Transcript Document

Social Security –
The choice of a lifetime
Understanding when and how to file for Social Security benefits
Important things to keep in mind
• Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not
insured by any federal government agency • May lose value
This is for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation
to buy or sell any specific securities product. You should work closely with your financial professional to develop a
plan that incorporates your investment objectives, goals, risk tolerance and time horizons based on your specific
situation. The information provided is based on current laws which are subject to change at any time.
The data presented in this presentation are hypothetical and may not be used to project or predict actual
performance. The income benefit base is calculated based on no withdrawals and does not include any fees
assessed. Your clients’ experience may be different and investment results may be higher or lower, depending on the
options chosen, fees and expenses. Does not include any up-market performance. These results are not reflective of
any gains in the market and are assuming guaranteed interest amounts provided by the products used as examples
in the case studies.
Nationwide Investment Services Corporation (NISC), member FINRA. The Nationwide Retirement Institute is a
division of NISC.
Social Security 360 Analyzer is a service mark of Nationwide Life Insurance Company. Nationwide, the Nationwide N
and Eagle, Nationwide is on your side, Social Security 360 and Nationwide Retirement Institute are service marks of
Nationwide Mutual Insurance Company. © 2014 Nationwide.
NFM-11701AO.1 (11/14)
NFM-11701AO (12/13)
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Today’s presentation
• Why your Social Security filing decision
matters
• What do you need to know about Social
Security
• How to make a decision that works best
for you
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When does the filing decision happen?
New Social Security claimants in a calendar year1
Less than one in three
individuals filed for full
benefits at FRA2 or later
1 Source:
2
“SS Supplement 2013 6b(2)", Social Security Administration
FRA = Full retirement age. For this data, FRA is 66.
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Meet Jim & Linda
62-year-old
married couple
$2,300
$300,192
Cumulative benefit
lost by filing early
Jim’s SS benefit at
full retirement age.
$1,200
Linda’s SS benefit
at full retirement age.
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$973,428
$1,273,620
Cumulative benefit if
both file for Social Security
at 623
Cumulative benefit
if both optimize
SS benefits3
Assumes average life expectancy of 83 for men and 86 for women and 2.5% annual
cost-of-living adjustments (COLA).
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Significant income for retiree households
Retirement income sources for the mass affluent4
Employment &
other: 14%
Social Security: 32%
Personal assets &
retirement plans:
16%
Pensions: 38%
4
LIMRA Retirement Income Reference Book, 2012;
“Sources of Retirement Income study”, LIMRA, 2011.
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Significant income for retiree households
Avg. % of retirement income sources
Employment &
other: 14%
Social Security: 33%
Personal assets &
retirement plans:
15%
Pensions: 38%
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LIMRA Retirement Income Reference Book, 2012;
“Sources of Retirement Income study”, LIMRA, 2011.
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Will Social Security be there for you?
Full benefits payable to at least 20335
With no legislative changes, Social Security
would pay 75% of benefits afterward4
Social Security Administration, “Summary of 2013 Annual Reports”, Social Security and Medicare
Boards of Trustees. http://www.ssa.gov/oact/trsum/
5 Source:
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Will you be there for Social Security?
