 8,22 $ / 66/ 66 67/ 67 68/ 68 69/ 69 7,73 7,749 72,793 73,863 74,959 26,28 26,424 3,852 3,32 3,788 44,73 45,325 4,94 42,543 22,54 2,7 7/ 7 7/ 7 72/ 72 73/ 73 74/ 74 48,583 47,235 48,46 49,626 5,867 32,256 32,748 33,228 33,732 34,248 6,327 4,487 5,88 5,894 6,69 75/ 75 76/ 76 77/ 77 78/ 78 79/ 79 52,39 53,442 54,778 56,48 57,55 34,752 35,28 35,88 36,348 36,888 7,387 8,62 8,97 9,8 2,663 8/ 8 8 82 83 58,99 6,4 6,977 63,526 37,44 2,48 2,372 2,684 2,55 39,47 4, 4,842 February 25, 26 3 of 3
Cash Flow Using Custom Social Security Strategy Retirement Assets Beginning of Year Balance Contributions/ Reinvestment Growth and Earnings Withdrawals End of Year Balance 6/6 6/6 62/62 63/63 64/64 75, 697,838 678,247 66,85 643,92 3,28 3,532 3,567 3,63 3,639 2,37 23,23 2,63 2,868 2,436 697,838 678,247 66,85 643,92 626,23 / 66/66 67/67 68/68 69/69 626,23 57,7 5,423 449,5 44,988 3,676 3,72 3,749 3,787 3,825 59,98 63,99 64,662 48,38 22,54 57,7 5,423 449,5 44,988 386,299 7/7 7/7 72/72 73/73 74/74 386,299 39,62 394,63 398,4 4,984 3,863 3,92 3,94 3,98 4,2 39,62 394,63 398,4 4,984 46,4 75/75 76/76 77/77 78/78 79/79 46,4 4,64 44, 48,36 422,489 4,6 4, 4,42 4,83 4,225 4,64 44, 48,36 422,489 426,74 8/8 8/8 82/82 83/83 426,74 43,98 435,29 439,644 4,267 4,3 4,353 4,396 43,98 435,29 439,644 444,4 Ages February 25, 26 4 of 3
Cash Flow Using Custom Social Security Strategy Annual Social Security Benefits Assumes.5% Cost of Living Adjustment YOUR NAME Year Age 26 27 28 29 22 SPOUSE Age TOTAL Retirement Spousal Retirement Spousal Survivor Annual Total Cumulative 6 6 62 63 64 2,683 4,4 4,244 6 6 62 63 64,42,232,4 7,9792 9,22 9,8282 7,979 7,89 27,7 22 222 223 224 225 66 67 68 69 4,46 4,676 7,88 7,352 7,64 66 67 68 69,568,748 3,764 3,968 4,84 26,28 26,424 3,852 3,32 3,788 53,45 79,469,32 4,64 73,429 226 227 228 229 23 7 7 72 73 74 7,868 8,44 8,48 8,684 8,972 7 7 72 73 74 4,388 4,64 4,82 5,48 5,276 32,256 32,748 33,228 33,732 34,248 25,685 238,433 27,66 35,393 339,64 23 232 233 234 235 75 76 77 78 79 9,248 9,548 9,836 2,36 2,436 75 76 77 78 79 5,54 5,732 5,972 6,22 6,452 34,752 35,28 35,88 36,348 36,888 374,393 49,673 445,48 48,829 58,77 236 237 238 239 8 2,736 8 8 82 83 6,74 6,944 7,28 7,46 4,4 4,64 4,224 37,44 2,48 2,372 2,684 556,57 577,25 598,577 62,26 February 25, 26 5 of 3 2 Age at end of year illustrated. Social Security benefits have been reduced due to excess earnings.
