Social Security Planning Presented by: Diane M. Pearson, CFP, PPC, CDFA

WHAT YOU NEED TO KNOW TO MAXIMIZE RETIREMENT INCOME This webinar is provided for general information purposes only and does not constitute legal or professional advice. No user should act on the basis of any material contained in the webinar without obtaining proper legal, tax, or other professional advice specific to their situation. 2 Copyright 2018 Horsesmouth, LLC. All Rights Reserved.

DIANE M. PEARSON, CFP, PPC, CDFA Diane M. Pearson, CFP, PPC, CDFA is a Wealth Advisor and Shareholder with Legend Financial Advisors, Inc. and EmergingWealth Investment Management, Inc. Diane has been selected three times by Worth magazine as one of The Top 250 Wealth Advisors in the country. Diane has been selected seven consecutive times by Medical Economics magazine as one of The 150 Best Financial Advisors for Doctors in America. She has also been selected five times by Dental Products Report as one of The Best Financial Advisors for Dentists in America. Diane has also been previously selected by Pittsburgh Magazine three times as one of the Pittsburgh area s FIVE STAR Wealth Managers, a list that represents the most elite financial advisors in Pittsburgh. With over 25 years of experience, Diane assists all types of clients with their financial planning and investment needs. Diane specialized expertise includes working with widowed, divorced and retirement-focused individuals. She is also a managing member of the Smart Divorce Institute, LLC which provides professional, expert guidance, through educational workshops for men and women contemplating, experiencing, and/or emerging from divorce. Diane has been awarded the Certified Divorce Financial Analyst (CDFA ) professional designation. As a CDFA, she is qualified to serve as a financial expert on divorce cases, present data to support an argument, and educate clients on the short- and long-term financial implications of different divorce settlement proposals. Diane is one of the first financial advisors in the country to earn the Professional Plan Consultants (PPC ) designation, recognizing her commitment to education and service excellence in the qualified retirement planning industry. Ms. Pearson is also a member of the second Pittsburgh chapter of the Women s Presidents Organization (WPO). Diane has also previously been selected as one of "Pennsylvania's Best 50 Women in Business" by The Pennsylvania Department of Community and Economic Development.

You 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? 4

Understanding the value of Social Security 5

Social Security offers income you can't outlive If your monthly benefit is $2,000 today and you live: 10 more years $301,141 you'll receive a 20 more years total of $659,382 in lifetime benefits 30 more years $1,122,454 Assumes 2.6% annual cost-of-living adjustments 6

Social Security offers annual inflation adjustments If your monthly benefit is $2,000 today and annual cost-of-living adjustments are 2.6% : In 10 years $2,585 Your monthly benefit In 20 years will be $3,342 In 30 years $4,320 Assumes 2.6% annual cost-of-living adjustments 7

Social Security Question #1 Will Social Security be there for me? 8

OASDI Trust Fund still growing Trust fund balance on 12/31/16: 2017 results Total income: Total expenditures: Net increase in assets: Trust fund balance on 12/31/17: $2.848 trillion $996 billion $952 billion $ 44 billion $2.892 trillion Source: Social Security Administration, Office of the Chief Actuary 7

Long-term projections: without reform, benefits fall to 77% in 2034 OASDI Income, Cost and Expenditures as Percentages of Taxable Payroll [Under Intermediate Assumptions] Cost: Scheduled and payable benefits Cost: Scheduled but not fully payable benefits Income Payable benefits as percent of scheduled benefits: 2016-2033: 100% 2034: 77% 2091: 73% Expenditures: Payable benefits = income after trust fund exhaustion in 2034 Source: 2017 OASDI Trustees Report 10

What would it take to restore solvency to the system? Reform proposals being studied Increase maximum earnings subject to Social Security tax (currently $128,400 in 2018) Raise the normal retirement age (currently 66 for individuals born between 1943 and 1954; 67 for those born in 1960 or later) Lower benefits for future retirees (escalate benefits based on increases in consumer prices rather than wages) Reduce cost-of-living adjustments (COLAs) for all retirees 11

The bottom line for you! Your benefits are not likely to be affected by Social Security reform 12

Social Security question #2 How much can I expect to receive? 13

Your benefit will depend on: How much you earned over your working career The age at which you apply for benefits 14

How Social Security benefits are calculated At age 62, each year s earnings are tallied up and indexed for inflation Highest 35 years of earnings are averaged (AIME) AIME is divided by three bend points to determine your primary insurance amount (PIA). This is the amount you'll receive at full retirement age. Benefit is increased each year by cost-of-living adjustments (COLAs) 15

