Top 10 Social Security Questions Asked by Baby Boomers...
Transcript of Top 10 Social Security Questions Asked by Baby Boomers...
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Top 10 Social Security
Questions Asked by Baby
Boomers . . . And How To
Answer Them
By Elaine Floyd, CFP®
Director of Retirement and Life Planning,
Horsesmouth, LLC
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Elaine Floyd, CFP®
Director of Retirement and Life Planning
Horsesmouth, LLC
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Question #1
I applied for early benefits and now
regret the decision. Is there anything I
can do?
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The unintended consequences of
early claiming
• Lower lifetime benefits
• Earnings test
• Limited spousal strategies
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How to rectify the mistake of early
claiming
• Withdraw and repay (within 12 months) • If you change your mind:
http://www.socialsecurity.gov/planners/retire/withdrawal.html
• Go back to work
• Suspend at FRA
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Question #2
Can I file and suspend and collect a
spousal benefit?
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Answer: No
• To receive a spousal benefit while your own benefit
builds delayed credits, you must file a restricted
application for your spousal benefit.
• You must NOT file for your own benefit
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Question #3
Can I claim my spousal benefit at 62 and
switch to my own benefit at 70?
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Answer: No
• Deemed filing rule: If you file before FRA, you must
file for all the benefits you are entitled to (except
survivor)
• This means you will be paid your own reduced
benefit first
• To receive a spousal benefit while your own benefit
builds delayed credits, you must file a restricted
application for the spousal benefit at FRA or later
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Question #4
Can I claim my own small benefit at 62
and jump up to 50% of my spouse’s
benefit at FRA?
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Answer: No
• If you claim your own benefit at 62 and your spousal
benefit at FRA, you will receive a combination
benefit comprising your own reduced benefit and a
spousal add-on
• Example:
• Jill’s PIA is $800. Jack’s PIA is $2,600
• Jill files at 62 and receives 75% of $800 = $600
• At FRA Jill files for her spousal benefit. She will
receive the difference between her PIA and one-
half of Jack’s PIA: $1,300 - $800 = $500
• Her combination benefit: $600 + $500 = $1,100
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Question #5
What happens if I keep working?
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Benefits based on highest 35 years of
earnings up to taxable maximum
Table of maximum earnings
Year Maximum
earnings $ Year
Maximum
earnings $ Year
Maximum
earnings $
1968 7,800 1984 37,800 2000 76,200
1969 7,800 1985 39,600 2001 80,400
1970 7,800 1986 42,000 2002 84,900
1971 7,800 1987 43,800 2003 87,000
1972 9,000 1988 45,000 2004 87,900
1973 10,800 1989 48,000 2005 90,000
1974 13,200 1990 51,300 2006 94,200
1975 14,100 1991 53,400 2007 97,500
1976 15,300 1992 55,500 2008 102,000
1977 16,500 1993 57,600 2009 106,800
1978 17,700 1994 60,600 2010 106,800
1979 22,900 1995 61,200 2011 106,800
1980 25,900 1996 62,700 2012 110,100
1981 29,700 1997 65,400 2013 113,700
1982 32,400 1998 68,400 2014 117,000
1983 35,700 1999 72,600 2015 118,500
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Average Indexed
Monthly Earnings
(AIME) for baby
boomer born in 1953
Maximum earnings
since 1975
$3,807,775 in total indexed
earnings ÷ 420 months = $9,066 AIME
Year Age Nominal
earnings
Indexing
factor
Indexed
earnings
1975 22 14,100 5.2008546 73,332
1976 23 15,300 4.8651447 74,437
1977 24 16,500 4.5900542 75,736
1978 25 17,700 4.2523714 75,267
1979 26 22,900 3.9103024 89,546
1980 27 25,900 3.5871901 92,908
1981 28 29,700 3.2591181 96,796
1982 29 32,400 3.0890585 100,085
1983 30 35,700 2.9455642 105,157
1984 31 37,800 2.7820245 105,161
1985 32 39,600 2.6683390 105,666
1986 33 42,000 2.5914228 108,840
1987 34 43,800 2.4360641 106,700
1988 35 45,000 2.3217165 104,477
1989 36 48,000 2.2332918 107,198
1990 37 51,300 2.1346872 109,509
1991 38 53,400 2.0579948 109,897
1992 39 55,500 1.9571545 108,622
1993 40 57,600 1.9404660 111,771
1994 41 60,600 1.8897469 114,519
1995 42 61,200 1.8169181 111,195
1996 43 62,700 1.7322040 108,609