Cash Flow Using Custom Social Security Strategy Cash Flow Taxation INCOME TAXES Social Security Other Taxable On Social Security Ordinary Income Capital Gains Total Taxes 6/6 6/6 62/62 63/63 64/64 7,979 9,2 9,828 59,583, 84,23 85,868 86,436,696,957 2,88 9,454 2,223 2,223 2,223 2,223 2,868 3,3 3,25 9,454 2,223 25,787 26,3 26,526 % % 85% 85% 85% / 66/66 67/67 68/68 69/69 26,28 26,424 3,852 3,32 3,788 59,98 63,99 64,662 2,823 5,53 5, 6,556 56 8,629 6,66 5,26 8,8 4,42 4,396 8,6 22,722 5,766 85% 85% 85% 7% % 7/7 7/7 72/72 73/73 74/74 32,256 32,748 33,228 33,732 34,248 % % % % % 75/75 76/76 77/77 78/78 79/79 34,752 35,28 35,88 36,348 36,888 % % % % % 8/8 8/8 82/82 83/83 37,44 2,48 2,372 2,684 % % % % Ages Social Security Subject to Taxes February 25, 26 6 of 3
Social Security Break-Even Analysis CUMULATIVE LIFETIME BENEFITS $8, Optimal 6, Custom 4, 2, 6 6 7 7 75 75 8 8 OPTIMAL CUSTOM Year Ages Annual Total Cumulative Lifetime Benefits 26 27 28 29 22 6/ 6 6/ 6 62/ 62 63/ 63 64/ 64 $ $ 22 222 223 224 225 / 66/ 66 67/ 67 68/ 68 69/ 69 8,6 8,876 8,6 37,476 26,28 26,424 3,852 3,32 3,788 53,45 79,469,32 4,64 73,429 226 227 228 229 23 7/ 7 7/ 7 72/ 72 73/ 73 74/ 74 46,464 47,6 47,856 48,588 49,38 83,94 3, 78,956 227,544 276,852 32,256 32,748 33,228 33,732 34,248 25,685 238,433 27,66 35,393 339,64 23 232 233 234 235 75/ 75 76/ 76 77/ 77 78/ 78 79/ 79 5,52 5,796 5,564 52,332 53,24 326,94 377,7 429,264 48,596 534,72 34,752 35,28 35,88 36,348 36,888 374,393 49,673 445,48 48,829 58,77 236 237 238 239 8/ 8 8 82 83 53,96 32,6 32,64 33,2 588,636 62,796 3,436 686,556 37,44 2,48 2,372 2,684 556,57 577,25 598,577 62,26 Annual Total Cumulative Lifetime Benefits $ 2 7,979 2 9,2 2 9,828 $ 7,979 7,89 27,7 Summary START AGES FILING METHOD CUMULATIVE VALUE Optimal at 7, at 68 File for Benefits $686,556 Custom at 62, at 62 File for Benefits $62,26 2 Age at end of year illustrated. Social Security benefits have been reduced due to excess earnings. February 25, 26 7 of 3
Confirmation of Facts PERSONAL INFORMATION Here Here 6 6 Male Female Jan., 956 Jan., 956 and are married. EXPENSES Current value of residence $35, Monthly Mortgage Payment for years $2,5 Growth rate % Total Monthly Expenses (excluding mortgage) $3, Percent expenses at first retirement % Percent continued after first death % Inflation rate 2.5% SALARY Salary Pre-Retirement Annual Increase Until Age Salary Post-Retirement Annual Increase Until Age $35, % $ % 66 $3, % $ % 66 Name Effective tax rate 25% Post retirement tax rate 25% Income tax rate on capital gains assumed to be 5%. SOCIAL SECURITY Monthly benefit at full retirement age Full retirement age If benefits start at 66 Social Security cost of living adjustment $,5 $,2 66 and 2 months 66 and 2 months FRA FRA.5% SAVINGS ASSETS Description Current Balance Monthly Contribution Current Balance Monthly Contribution IRA $25, $ $25, $ Roth IRA $25, $ $25, $ Personal Savings $25, $ $2, $ February 25, 26 8 of 3
Confirmation of Facts INVESTMENTS Name Current Balance Current Basis Monthly Contributions $, $ $ $5, $ $ Current Balance Employee Contributions Employer Contributions $5, $ $ $2, $ $ RETIREMENT SAVINGS PLAN (4(k)) Name February 25, 26 9 of 3
Mitigating Risks to Your Plan LONGEVITY RISK MITIGATION IDEAS We all want to live as long as possible, Use some investments to purchase income annuities, however, the longer you live will creating lifetime income streams. increase your exposure to many retirement risks. The risk many fear is running out of money. Consider planning that extends beyond average life expectancy. One in four retirees will live past age 9 and one in ten will live past age 95. Living longer increases the likelihood Consider using a small portion of savings to acquire of spending down assets, additional longevity annuity that provides large monthly incomes medical expenses, or may require starting at older ages, typically age 85 and up. long-term care. You could outlive Convert home equity to a reverse mortgage that income sources that pay for a specific provides specified monthly payments as long as last period. borrower remains in the home. HEALTH CARE RISK MITIGATION IDEAS Aging is often accompanied by health Reduce likelihood of health problems through diet, related problems and costs. Medical exercise and lifestyle. costs have been increasing faster than CPI according to EBRI. Health related problems may lead to a need Rely on Medicaid and government programs for the costs of health needs. for long-term care. 7% of people age Buy a Medicare supplement that provides coverages for and over will need long-term care the gaps between health costs and Medicare at some point. The average length of payments. care is 2.2 years for men and 3.7 Depend on family members to supplement costs and years for women, with an average care needed. annual cost in the US of $85,, although costs vary based on location. Secure long-term care policy if available. Hybrid policies combine long-term care benefits with a life insurance policy or an annuity. www.longtermcare.gov February 25, 26 2 of 3
