Everything You Want to Know About Social Security

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

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)

Social Security Finances 2015 CliftonLarsonAllen Wealth Advisors, LLC

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% 2033 77% 2087 72% Expenditure: Payable benefits after trust fund exhaustion 0% 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 Calendar Year Source: 2013 OASDI Trustees Report

Social Security Benefits 2015 CliftonLarsonAllen Wealth Advisors, LLC

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

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)

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

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

Life Expectancy 2015 CliftonLarsonAllen Wealth Advisors, LLC

Delaying Benefits Age Benefits Are Claimed % of PIA Benefit without COLAs ($/mo) Benefit with 2% COLAs ($/mo) 62 75.0 2,014 2,014 63 80.0 2,148 2,191 64 86.7 2,328 2,422 65 93.3 2,505 2,658 66 100.0 2,685 2,906 67 108.0 2,900 3,302 68 116.0 3,115 3,508 69 124.0 3,329 3,824 70 132.0 3,544 4,152 Assumes PIA = $2,685

Full Retirement Age Year of Birth Full Retirement Age (FRA) 1924-37 65 1938 65 & 2mo 1939 65 & 4mo 1940 65 & 6mo 1941 65 & 8mo 1942 65 &10mo 1943-54 66 1955 66 & 2mo 1956 66 & 4mo 1957 66 & 6mo 1958 66 & 8mo 1959 66 &10mo 1960-67

Delaying Benefits Age of Application FRA = 66 FRA = 67 62 75.0% 70.0% 63 80.0% 75.0% 64 86.7% 80.0% 65 93.3% 86.7% 66 100.0% 93.3% 67 108.0% 100.0% 68 116.0% 108.0% 69 124.0% 116.0% 70 132.0% 124.0%

Breakeven Analysis 2015 CliftonLarsonAllen Wealth Advisors, LLC

Spousal Benefits 2015 CliftonLarsonAllen Wealth Advisors, LLC

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

Spousal Benefits Age FRA = 66 FRA = 67 62 35.0% 32.5% 63 37.5% 35.0% 64 41.7% 37.5% 65 45.8% 41.7% 66 50.0% 45.8% 67 50.0% 50.0% 68 50.0% 50.0% 69 50.0% 50.0% 70 50.0% 50.0%

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

File & Suspend 2015 CliftonLarsonAllen Wealth Advisors, LLC

Immediate Benefit Scenario Chandler & Monica Age 62.00 and 62.00 Chandler s PIA = $2,685 Monica s PIA = $800 Chandler and Monica immediately file for benefits of $2,014 and $981

Delayed Benefit Scenario Chandler & Monica Age 62.00 and 62.00 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

Optimal Delayed Scenario Chandler & Monica Age 62.00 and 62.00 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

Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $127,679 $0 $0 70 $337,400 $67,606 $138,334 78 $719,290 $659,474 $730,214 80 $824,597 $822,681 $893,425 90 $1,418,487 $1,743,113 $1,813,876 100 $2,142,436 $2,865,115 $2,935,901

Optimal Combination Scenario Chandler & Monica Age 62.00 and 62.00 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

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

Immediate Benefit Scenario Sam & Diane Age 62.00 and 62.00 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

Delayed Benefit Scenario Sam & Diane Age 62.00 and 62.00 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

Optimal Delayed Scenario Sam & Diane Age 62.00 and 62.00 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

Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $146,226 $0 $0 70 $346,075 $67,592 $147,911 78 $709,988 $659,337 $739,778 80 $810,337 $822,510 $902,986 90 $1,376,271 $1,742,751 $1,823,418 100 $2,066,141 $2,864,519 $2,945,419

Optimal Combination Scenario Sam & Diane Age 62.00 and 62.00 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

Combination File & Suspend and Claim Now, Claim More Later

Immediate Benefit Scenario Chandler & Monica Age 62.00 and 62.00 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

Delayed Benefit Scenario Chandler & Monica Age 62.00 and 62.00 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

Optimal Delayed Scenario Chandler & Monica Age 62.00 and 62.00 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

Cumulative Benefits Age Immediate Benefits Delayed Benefits Optimal Benefits 65 $187,030 $0 $0 70 $442,646 $93,575 $164,296 77 $845,813 $803,151 $873,872 80 $1,036,459 $1,138,686 $1,209,408 90 $1,760,314 $2,412,671 $2,483,393 100 $2,642,689 $3,965,652 $4,036,374

Optimal Combination Scenario Chandler & Monica Age 62.00 and 62.00 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

Spousal Benefit Option Decision Table Lower Benefit as % of Higher Benefit Spousal Benefit Option 0.0% - 33.0% File & Suspend 33.0% - 37.9% Claim Now, Claim More Later 37.9% - 100.0% 37.9% - 42.0% 70.0% - 100.0% 42.0% - 70.0% 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)

Divorce & Social Security 2015 CliftonLarsonAllen Wealth Advisors, LLC

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

Surviving Spouse & Social Security 2015 CliftonLarsonAllen Wealth Advisors, LLC

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

Survivor Benefits Apply at age If FRA = 66 60 71.50% 61 76.25% 62 81.00% 63 85.75% 64 90.50% 65 95.25% 66 100.00% 67 100.00% 68 100.00% 69 100.00% 70 100.00%

Immediate Benefit Scenario Sam & Diane Age 60.00 and 60.00 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

Delayed Benefit Scenario Sam & Diane Age 60.00 and 60.00 Sam s PIA = $2,685 Diane s PIA = $1,000 Sam dies Diane claims survivor benefits at 66, receives benefits of $3,024

Optimal Scenario Sam & Diane Age 60.00 and 60.00 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

Immediate Benefit Scenario Chandler & Monica Age 60.00 and 60.00 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

Delayed Scenario Chandler & Monica Age 60.00 and 60.00 Chandler s PIA = $2,685 Monica s PIA = $2,400 Chandler dies Monica claims retirement benefits at age 70, receives benefits of $3,862

Optimal Delayed Scenario Chandler & Monica Age 60.00 and 60.00 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

Benefits For Children 2015 CliftonLarsonAllen Wealth Advisors, LLC

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)

Optimal Combination Scenario Sam & Diane Age 62.00 and 54.00 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

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 66-70 Delay own benefit to 70, take divorced-spouse benefit from 66-70 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

WEP & GPO 2015 CliftonLarsonAllen Wealth Advisors, LLC

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

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

Medicare IRMAA Joint MAGI + Tax Exempt Standard Part B Premium IRMAA Part B Premium IRMAA Part D Premium <$170,000 $104.90 $0.00 $0.00 $170,000 - $214,000 $104.90 $42.00 $12.30 $214,000 - $320,000 $104.90 $104.90 $31.80 $320,000 - $428,000 $104.90 $167.80 $51.30 >$428,000 $104.90 $230.80 $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

2015 CliftonLarsonAllen Wealth Advisors, LLC James Clemensen, CFP, Wealth Advisor 612-373-1404 James.Clemensen@claconnect.com CliftonLarsonAllen Wealth Advisors LLC CLAconnect.com/privateclient