May 16, 2013 Joint C.E. Meeting

Social Security: Planning, Calculations

Taxation - 2013Accepted by CFP Board of Standards for 1 hr CFP® #05162013; Approved 1 hr Insurance C.E. credit #84351,

offering #976743, 2-40 Health Combo/Intermediate Level, provider #697; registered for 1 hr CPE TB#0017037, and

1 hr CLE self-file

Special Guest Speaker

*Frank Cummings, CFP®, MBA(561) 689-6775

frank.cummings@axa-advisors.com

* Frank is President-Elect of NAIFA – Palm Beaches, Inc.

Unauthorized Entities

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Presentation developed for educational purposes only

• This presentation is intended to educate our members in the variables of Social

Security Planning and Taxation in order to provide guidance to their clients.

• This is NOT for Public Presentation.

5

Baby boomers 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?

WHO IS ELIGIBLE?

• Individuals 40 credits and over• Spouses• Eligible dependents• Dependents of deceased parent(s), who worked at least

6 of the last 13 quarters• Ex-Spouses who were married at least 10 years

Social Security offers income you can't outlive

10 more years

you'll receive a total of

$304,256

in lifetime benefits

20 more years $673,622

30 more years $1,160,479

Assumes 2.8% annual cost-of-living adjustments

If your monthly benefit is $2,000 today and you live:

Social Security offers annual inflation adjustments

In 10 years

Your monthly benefit will be

$2,636

In 20 years $3,474

In 30 years $4,580

Assumes 2.8% annual cost-of-living adjustments

If your monthly benefit is $2,000 today and annual cost-of-living adjustments are 2.8% :

Your benefit will depend on:

• How much you earned over your working career • The age at which you apply for benefits

Example of benefit formula

• Baby Boomer born in 1950• Maximum Social Security earnings every year since age 22• AIME = $8,238• PIA formula:

• $767 x .90 = $690.30• $3,857 x .32 = $1,234.24 ($4,624 - $767 = $3,857)• $3,614 x .15 = $542.10 ($8,238 - $4,624 = $3,614)• Total = $2,466.64

PIA = $2,466.60Amount worker will receive at full retirement age (66)

What if you apply after FRA?

You will earn delayed credits

If you were born between 1943 and 1954:

Apply at age Benefit will be % of PIA Example if PIA is $2,466

66 100% $2,466

67 108% $2,663

68 116% $2,861

69 124% $3,058

70 132% $3,255

Note: COLAs are not factored into these amounts

Spousal benefits

Spousal benefit = 1/2 the primary worker's PIA if started at full retirement age (35% if started at 62)

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)

Rules for spousal benefits

• Primary worker must have filed for benefits (but can suspend to build delayed credits if over FRA)

• Spouse must be at least 62 for reduced benefit or 66 for full benefit

• No delayed credits on spousal benefits after 66

Divorced-spouse benefits

Same as spousal benefits if:• Marriage lasted 10 years or more• Person receiving divorced-spouse benefit is currently

unmarried

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

• The worker will not be notified that the ex-spouse has applied for benefits

• Divorced-spouse benefits stop upon remarriage

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.

• Divorced-spouse survivor benefit available if the marriage lasted at least 10 years.

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.

Strategy #1 for maximizing your benefits

Examine your earnings record from your latest

Social Security statement:

• Is it accurate?• Any missing years?• Can you improve it by working longer?

Improve your earnings record

Strategy #2 for maximizing your benefits

Consider:

• Your income needs, both now and in the future• Your life expectancy• Your spouse’s life expectancy

Apply for Social Security at the optimal time

Annual earnings testage 62-65

• 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 $15120.

• 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

“File and suspend”

At FRA, higher-earning spouse applies for his benefit and asks that it be suspended

Lower-earning spouse files for spousal benefitHigher-earning spouse claims benefit at 70Example:

• Bob and Barbara are 66• Bob’s PIA is $2,000; Barbara’s PIA is $800• Bob wants to delay his benefit to age 70. Barbara wants to

file for her spousal benefit now• Bob “files and suspends” at 66. This entitles Barbara to her

spousal benefit while Bob’s benefit continues to earn delayed credits

Caution: “File and suspend” may not be done before FRA

“Claim now, claim more later” At FRA, higher-earning spouse restricts his application to his spousal

benefit (lower-earning spouse must have filed for benefits on her record)

At 70, higher-earning spouse switches to his own maximum benefitExample:

• Mike and Mary are 66• Mike’s PIA is $2,000; Mary’s PIA is $800 • Mary files for her benefit at 66• Mike files for his spousal benefit at the same time and begins

collecting $400 (half of Mary’s PIA)• When Mike turns 70, he switches to his maximum benefit of

$3,293Caution: Higher-earning spouse may not do this before FRA• Only one spouse may do this (both spouses can’t receive spousal benefits on each

other’s record at the same time)• Spousal planning analysis can determine which of the various spousal strategies will

work best for your situation

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

50%

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

50%

85%

Married filing separately and living with spouse

Over 0 85%

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

Baby Boomer Social Security Question #5

Will Social Security be enough to

live on in retirement?

Answer: Probably not.

Consider Social Security in the context of:

• Pensions• IRAs and 401(k)s• Required minimum distributions at age 70-1/2 • Investment portfolio• Work

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?

Case Study #1

A couple currently age 57 & 59. She is older than him by two years. He is the major

bread winner.

• Can & should she apply at 62 for benefits on her work record & then switch to his when he decides to collect (62, 65 or 70)

Case Study #2

66 year old as of May 2013. 2012: W-2 ($90,000) & 1099 ($20,000).

• Question: If I start social security draw in May 2013, am still working, will that reduce social security benefit?

Question #1

Explain how and when social security

is subject to taxation.

Question #2

Explain use of Social Security Maximization

(using social security to fo fund life insurance)

Thank you special guest speaker:

Frank Cummings, CFP®, MBA(561) 689-6775 frank.cummings@axa-advisors.com

Social Security is too important for guesswork.

Slides in this presentation

Copied from Horsesmouth client presentation:• “Savvy Social Security Planning: What Baby Boomers Need to Know to Maximize Retirement

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ANY QUESTIONS

Next C.E. LTCI NAIC 4 hr

Refresher Course

Thursday, June 6, 2013

8:30 a.m. to 12:30 p.m.Comerica Bank Community Room Boca

register: www.pbaifa.org