Mitigating Risks to Your Plan MARKET RISK MITIGATION IDEAS Due to market fluctuations, Diversification can help limit the effects of market investments may perform worse than fluctuations. A typical investment mix is 4% equity, expected. Since risks and returns vary 5% bonds, and % cash. inversely, some risk may be necessary to achieve a desired return. investments to income producing assets as you age. Other investments are subject to Shifting some assets to fixed income provides an interest rate risks, such as bonds and income floor of more predictable income. certificates of deposits. Changes in Consider bucket method of investing buckets of interest rates may result in lower investments using time horizons: the sooner it is to be returns or undesirable options for used the lower the risk; the later it will be used, the reinvesting at maturity. greater the risk. INFLATION RISK MITIGATION IDEAS Retirees often depend on fixed income Do not rely on just fixed income investments that sources that do not vary. Inflation provide no inflation- adjusted incomes. reduces each dollars purchasing Planning must assume income needs will increase for power. A couple retiring on $5, monthly income in 99 would need inflation. $8,979 monthly income to have the Review and adjust expenses annually to reflect inflation. same purchasing power today. Social Security benefits are inflation- adjusted income. Consumer Price Index has increased at an average rate of 3% since 93. Review investments annually and shift more Delaying Social Security benefits may result in a larger benefit. www.bls.gov February 25, 26 2 of 3
Mitigating Risks to Your Plan WORK RELATED RISK MITIGATION IDEAS Retirement plans may be greatly Plan for the unexpected consider needs if employment altered if retirement employment ends prematurely. plans are disrupted. Forced retirement resulted in 47% of workers retiring earlier than they had planned Prior to retirement, you should acquire skills needed for possible part-time work in retirement. according to EBRI. Reemployment risk Consider diet, exercise, and lifestyle habits while still is planning to work full-time or part- working, to avoid health problems which may limit your time in retirement and being unable to ability to work as long as you prefer. find work. Working longer may not be Retirement planning is not just about money. You an option due to the job market, poor should consider the social aspects of working longer health, or caregiving responsibilities. and the personal rewards it provides. In 23, 69% of retirees were expecting to work but only 25% actually worked. PUBLIC POLICY RISK MITIGATION IDEAS You have little or no control over many Although you cannot control the tax laws, you can make public policies that can affect your your retirement assets and income less sensitive to retirement. taxes. Changes in tax laws, Social Security benefits, or Medicare benefits are A Roth IRA can minimize the tax effects of its monthly income during retirement. examples of risks you should consider Be sure to consider required minimum distributions for in your planning. retirement plans and IRAs to coordinate them with other income to minimize taxation. Review any changes in government programs with your financial advisors to make appropriate adjustments. Planning that is flexible and reviewed regularly is the best preparation for changes you cannot control. Employee Benefits Research Institute February 25, 26 22 of 3
Mitigating Risks to Your Plan LOSS OF SPOUSE RISK MITIGATION IDEAS Loss of a spouse often results in Life insurance transfers the risk at either spouse s unexpected reductions in various death, regardless of its unpredictable occurrence, to a income items and results in added life insurance company. expenses such as caregiving. An annuity with joint and survivor income can reduce the loss of income at a spouse s death. Review many scenarios to determine the probable loss of income at a spouse s death, regardless of which spouse dies first. February 25, 26 23 of 3
Definitions and Additional Information Full retirement age Full retirement age (FRA) is the age at which a person may first become entitled to full or unreduced retirement benefits. If your birthday is on January, the previous year s FRA will determine your full retirement age. YEAR OF BIRTH FULL RETIREMENT AGE 943 through 954 66 955 66 and 2 months 956 66 and 4 months 957 66 and 6 months 958 66 and 8 months 959 66 and months 96 and later 67 Reductions for retirement before full retirement age You may start Social Security retirement benefits as early as age 62; however, each month prior to FRA will result in a reduction in your benefits. This reduction ranges from 25% for those with a FRA of 66 to 3% for FRA of 67. The formula is 5/9 of % per month up to 36 months, plus 5/2 of % per month exceeding 36. Delayed retirement credits for retirement after full retirement age If you choose to delay starting benefits, you will receive an increase in your benefit amount of 8% per year up to age 7. After age 7 there are no further credits for delaying benefits. The credit is 2/3 of % for each month beyond FRA. Monthly benefit at full retirement age You can find your monthly benefit at full retirement age on your annual Social Security statement or from the on-line statement. The amount used in this report is the monthly value in today's dollars. This report automatically applies cost of living adjustments for you. This monthly benefit amount is also known as Primary Insurance Amount or PIA. February 25, 26 24 of 3
