SOLVING THE SOCIAL SECURITY PUZZLE

[INSERT FIRM LOGO] SOLVING THE SOCIAL SECURITY PUZZLE WHAT YOU NEED TO KNOW BEFORE YOU CLAIM Nan P Bailey, MBA, CFP, AIF NPB Wealth Management 1875 Palmer Ave, Ste 206 Larchmont, NY 10538 914-834-9105 www.npbwealthmanagement.com Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Advisor.

DISCLAIMER The views presented today are provided by Social Security Solutions, Inc. The information was taken from sources believed to be reliable but cannot be guaranteed. They do not necessarily represent the views of the Social Security Administration. The information presented today does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information. Neither NPB Wealth Management nor Social Security Solutions, Inc. is affiliated in any way with the Social Security Administration. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 2

SOCIAL SECURITY IS NOT SIMPLE Full Retirement Age Delayed Retirement Credits Restricted Application Marital Status Primary Insurance Amount File and Suspend Earnings Test and Taxes Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 3

A STRATEGY FOR SOCIAL SECURITY? There are many options a married couple can use in claiming Social Security retirement benefits. Making the best choices for your circumstances can make a significant difference in the amount of cumulative lifetime benefits you receive. While you may be able to learn about Social Security and make a good decision, our firm can help you make the best decision for your situation. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 4

COMMON QUESTIONS Will Social Security be there for me when I m ready to claim? Will Social Security be enough to live on in retirement? How much will I receive? How can I maximize my benefits? Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 5

WILL SOCIAL SECURITY BE THERE? Social Security has been running surpluses for the past 25 years. It is likely to continue to run surpluses until 2021. Reserves are expected to grow to $3.1 trillion by the end of 2020. Then reserves will gradually be drawn down to pay benefits. By 2033, reserves are expected to be depleted. After 2036, funds (FICA and taxes on benefits) will cover 75% of scheduled benefits if nothing is done. The past two changes to SS benefits provided for a 7 and 17 year advanced warning respectively. History indicates that benefits for those at least age 60 and older will not be altered. Source: National Academy of Social Insurance, SSA, Congressional Budget Office, 2012 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 7

RETIREMENT SPENDING FOR THE AVERAGE RETIREE* Shelter/Utilities $14,650 Transportation $6,918 Clothing $1,221 Healthcare $4,883 Food $6,104 Source: U.S. Consumer Expenditure Survey, U.S. Bureau of Labor Statistics, 2009 * Retirees aged 65 to 74 with a reported spending average of $40,685 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 9

HOW MUCH WILL I RECEIVE? Your benefits are determined by a combination of factors: How much you earned over your working lifetime The age at which you apply for benefits Your marital status How well you use the rules to maximize your benefits If you start to collect at: Your monthly retirement benefit is: 62 66 70 Your minimum At least 1/3 more At least 3/4 more $1000 $1333 $1760 Source: Social Security Administration, 2013 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 11

HOW MUCH ARE BENEFITS WORTH? At age 66, Joe claims his $1,800/month retirement benefit At age 66, Mary claims her $1,100/month benefit If both live for 20 more years, the couple would collect $696,000 in benefits* *(1,800 + 1,100) x 12 months x 20 years=$696,000 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 12

HOW BENEFITS ARE CALCULATED Formula includes your highest 35 years of earnings (years with no earnings are averaged in as zero) Earnings are indexed for inflation and averaged Your benefits are based on your Primary Insurance Amount Benefit is increased in some years by cost-of-living adjustments (COLAs) www.ssa.gov/mystatement Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. Source: Social Security Administration, 2013 13

IMPACT OF FILING EARLY If you file before full retirement age, you will receive a percentage of your full retirement benefit. If you were born between 1943 and 1954: Apply at age Benefit will be % of PIA Example if PIA is $2,230 62 75.0% $1,672 63 80.0% $1,784 64 86.7% $1,933 65 93.3% $2,080 Think Backward: From age 66 to 63, reduction is 5/9% of PIA From age 63 to 62, it s 5/12% Age 66 Age 65 Age 64 Age 63 Age 62 Source: Social Security Administration, 2013 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 14

DELAYED RETIREMENT CREDITS For every month beyond your full retirement age that you wait to claim, you will get 2/3% more! Called Delayed Retirement Credits If you were born between 1943 and 1954: Apply at age Benefit will be % of PIA Example if PIA is $2,230 66 100% $2,230 67 108% $2,408 68 116% $2,363 69 124% $2,765 70 132% $2,943 Source: Social Security Administration, 2013 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 15

WHAT IS A CLAIMING STRATEGY? Analyzing the rules of Social Security and creating a plan to claim benefits for a particular outcome specific to a situation. This may involve combining and/or postponing certain benefits at a particular time to maximize cumulative benefits. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 17