1997 44 65,400 1.6367009 107,040
1998 45 68,400 1.5552987 106,382
1999 46 72,600 1.4731997 106,954
2000 47 76,200 1.3960010 106,375
2001 48 80,400 1.3634733 109,623
2002 49 84,900 1.3499350 114,609
2003 50 87,000 1.3177228 114,642
2004 51 87,900 1.2591861 110,682
2005 52 90,000 1.2147385 109,326
2006 53 94,200 1.1613589 109,400
2007 54 97,500 1.1109424 108,317
2008 55 102,000 1.0859609 110,768
2009 56 106,800 1.1025887 117,756
2010 57 106,800 1.0771307 115,038
2011 58 106,800 1.0444059 111,543
2012 59 110,100 1.0127813 111,507
2013 60 113,700 1.0000000 113,700
2014 61 117,000 1.0000000 117,000
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Primary Insurance Amount (PIA)
• Baby Boomer born in 1953
• Maximum Social Security earnings every year since age 22
• AIME = $9,066
• PIA formula:
• $826 x .90 = $743.40
• $4,154 x .32 = $1,329.28 ($4,980 - $826 = $4,154)
• $4,086 x .15 = $612.90 ($9,066 - $4,980 = $4,086)
• Total = $2,685.58
PIA = $2,685.50
Amount worker will receive at full retirement age
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Answer: Your earnings record will
continue to be updated
• Impact on benefit will vary
• If you already have 35 years of high earnings the
impact will be minimal
• If you replace zero or low earnings years with
higher earnings, your benefit will increase
• If you work part time or at a low salary, there will
be no effect
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Effect of working longer
if more than 35 years of earnings
Maximum earner born in 1953 – age 62 in 2015
If he works until age:
Years of earnings used in benefit computation
Age-70 benefit
62 1980 – 2014 $4,318
66 1984 – 2018 $4,382
70 1988 – 2022 $4,488
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Question #6
I’m divorced. Can I collect Social
Security off my ex-spouse’s record while
my own benefit builds delayed credits?
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Rules for divorced-spouse benefits
• Marriage must have lasted at least 10 years
• Claimant must be currently unmarried
• Ex-spouse must be at least 62
• If divorce occurred over 2 years ago, ex-spouse
does not need to have filed for own benefit
• Benefit = 50% of ex-spouse’s PIA if claimant files at
FRA
• Both ex-spouses can claim divorced-spouse
benefits on each other!
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Optimal strategy for divorced client: Claim
divorced-spouse benefit at FRA and switch to
own maximum benefit at 70
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Question #7
My husband has died. Can I take a
survivor benefit now and switch to my
own benefit later?
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Optimal strategy for high-earning widows: Take
reduced survivor benefit at 60 and switch to
maximum retirement benefit at 70
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Question #8
I am 66. My wife is 45. We have two
young children. Can my wife and kids get
Social Security benefits?
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Rules for dependent benefits
• Worker must have filed (can suspend if over FRA)
• Children can receive benefits to age 18
• Spouse can receive child-in-care benefits until
youngest child turns 16
• Each benefit = 50% of worker’s PIA
• All benefits are limited by the maximum family
benefit $4,200 MFB
-2,400 subtract worker’s PIA
$1,800 amount available to family members (evenly divided)
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Question #9
I don’t qualify for Social Security
because in my teaching job I paid into an
alternate retirement system. Can I get
spousal benefits?
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Government Pension Offset (GPO) reduces
spousal and survivor benefits by two-thirds of
the non-covered pension
• Example
• Teacher receives a pension of $3,000/month
• Spousal benefit = $1,200 (50% of $2,400)
• Two-thirds of pension is $2,000
• $1,200 - $2,000 = negative number
• Therefore no spousal benefits
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Question #10
How can I maximize my
Social Security benefit?
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Strategy #1
for maximizing Social Security benefits
Work longer, earn more
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Strategy #2
for maximizing Social Security benefits
Apply at the optimal time
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Full retirement age
Year of birth Full Retirement Age (FRA)
1924 - 37 65
1938 65 & 2 mos.
1939 65 & 4 mos.
1940 65 & 6 mos.