Definitions and Additional Information Spousal and family benefits If you are receiving Social Security retirement benefits, your spouse and children may also qualify to receive benefits on your record. Your spouse or child may receive a monthly payment of up to one-half of your full retirement benefit amount, subject to a family maximum of approximately 5-8% of your full retirement payment. These payments will not reduce your retirement benefit. If there is more than one beneficiary, the payments are prorated among your family members eligible for benefits. However, if you suspend your benefits, all benefits based on your earnings will also be suspended. Individuals age 62 or younger in 26 do not have this option. Survivor benefits Social Security provides survivor benefits for your family. If you die and your children are under 8, they are eligible for survivor benefits. In addition, your spouse qualifies for survivor benefits if age 6 or greater or caring for your children under age 6. Your spouse s survivor benefits when not caring for children under 6 will be reduced if benefits start prior to full retirement age. Family benefits This report does not consider survivor or retirement payments available for children, which may increase the total benefits your family may receive. Disability benefits This report does not consider disability payments that you or your family may be eligible to receive. Pensions based on earnings not covered by Social Security If you receive a pension for work not covered by Social Security, your monthly retirement or survivors' benefit may be reduced. February 25, 26 25 of 3
Definitions and Additional Information Government Pension Offset (GPO) This provision affects only individuals who have earned a pension from work not covered by Social Security, Two-thirds of the monthly noncovered pension amount may reduce any spousal benefits you are otherwise entitled. GPO does not reduce any benefits based on your work record covered by Social Security. Windfall Elimination Provision (WEP) Your Social Security benefits may be reduced if you are entitled to a monthly pension from work not covered by Social Security and also qualify for Social Security retirement benefits. The years and earnings covered by Social Security determine the reduction, if any. Each year worked up to starting retirement may affect benefits. The Social Security Administration does not include this reduction on your annual statement. It is calculated when you file for benefits. For 26, this reduction is limited to the lesser of $428 or one-half of your non-covered monthly pension. February 25, 26 26 of 3
Definitions and Additional Information Marital status Married: Currently married under federal definition of marriage. Applicable spousal benefits and survivor benefits have been included. Widowed: Currently not married under federal definition of marriage. Survivor benefits have been considered throughout the tool. Divorced: If you were married for at least years before divorce. You may receive spousal benefits based on an ex-spouse's benefit. It does not have to be the most recent ex-spouse, but your marriage must have lasted ten years. Claiming this benefit will in no way affect your ex-spouse s benefits. Anyone younger than age 62 in 25 will be deemed to file for both their benefits and any spousal benefits at the same time and receive the higher of the two amounts. They will no longer be able to claim spousal benefits only. Single: Currently not married under federal definition of marriage (or were married for less than years before divorce). Benefits will only consider your earning record. File for benefits You file for all eligible benefits. You must file for all benefits to which you may be eligible, including your own benefit as well as any spousal benefit if one exists. Benefits will be reduced for each month prior to FRA. File and suspend Once you have reached FRA, you file your application for benefits and immediately suspend payments until a later date. This allows you to delay benefits up to age 7 to earn delayed retirement credits to increase monthly payments. If you suspend after May 26, any benefits based on your earnings will also be suspended. February 25, 26 27 of 3
