SOCIAL SECURITY SIMPLIFIED - PDF Free Download

Webcast Premiere SOCIAL SECURITY SIMPLIFIED Dan Tambellini, CFP Judith Ward, CFP Roger Young, CFP December 13, 2017 7 p.m. (ET)

With You Today Dan Tambellini, CFP Relationship Manager Roger Young, CFP Senior Financial Planner Judith Ward, CFP Senior Financial Planner 2

Agenda Background Benefit Basics Claiming Strategies Social Security Resources Final Thoughts 3

What Is Social Security? Social insurance program enacted in 1935 Funded by current workers through Federal Insurance Contributions Act (FICA) taxes Serves approximately one in every six Americans, or about 61 million people 4

Worker Beneficiary Will Social Security Be There for Me? 1960 2009 2035 The 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Comparison of Workers to Beneficiaries, Table IV.B3. Covered Workers and Beneficiaries, Calendar Years 1945-2095, https://www.ssa.gov/oact/tr/2017/iv_b_lrest.html#493869. 5

What Does That Mean for Me? The combined Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds are expected to be able to pay all benefits in full and on time until 2034. Even if legislative changes are not made before 2034, Social Security estimates it will still be able to pay 77% of each benefit due. 6

Social Security Retirement Benefits A guaranteed lifetime income stream for the recipient, protecting against longevity risk. An inflation protected income stream, protecting against loss of purchasing power (via annual cost-of-living adjustments). Based on best 35 years of earnings (indexed for inflation). Benefits are not fully taxable. Federal: 0%, 50%, or 85% taxable, depending on income Not subject to most states income taxes Often carried over from one spouse to the surviving spouse, lessening the impact of the loss of income that occurs when the first spouse dies. When the first spouse dies, the surviving spouse receives the larger of the two Social Security benefits but not both. 7

Social Security Eligibility You need to be at least 62 years old and have worked for at least 10 years (for those born in 1929 or later). You ll also need to have earned 40 quarterly credits to collect a benefit on your own work record (credit = $1,300+ of income in 2017). Full retirement age is a key milestone and is gradually shifting toward age 67. Birth Year Full Retirement Age (FRA) 1950 or earlier Reached FRA 1951 1954 Age 66 1955 Age 66 and 2 months 1956 Age 66 and 4 months 1957 Age 66 and 6 months 1958 Age 66 and 8 months 1959 Age 66 and 10 months 1960 and later Age 67 8

Annual Benefits Before Taxes, $ Benefits as Percent of Preretirement Income Annual Social Security Retirement Benefits Estimated benefits at full retirement age based on person reaching age 62 in 2017 BY ENDING PRERETIREMENT INCOME $40,000 40% $35,000 36% 32% 35% $30,000 28% Dollars (left axis) 30% $25,000 25% 22% Percent (right axis) 25% $20,000 $15,000 20% 17% 16% 14% 20% 15% $10,000 10% $5,000 5% $0 50 75 100 125 150 175 200 225 250 Ending Preretirement Income ($000s of 2017 dollars), Before Taxes 0% Social Security payments calculated using the Social Security Administration s Quick Calculator. This assumes an individual who turns age 62 in 2017 (date of birth 12/15/55) and is continuing to work until benefits begin at full retirement age (66 and 2 months). The analysis uses Social Security s default assumptions for prior earnings history. All figures reflect current dollars (no inflation or future earnings increases). These results are for illustrative purposes only and are generic in nature. Source: T. Rowe Price analysis using Social Security Administration Quick Calculator Benefit Estimates October 2017, https://www.ssa.gov/oact/quickcalc/. 9

Annual Benefit Impact of Delaying Social Security Benefits $40,000 $3,148 a month/ $37,776 a year $35,000 $30,000 $2,359 a month/ $28,308 a year $25,000 $1,706 a month/ $20,472 a year $20,000 $15,000 $10,000 $5,000 $0 62 (and 1 month) 66 (and 2 months) 70 Age Benefits Begin Social Security payments calculated using the Social Security Administration s Quick Calculator. This assumes an individual who turns age 62 in 2017 (date of birth 12/15/55) who is continuing to work and earning $100,000 each year until benefits begin. The analysis uses Social Security s default assumptions for prior earnings history. All figures reflect current dollars (no inflation or future earnings increases). If an individual initiates Social Security benefits prior to full retirement age (66 and 2 months in this example), annual retirement benefits from Social Security are reduced by 6 and 2/3% annually for the first 3 years of early retirement and by 5% for additional years. Waiting past full retirement age adds 8% per year to benefits. The illustration also reflects a small impact from additional years of earnings replacing years with different indexed earnings. These results are for illustrative purposes only and are generic in nature. Source: Social Security Administration Quick Calculator Benefit Estimates October 2017, https://www.ssa.gov/oact/quickcalc/. 10