Example of benefit formula Baby Boomer born in 1956 Maximum Social Security earnings every year since age 22 AIME = $9,937 PIA formula: $895 x.90 = $805.50 $4,502 x.32 = $1,440.64 ($5,397 - $895 = $4,502) $4,540 x.15 = $680.95 ($9,937 - $5,397 = $4,540) Total = $2,927.09 PIA = $2,927.00 Amount worker will receive at full retirement age 16

Full Retirement Age (FRA) Year of Birth Full Retirement Age 1943-54 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 and later 67 17

What if you apply for early benefits? You will receive a percentage of your PIA Apply at age If FRA = 66 If FRA = 67 62 75.0% 70% 63 80.0% 75% 64 86.7% 80% 65 93.3% 86.7% 66 100% 93.3% 67 100% 18

What if you apply after FRA? You will earn 8% annual delayed credits Apply at age Benefit will be % of PIA if FRA = 66 Benefit will be % of PIA if FRA = 67 66 100% 93.3% 67 108% 100% 68 116% 108% 69 124% 116% 70 132% 124% 19

How to estimate your Social Security benefits Obtain your annual Social Security statement at www.socialsecurity.gov/mystatement OR Go to www.socialsecurity.gov, click on "Estimate Your Retirement Benefits OR Use one of the calculators on the SSA website: www.ssa.gov/planners/benefitcalculators.htm 20

Spousal benefits Spousal benefit = 1/2 the primary worker's PIA if started at full retirement age Example: John's PIA is $2,000 Jane's PIA is $800 If Jane applies at FRA, her benefit will be $1,000 (50% of John s PIA) 21

Rules for spousal benefits Primary worker must have filed for benefits Spouse must be at least 62 for reduced benefit or 66 for full benefit No delayed credits on spousal benefits after 66 22

Divorced-spouse benefits Same as spousal benefits if: Marriage lasted 10 years or more Person receiving divorced-spouse benefit is currently unmarried The ex-spouse is at least age 62 If divorce was more than two years ago ex-spouse does not need to have filed for benefits 23

Rules for divorced-spouse benefits 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 Divorced-spouse benefits stop upon remarriage of spouse collecting benefits (not upon remarriage of primary worker spouse) 24

Survivor benefits Survivor benefit will depend on: The age at which the deceased spouse originally claimed his benefit (the original benefit ) 1. If he claimed before FRA, survivor benefit will be limited to the higher of the deceased spouse s benefit or 82.5% of his PIA 2. If he claimed after FRA, the survivor benefit will include delayed credits The age at which the widow claims the survivor benefit (the actual benefit ) 1. If she claims before her FRA, her survivor benefit will be a fraction of the original benefit (e.g., 71.5% of PIA if claimed at 60) 2. If she claims at her FRA or later, her survivor benefit will equal 100% of the original benefit 25

Survivor benefits If spouse dies while both are receiving benefits, widow(er) may switch to the higher benefit Example: 1. Joe and Julie are married. Both are over full retirement age. 2. Joe's benefit is $2,000, Julie's benefit is $1,200. 3. Joe dies. 4. Julie notifies Social Security and her $1,200 benefit is replaced by her $2,000 survivor benefit. 26

Survivor benefits Example of early claiming Joe and Julie are married. Joe s PIA is $2,000. Joe files for Social Security at 62; his benefit is 75% of $2,000, or $1,500. Joe dies. Julie s survivor benefit will depend on when she claims it. If Julie claims her survivor benefit at 66 or later, her benefit will be 82.5% of Joe s $2,000 PIA, or $1,650 (special floor for survivor benefits). If Julie claims her survivor benefit at age 60, her benefit will be 71.5% of $2,000, or $1,430. 27

Survivor benefits Example of delayed claiming Joe and Julie are married. Joe s PIA is $2,000. Joe files for Social Security at 70; his benefit is 132% of $2,000, or $2,640. Joe dies. Julie s survivor benefit will be equal to Joe s benefit of $2,640. 1. If Julie claims her survivor benefit at age 60, her benefit will be 71.5% of $2,640, or $1,887. 2. If Julie claims her survivor benefit at 66 or later, her benefit will be 100% of $2,640, or $2,640. 28

Rules for survivor benefits Couple must have been married at least 9 months at date of death (except in case of accident). Survivor must be at least 60 for reduced benefit (50 if disabled), or FRA for full benefit. Survivor benefit not available if widow(er) remarries before age 60 (or 50 for disabled survivor), unless that marriage ends. Divorced-spouse survivor benefit available if the marriage lasted at least 10 years. 29