Definitions and Additional Information File a restricted application For individuals age 62 or older in 25, once you have reached FRA, you file a restricted application for survivor or spousal benefits. This allows you to begin spousal or survivor benefits while earning delayed retirement credits. Your spouse must have filed for benefits for you to receive spousal benefits. You apply for your own benefits at a later date and receive increased monthly payments. Options to change your selection Within 2 months of starting benefits if you change your mind, you may withdraw your claim and reapply. If approved, you must repay all benefits paid. This is only allowed once. If you are already receiving benefits, you may suspend current or future payments up to age 7. The suspended payments will automatically resume at age 7, unless you request them sooner. Precaution if benefits are suspended If you are enrolled in Medicare Part B, premiums cannot be deducted from suspended payments. You will need to pay them directly or have them automatically paid by your bank. Cost of living adjustment Historically prices have risen over time. Social Security Administration reviews the cost of living each year and adjusts benefits accordingly. The 3-year average annual adjustment is 2.5%. Social Security Administration determines if a cost of living adjustment is made, and if so, how much. Typically, benefits have increased by 2.5% to 3.% in the past. Using % will show basic benefits without any adjustments for inflation. More information can be found at www.socialsecurity.gov/cola. February 25, 26 28 of 3
Definitions and Additional Information What if you work during retirement? You may work while receiving Social Security benefits and working may mean higher future benefits. However, while working your benefits may be reduced until you reach full retirement age. After full retirement age, the Social Security Administration will recalculate your benefits considering months when benefits were reduced or withheld due to excess earnings. Any year when earnings are higher than a prior year in your earnings record, the higher year will be used to recalculate your PIA and your payment amount. The excess earnings limit in 26 is $5,72. A formula determines the amount benefits will be reduced based on your age. If you are under full retirement age for the entire year, benefits will be reduced $ for every $2 earned above the limit. In the year you attain full retirement age, the deduction will be $ for every $3 over $4,8 (26). Starting with the month you reach full retirement age, there is no longer a reduction in benefits or a limit to the amount you may earn. If Social Security Administration is notified in advance of your anticipated monthly earnings, they will adjust your payments accordingly. If Social Security Administration learns of the excess earnings later, they withhold all future payments until excess benefits are recovered. Modified adjusted gross income Modified adjusted gross income (MAGI) is generally defined as all of your taxable income, plus certain net foreign income, minus allowed deductions. MAGI may include income such as taxable pensions, wages, interest, dividends, and other taxable income plus tax-exempt interest income (such as interest on municipal bonds) and any exclusion from income, such as interest from US savings bonds. See Internal Revenue Code 86b(2) or Internal Revenue Service Publication 95 for more information. Be sure to consider your retirement plan distributions. All distributions from IRAs and employer plans will be included in MAGI. Roth IRA distributions will not be included. February 25, 26 29 of 3
Definitions and Additional Information Effective tax rate The effective income tax rate is the average rate at which income is taxed. It takes into account the deductions and credits used to compute income taxes. It is total income taxes divided by total income, and is less than the "tax bracket" or marginal rate. How are Social Security benefits taxed? About one out of three people who get Social Security have to pay income taxes on their benefits. Combined income is the sum of your modified adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If you are married and file a joint return, up to 5% of your benefits may be taxable if you and your spouse have a combined income that is between $32, and $44,. If your combined income is more than $44,, up to 85% of your Social Security benefits is subject to income tax. If you are married and file a separate return, you will most likely pay taxes on your benefits. If you are single and your combined income is between $25, and $34,, you may have to pay taxes on up to 5% of your Social Security benefits. If your combined income is more than $34,, up to 85% of your Social Security benefits is subject to income tax. No more than 85% of your total benefits is taxable For more information Your Social Security Administration office is an excellent source for questions about your benefits. The website (www.ssa.gov) is extremely helpful. This report should help you frame your thoughts before filing. It shows strategies that you may not have considered. It eliminates guessing or rules-of-thumb by calculating almost all possible combinations and illustrating the largest benefit. ssa.gov Retirement Benefits booklet January 25 The results represented in this tool are provided by Impact Technologies Group, Inc., and are deemed reliable but are not guaranteed. Impact Technologies Group, Inc. shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly, by information contained in this report. Always consult with your tax advisor concerning your own situation. 22-25 Impact Technologies Group, Inc. All Rights Reserved February 25, 26 3 of 3