1941 65 & 8 mos.
1942 65 & 10 mos.
1943 – 54 66
1955 66 & 2 mos.
1956 66 & 4 mos.
1957 66 & 6 mos.
1958 66 & 8 mos.
1959 66 & 10 mos.
1960 & later 67
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Effect of early or delayed claiming
Age % of PIA if
FRA = 66
Benefit in today's dollars if PIA is $2,685
Benefit adjusted for
annual COLAs*
62 75 2,014 2,014
63 80 2,148 2,206
64 86.67 2,327 2,454
65 93.33 2,506 2,714
66 100 2,685 2,987
67 108 2,900 3,313
68 116 3,115 3,654
69 124 3,329 4,012
70 132 3,544 4,386
*Assumes age 62 now; 2.7% annual COLAs
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Effect of early or delayed claiming
Age % of PIA if
FRA = 67
Benefit in today's dollars if PIA is $2,685
Benefit adjusted for
annual COLAs*
62 70 $1,880 $2,326
63 75 2,014 2,559
64 80 2,148 2,804
65 86.7 2,327 3,119
66 90.5 2,506 3,450
67 100 2,685 3,796
68 108 2,900 4,211
69 116 3,115 4,645
70 124 3,329 5,099
*Assumes age 54 now; 2.7% annual COLAs
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Simple breakeven analysis
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Strategy #3
for maximizing Social Security benefits
Coordinate spousal benefits
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Spousal Strategies
• “File and suspend”
• One spouse files for own benefit at FRA to entitle other spouse to spousal benefit
• First spouse suspends benefit to earn DRCs to age 70
• Important: Must be FRA to suspend
• “Claim now, claim more later”
• One spouse files a restricted application for spousal benefit at 66 (other spouse must have filed for own benefit)
• Switches to his own benefit at 70
• Important: Must be FRA to file restricted application
How to decide: Customized scenario planning for each couple based on individual ages and benefit amounts
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Example of scenario planning
Andy & Alice
Both age 62
Andy’s PIA = $2,600
Alice’s PIA = $1,200
Which strategy will give them the most in lifetime benefits?
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Scenarios for Andy & Alice
• Scenario 1
• Andy and Alice both file now, at age 62
• Scenario 2
• Alice files for her own benefit now, at 62
• Andy files for his benefit at age 70
• Scenario 3
• Alice files and suspends at 66
• Andy files a restricted application for his spousal benefit
• Both switch to their maximum benefit at age 70
• Scenario 4
• Andy files and suspends at 66
• Alice files a restricted application for her spousal benefit
• Both switch to their maximum benefit at age 70
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Strategy #4
for maximizing Social Security benefits
Maximize survivor income
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Strategy #5
for maximizing Social Security benefits
Minimize taxes on benefits
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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 Up to 85%
*Provisional income = AGI + one-half of SS benefit + tax-exempt interest
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Tax planning strategies
• Start drawing down IRAs before age 70-1/2 to reduce
RMDs
• Convert traditional IRAs 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
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What is Savvy Social
Security Planning?
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Savvy Social Security Planning is
Teaching
baby boomers through seminars,
workshops, and individual consultations
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?
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Savvy Social Security Planning is
Helping
baby boomers
avoid common mistakes
• Applying too early
• Not understanding the interplay of earned, spousal, and survivor benefits
• Failing to understand the long-term impact of decisions made today
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Savvy Social Security Planning is
Guiding
clients’ decisions through
in-depth scenario planning
• Shows year-by-year income and cumulative benefits using clients’ actual ages and benefit amounts
• Enables clients to make their own decisions; you provide guidance, but the ultimate decision is theirs
• Shows income shortfalls that will need to be made up from other sources, leading to comprehensive retirement income planning
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Establishing yourself as an
expert on Social Security
• Learn the rules and stay on top of the literature and
new developments
• Identify a niche:
• Boomers approaching age 62
• Women
• Married couples
• Communicate and educate: seminars, workshops,
newsletters
• Develop a referral strategy
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Opportunities abound for advisors
knowledgeable about Social Security
• Baby boomers are turning 62 at the rate of 10,000
per day
• Social Security is more complicated than people
realize
• Decisions made early in the process have far-
reaching impact
• The strain on Social Security personnel will increase
• Advisors who understand Social Security will be in
great demand
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How we can help
Send your questions to
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