Social Security Question #3 When should I apply for benefits? 30

Factors to consider when deciding when to apply Health status Life expectancy Need for income Whether or not you plan to work Survivor needs 31

Why delay benefits? Bigger checks to start Age at which benefits are claimed % of PIA if FRA = 66 Benefit without COLAs ($) Benefit with COLAs ($) 62 75 1,950 1,950 63 80 2,080 2,134 64 87 2,253 2,372 65 93 2,437 2,621 66 100 2,600 2,881 67 108 2,808 3,193 68 116 3,016 3,518 69 124 3,224 3,859 70 132 3,432 4,214 Assumes PIA = $2,600 and 2.6% annual COLAs from age 62 32

Why delay benefits? More income later on Benefit at age If claim at 62 If claim at 70 70 $2,394 $4,214 75 $2,722 $4,791 80 $3,095 $5,448 85 $3,519 $6,194 90 $4,001 $7,042 95 $4,549 $8,006 100 $5,172 $9,102 Assumes PIA at 66 = $2,600 and 2.6% annual COLAs from age 62 33

When to apply for Social Security: Key points to remember If you apply early, your benefit starts lower and stays lower for life. COLAs magnify the impact of early or delayed claiming. The longer you live, the more beneficial it is to delay benefits. Decision impacts survivor benefits as well: delaying benefits may give surviving spouse more income. 34

Social Security Question #4 How can I maximize my benefits? 35

Strategy #1 for maximizing your benefits Improve your earnings record Examine your earnings record from your latest Social Security statement, available online at www.socialsecurity.gov/mystatement Is it accurate? Any missing years? Can you improve it by working longer? 36

Strategy #2 for maximizing your benefits Apply for Social Security at the optimal time Consider: Your income needs, both now and in the future Your life expectancy Your spouse s life expectancy 37

Annual earnings test If you apply for Social Security before full retirement age and you work: $1 in benefits will be withheld for every $2 you earn over $17,040 in 2018 Benefit will be adjusted at full retirement age Don t let annual earnings test discourage you from working To avoid the earnings test, wait until full retirement age or later to apply for benefits 38

Strategy #3 for maximizing your benefits Coordinate spousal benefits 39

Maximization strategy Where lower-earning spouse s PIA is more than 50% of higher-earning spouse s PIA Both spouses delay to age 70 One spouse takes advantage of spousal benefits as allowed Maximizes lifetime benefits over average or long life expectancies 40

Hybrid strategy Where lower-earning spouse s PIA is less than 50% of higher-earning spouse s PIA Lower-earning spouse claims early Higher-earning spouse claims at 70 Generates income sooner while maximizing higherearning spouse s benefit over both lifetimes 41

Strategy #4 for maximizing your benefits Minimize taxation of benefits 42

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 85% *Provisional income = AGI + one-half of SS benefit + tax-exempt interest 43

Ways to minimize taxes on Social Security benefits Reduce other income with tax-advantaged investments (but not municipal bonds!) Anticipate IRA RMDs, which may put you in a higher tax bracket; consider drawing down IRAs before 70-1/2 Convert traditional IRA 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 44

Strategy #5 for maximizing your Social Security benefits Coordinate Social Security with your overall retirement income plan 45

What Social Security personnel can and can t do They CAN Estimate individual benefits Tell you the amount you are entitled to now They CAN T Project future benefits through scenario planning Help with innovative strategies designed to maximize benefits 46

Social Security Question #5 Will Social Security be enough to live on in retirement? Answer: Probably not. 47

Consider Social Security in the context of: Pensions IRAs and 401(k)s Required minimum distributions at age 70-1/2 Investment portfolio Work 48

What s New? 1. 2018 cost-of-living adjustment 2. 2018 earnings test 3. Social Security taxes (payroll taxes and benefit taxes) 4. 2018 Medicare premiums 5. Proposals for Medicare reform 6. Proposals for Social Security reform 7. Update on claiming strategies 50

#1. Cost of living adjustment 51

Cost-of-living adjustment Social Security checks up slightly in 2018 New earnings test threshold Higher Social Security wage base 52

2018 Social Security cost-ofliving adjustment: 2% Current benefit amount 2% COLA* New benefit amount $800 $16.00 $816.00 $1,000 $20.00 $1,020.00 $1,300 $26.00 $1,326.00 $1,800 $36.00 $1,836.00 $2,200 $44.00 $2,244.00 $2,500 $50.00 $2,550.00 $3,000 $60.00 $3,060.00 $3,300 $66.00 $3,366.00 * May be absorbed by Medicare premiums 53