Annual Benefit Impact of Delaying Social Security Benefits $40,000 $37,776 $35,000 $30,000 Annual Social Security payment at age 70: $37,776 $25,000 $20,000 $20,472 $15,000 $10,000 Annual Social Security payment at age 62 and 1 month: $20,472 $5,000 $0 62 66 70 74 78 82 86 90 Age Benefits Begin Social Security payments calculated using the Social Security Administration s Quick Calculator. This assumes an individual who turns age 62 in 2017 (date of birth 12/15/55) who is continuing to work and earning $100,000 each year until benefits begin. The analysis uses Social Security s default assumptions for prior earnings history. All figures reflect current dollars (no inflation or future earnings increases). If an individual initiates Social Security benefits prior to full retirement age, annual retirement benefits from Social Security are reduced by 6 and 2/3% annually for the first 3 years of early retirement and by 5% for additional years. Waiting past full retirement age adds 8% per year to benefits. The illustration also reflects a small impact from additional years of earnings replacing years with different indexed earnings. These results are for illustrative purposes only and are generic in nature. Source: Social Security Administration Quick Calculator Benefit Estimates October 2017, https://www.ssa.gov/oact/quickcalc/. 11

Claiming Considerations Reasons to Consider Claiming Earlier Short life expectancy or known medical issue Spending early in retirement is a high priority Lower-earning spouse (to get extra years on your own record before taking spousal benefit) Seeking more asset growth potential (with higher risk) by taking Social Security instead of drawing down investments Receiving significant pension* Reasons to Consider Claiming Later Good health or family history of longevity More concerned about outliving your assets and income Higher-earning spouse (to maximize survivor benefits) More risk averse (and thus less likely to earn high returns on investments) Limited other guaranteed income sources Stopped working and need cash flow Still working *A pension reduces your longevity risk, which may enable you to safely claim earlier. However, you may still want to claim later based on other factors above. 12

Wait While Working CONSIDER WAITING TO INITIATE BENEFITS IF STILL WORKING AND UNDER FULL RETIREMENT AGE Benefits are reduced by $1 for every $2 you earn above the annual wage limit.* The annual wage limit is $16,920 in 2017; and $17,040 in 2018. Benefits are no longer reduced when you reach your full retirement age. If some of your benefits are withheld because of your earnings, your monthly benefit will increase starting at full retirement age to take into account those withheld benefits. However, you will have permanently locked in the percentage reduction for early retirement. Additional years of earnings may help replace some zero/low-income years and may increase your benefits. Source: SSA Publications No. 05-10035 and 05-10069. *Compensation does not include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. 13

If You Change Your Mind IF CIRCUMSTANCES CHANGE OR YOU CHANGE YOUR MIND ONCE YOU START TAKING BENEFITS, YOU HAVE TWO OPTIONS 1. Option to withdraw your application (reset) if started taking benefits less than 12 months ago. Must repay benefits already received Restart your benefits at a higher rate later Available only once 2. Option to suspend filing if already taking benefits. Begin at full retirement age Do not have to repay the benefits Receive 8% per year delayed retirement credits up to age 70 14

Spousal Benefits IF YOU HAVE RELATIVELY LITTLE WORK HISTORY OR EARNINGS Can claim spousal benefit up to 50% of your spouse s Social Security benefit as calculated at their full retirement age. AGE WHEN INITIATING SPOUSAL BENEFITS Age 62 Age 63 Age 64 Can claim from age 62 to full retirement age. 35% 37.5% 41.7% Your spouse must have filed and be receiving his or her own benefits. If your spouse has filed, there is no benefit to waiting past full retirement age. Age 65 45.8% Age 66 50% Portion of Husband s or Wife s Full Retirement Benefit Received* *Assumes a full retirement age of 66. 15

Spousal Benefits IF YOU HAVE YOUR OWN SIGNIFICANT WORK HISTORY If Your Spouse Has Applied for Benefits You get the larger of your own benefit or spousal benefit. If Your Spouse Has Not Applied for Benefits You may apply based on your own record. When your spouse applies, you may step up to the spousal benefit (if it s larger). Of Note: People born before January 1, 1954, are still eligible to file a restricted application. This allows individuals, upon reaching FRA, to restrict their application to a spousal benefit only, then apply for their own larger benefit at age 70. Your spouse must be receiving his or her own benefits. 16