AUXILIARY BENEFITS Benefits paid to others based on a worker s record: Spousal benefits: paid to the spouse of the worker Survivor benefits: paid to the surviving spouse of the worker Children s benefits: paid to minor children under 18 Child-in-care benefits: paid to the parent of children under 16 Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 18

WHEN SHOULD I START BENEFITS? Depends on a lot of factors: Marital status Age Health outlook Likely longevity Total assets available Liquid assets Need for income Desired standard of living Planning to continue work Survivor needs You need a STRATEGY that considers all of these factors! Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 19

CRITERIA TO CONSIDER IN SELECTING START DATES Criterion 1: Which starting date for singles or dates for couples will maximize expected cumulative lifetime benefits? Criterion 2: Which starting date for singles or starting dates for couples will minimize longevity risk, that is, the risk of outliving their retirement savings? Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 20

WHAT IS A SPOUSAL BENEFIT AND WHEN ARE YOU ENTITLED TO IT? The spousal benefit is based on 50% of the other spouse s Primary Insurance Amount (PIA) As the spouse of an insured worker, you are eligible to receive spouse's insurance benefits if you meet the conditions below: Your spouse has filed for retirement benefits. You are not receiving a benefit based on a primary insurance amount which equals or exceeds one-half your spouse primary insurance amount. You have filed an application for spousal benefits. You are over 62. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 21

WHO GETS A SPOUSAL BENEFIT? His PIA* $1200, her PIA* $400 His PIA* $1200, her PIA* $700 His PIA 1200 His PIA 1200 Times 50% X.50 Times 50% X.50 Spousal base =600 Spousal base =600 Minus her PIA* -400 Minus her PIA* -700 Spousal benefit 200 Spousal benefit 0 *Primary Insurance Amount, or full retirement benefit. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 22

CLAIMING RULES BEFORE AND AFTER FULL RETIREMENT AGE Before full retirement age a claim for either a spousal or retirement benefit will be deemed a claim for both. In other words, before your full retirement age, you cannot choose which benefit to collect you automatically get the highest. At and after full retirement age you can choose to file for both benefits or restrict the application for either spousal or retirement benefit. Remember this: at your full retirement age, you can choose which benefit to collect. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 23

COMMON CLAIMING STRATEGIES AT FRA File and suspend One earner can file for benefits and immediately suspend payment Makes the spouse eligible to collect a spousal benefit Generally the higher earner files and suspends Sometimes the optimal strategy involves the lower earner filing and suspending Allows own benefits to accrue delayed retirement credits File a restricted application for only spousal benefits Also called restricting the scope of the application Means that one can collect only spousal benefits while own benefits accrue delayed retirement credits Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 24

LESS COMMON STRATEGY AT FRA Voluntarily suspend Started benefits early, realizes it was a mistake At FRA, can Voluntarily Suspend benefits Will earn Delayed Retirement Credits for each month no benefit is claimed Example: PIA of $2,000 Began at 62 = $1,500 (75% of $2,000) Suspend at 66 Resume at 70 = $1,980 (48 months of DRCs) Entitled to benefits in suspension at any time Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 25

REMEMBER JOE AND MARY? Joe: PIA of $1,800 Mary: PIA of $1,100 If each begins own benefit at 66, lifetime cumulative = $696,000 Here s a better option: At age 66, Joe files and suspends his benefit At age 66, Mary is eligible for her own benefit of $1,100/mo. or a spousal benefit of $900/mo. She can claim only the spousal now ($900) and at age 70 switch to her own benefit which has grown 32% from $1,100 to $1,452. Joe claims his own benefit at age 70 when it has grown to $2,376. The lifetime cumulative payout is $778,176 -- $82,176 more! This is general and hypothetical. It is not a guarantee of specific results. Individual circumstances vary. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 26

SUMMARY When you claim matters! The rules are complicated and voluminous. There are many combinations of options that can help you maximize your benefits. Your decision is irrevocable beyond 12 months after you begin benefits. You should seek expert tax, legal and/or financial advice. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 27

HOW NPB WEALTH MANAGEMENT FIRM CAN HELP Full Social Security Analysis Personalized report Recommended claiming strategy to maximize benefits Compare other strategies Specific claiming instructions Colorful graphs Educational information about benefits Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 28

NEXT STEPS NPB Wealth Management specializes in Investment Management, Financial & Retirement Planning Services addressing the unique issues for the LGBT community. Contact us at www.npbwealthmangement.com, or nan@npbailey.com, or 914-834-9105 to discuss your specific needs. Copyright Social Security Solutions. All rights reserved. Revised 2.22.13. 29