#2. Earnings test 54

2018 earnings test threshold Earnings test applies to people who are under FRA, receiving benefits, and work 2017 threshold: $17,040, up from $16,920 $1 in benefits will be withheld for every $2 earned over $17,040 If you are receiving benefits and turn FRA in 2018, $1 will be withheld for every $3 earned over $45,360 55

First-year monthly earnings test If: You file for Social Security in 2018, and You are under FRA, and You continue to work, Your benefit will be withheld for any month that you earn more than $1,420 The following year you will be subject to the regular annual earnings test 56

#3. Payroll taxes in 2018 57

Taxable earnings cap rises Maximum earnings subject to Social Security tax: $128,400 in 2018, up from $127,200 slightly See this for the formula: https://www.ssa.gov/oact/cola/cbbdet.html 58

Payroll tax rates unchanged Tax rate remains 6.2% each for employee and employer (12.4% for self-employed) No change to Medicare tax: 1.45% on all earnings 59

Maximum Social Security Tax Maximum Social Security tax in 2018: $128,400 x.062 = $7,961 Self-employed: $128,400 x.124 = $15,922 60

What s new: Oldest boomers Leading-edge baby boomers started turning 70.5 in 2016 collecting RMDs IRA required minimum distributions (RMDs) might bump you into a higher tax bracket 61

#4. 2018 Medicare premiums 62

2018 Medicare premiums Base Part B premium: $134/month Some people will pay either more or less than that Hold harmless IRMAA 63

2018 Hold harmless provision Limits the increase to your Part B premium to the Social Security COLA Applies if you have your Part B premium deducted from your Social Security check Average Part B premium in 2018 for those held harmless: $130 64

2018 Monthly premiums for Parts B & D Including Income Related Monthly Adjustment Amounts MAGI Single MAGI Joint MAGI Married filing separately Part B monthly premium paid to Medicare Part B incomerelated adjustment amount paid to Medicare Part D monthly premium (average) paid to insurer Part D incomerelated adjustment amount paid to Medicare Total Parts B & D premium $85,000 $170,000 $85,000 $134.00* $0.00 $40.00 $0.00 $174.00 $85,001 - $107,000 $107,001 - $133,500 $133,501 - $160,000 $170,001 - $214,000 $214,001 - $267,000 $267,001 - $320,000 $134.00 $53.50 $40.00 $13.00 $240.50 $134.00 $133.90 $40.00 $33.60 $341.50 $134.00 $214.30 $40.00 $54.20 $442.50 > $160,000 > $320,000 > $85,000 $134.00 $294.60 $40.00 $74.80 $543.40 *$130 on average if held harmless in prior years These do not include premiums for Medicare Advantage or Medicare supplement plans 65

#5. The future of Medicare 66

Potential reform goals Shift more costs to individuals and states Overhaul entire health care delivery system: ACA Medicare Medicaid 67

Possible Medicare reform Voucher system, also called premium support Medicare beneficiaries would use vouchers to buy private insurance 68

#6. The future of Social Security 69

#7. Claiming strategies update 71

File and suspend File and suspend gone for good as of April 2016. For those of you who suspended before the deadline Be sure to have your spouses file for their spousal benefits at the appropriate time Your DRC-adjusted benefits will automatically resume at 70 72

Claim now, claim more later Were you born before January 2, 1954? If so, you may claim a benefit on your spouse s record even if your own benefit exceeds your spousal benefit 73

Claim now, claim more later John, age 66, PIA $2,400; Jane, age 66, PIA $1,600 Jane files on her own record at 66 ($1,600 benefit) John files on Jane s record at 66 ($800 benefit) John s benefit builds four years of delayed credit; John files at 70 ($2,400 x 1.32 = $3,168) In the event Jane outlives John, she ll receive his maximized benefit 74

You have questions. We can help. When should I apply for Social Security? What if I want to keep working? What if I've already applied? How much will my benefit be? How can I coordinate spousal benefits? What's the best long-term strategy for my situation? What do I do next? 75

Social Security is too important for guesswork. 76

QUESTIONS AND ANSWERS

CONTACT US Legend Financial Advisors, Inc. 5700 Corporate Drive, Suite 350 Pittsburgh, PA 15237-5829 Phone: (412) 635-9210 E-mail: legend@legend-financial.com www.legend-financial.com EmergingWealth Investment Management, Inc. 5700 Corporate Drive, Suite 360 Pittsburgh, PA 15237-5829 Phone: (412) 548-1386