Surviving Spouse Benefits When the first spouse dies, the surviving spouse is eligible to receive the larger of the two spouses benefits. Not eligible to continue receiving both In many cases, it makes sense for the higher-wage-earning spouse to delay taking Social Security benefits until age 70. 17

Social Security Survivor Benefits TO MAXIMIZE YOUR SURVIVOR BENEFIT, HIGHER EARNER SHOULD CLAIM LATER $50,000 Claiming Early $50,000 Maximize Survivor Benefit Higher Earner 40,000 40,000 30,000 Higher Earner HIS 30,000 Survivor 20,000 SURVIVOR Survivor 20,000 10,000 Lower Earner HERS 10,000 Lower Earner Age 62 Age 83 Age 95 Age 70 Age 62 Age 70 Age 83 Age 95 Assumptions: Spouses are the same age (born 12/15/1955). One spouse makes $90,000 a year prior to retirement. The other makes $50,000 a year prior to retirement. One lives to age 83, the other to 95. Source: SSA.gov quick calculator, using default earnings history assumptions. 18

Survivor Survivor Strategies Using Spousal Benefit BEST STRATEGY DEPENDS ON RELATIVE BENEFITS AND AGES Claim at Same Time (FRA or Later) Good if lower earner benefits are small. Early/Late Strategy Good if meaningful lower earner benefits or large age gap. $50,000 $50,000 Higher Earner 40,000 Higher Earner 40,000 30,000 HIS 30,000 20,000 SURVIVOR Lower Earner (spousal) 10,000 HERS Age 62 Age 66 Age 70 Age 90 Age 95 20,000 10,000 Lower Earner (own) Lower Earner (spousal) Age 62 Age 70 Age 90 Age 95 Assumptions: Spouses are the same age (born 12/15/1955). Higher earner made $100,000 in year prior to age 62. Lower earner made $25,000 in year prior to age 62 and had 30 years of no earnings. One lives to age 90, and the other lives to age 95. Source: SSA.gov quick calculator, using default earnings history assumptions (except for no-earning gap). General characterization of advantageous scenarios based on strategies to maximize expected benefits in: Munnell, Alicia Haydock, and Mauricio Soto. Why Do Women Claim Social Security Benefits So Early? Center for Retirement Research at Boston College, 2005. 19

Benefits for Younger Survivors Commonly referred to as a widow or widower benefit. Can receive reduced benefits as early as age 60 (usually, you can t get widow s or widower s benefits if you remarry before age 60). Full benefits at full retirement age (no increased benefit past FRA). If you qualify for benefits on your own record, you may have options: Can take the widow benefit at age 60 then switch to own benefit at a later age, ideally full retirement age or later (if own benefit is greater) Can take own benefit as early as age 62 then switch to widow benefit at full retirement age (if widow benefit is greater) Additional benefits available for children under 18 and surviving spouses of any age caring for a child of the deceased under 16. 20

Divorce IF YOU ARE DIVORCED, YOU CAN RECEIVE BENEFITS ON YOUR EX-SPOUSE S RECORD IF: Your marriage lasted at least 10 years and you are currently unmarried; You are age 62 or older; Your ex-spouse is entitled to Social Security retirement or disability benefits (even if not already claiming); and The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse s work. Of Note: Your ex-spouse will not be informed of your application for benefits. It doesn t matter whether your ex-spouse has remarried. This will NOT impact your ex s Social Security benefits. 21

Social Security Website (ssa.gov) A GREAT RESOURCE FOR PLANNING 22

Setting Up an SSA.gov "my Social Security" Account Establishing a "my Social Security account at ssa.gov is free View your online Social Security statement Benefits are based on your top 35 earning years (not your last 35) Extremely important to identify and correct any work history errors/omissions 23

Retirement Estimator A GREAT RESOURCE FOR PLANNING 24

Final Thoughts 1 2 3 4 5 Consider delaying benefits to maximize your income over a long retirement horizon. If you are still working and younger than your full retirement age, consider waiting to start your benefits. Coordinate benefits as a couple with the survivor benefit in mind especially important for women. If both spouses have significant earnings, you may benefit from an early/late claiming strategy. Go online to SSA.gov check your work history and other resources. 25

Important Information All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market. This material is being furnished for general informational purposes only. The material does not constitute or undertake to give legal or tax advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation, or a solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. T. Rowe Price, Invest With Confidence, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc. T. Rowe Price Investment Services, Inc. 27

THANK YOU C52A71EQE 201712-309745