65-year-old
male
65-year-old
female
65-year-old
spouse
50%
chance of
reaching
age…
83
86
90
25%
chance of
reaching
age…
89
92
94
4
LIMRA Retirement Income Reference Book, 2012; “Sources of Retirement
Income study”, LIMRA, 2011
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More than a monthly check
Old Age, Survivors and Disability Insurance
(OASDI)
Guaranteed
lifetime income
Indexed to
inflation
Spousal and
survivorship
benefits
Preferential
tax treatment
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Social Security Act of 1935
• Designed to help older Americans living in poverty during the
Great Depression
• Never meant to be sole source of retirement income
Ida May Fuller:
First recipient of a monthly
Social Security check
(1940)
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Primary Insurance Amount (PIA)
• Amount received each month if benefits start at full
retirement age
• Based on lifetime SS earnings adjusted for inflation
- Avg. monthly earnings over highest 35 years of earnings
- Benefit reflects a percentage of avg. monthly earnings
- Higher earners receive a smaller % than low-wage
earners
• Social Security statements available on mySocialSecurity
(Sign up @ ssa.gov)
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Full Retirement Age (FRA)
62
63
64
65
66
EARLY
67
68
FRA
69
70
DELAY
Eligible for 100% of benefits
Birth year
FRA
1943 – 1954 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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Early & delayed filing affects PIA
% of full Social Security benefit received
124%
100%
93%
75%
Start SS
benefits
@ age…
62
80%
86%
63
64
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In 2014, people born in
1948 will reach FRA @ 66
66
108%
67
132%
116%
68
69
70
No benefit in
delaying past 70
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Social Security filing options
Deemed filing
• File for all eligible benefits
• Benefits discounted if filing before FRA
More options if you wait….
Standard filing
• File for all eligible benefits
File & suspend
• Allows spouse to collect spousal benefits
File restricted
• Allows you to begin spousal or survivor
benefits only PIA
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Spousal filing rules
Eligibility
• Eligible at 62
• Married for at least
one year
Benefits
• Up to 50% of
spouse’s PIA
• One spouse must
file for the other to
claim benefits
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For surviving spouses
Eligibility
• Married for at least
9 months
• Benefits can be
taken as early as
age 60
Benefits
• Spouse’s PIA including
delayed retirement
credits earned
• Survivor benefits can
be received
independent of
individual benefits
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Optimizing spousal and survivor benefits
File & Suspend with File Restricted
At 66…
At 70…
At 83…
•Jim files and
suspends
•Both spouses
switch to their own
benefits with credits
for delaying
•Jim passes away
•Linda files restricted
for spousal benefits
•Linda starts
survivor benefits at
Jim’s PIA
Cumulative SS benefits: $1,273,620
Linda mo. benefit:
Jim mo. benefit:
Linda mo. benefit:
$1,269
$3,698
$5,097
Linda mo. benefit:
$1,929
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For divorced spouses
Eligibility
Benefits
• Married for at least
10 years
• Spousal and
survivor benefits
• Currently unmarried
or remarried after
age 60
• No impact on
ex-spouse’s benefit
• Ex-spouse does not
have to file
• Not subject to the
family maximum
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For dependent children
Eligibility
Benefits
• Dependent under
age 18
• 50% of parent’s
PIA
• Disabled
dependents if
disability occurred
before age 22
• 75% of survivor’s
benefit
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For disabled individuals
Eligibility
• Qualifying medical
condition
• Recent work test
(individual)
Benefits
• Individual benefit
• Spousal benefit
• Survivor benefit
• Duration of work
test (individual)
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Making your filing
decision easier
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Simplifying Social Security decisions
Social Security 360 Analyzer Tool®
Identifies optimal filing strategies and allows you to
adjust parameters to compare different strategies
Provides instructions on how to file
Helps you integrate Social Security into your
comprehensive retirement income plan
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Compare filing strategies
The client’s Social Security report shows cumulative benefits of an
optimization strategy vs. early filing and alternative filing strategies
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Analyze break-even points
Illustrates which of the outlined strategies provides the best outcome at
any given set of whole year death age combinations.
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Identify income gaps
The report illustrates annual Social Security cash flow for the suggested
filing strategy vs. projected retirement income needs.
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Gathering inputs for your analysis
Helps gather relevant information to prepare a filing
strategy comparison
•
•
•
Marital status
Expected benefit amount
Life expectancy
•
Planned retirement date
•
Desired retirement income
•
Retirement goals, concerns, etc.
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The choice of a lifetime
• When and how you file for Social Security is an
important decision.
• Learn how to claim benefits for other family
members and how to put the filing rules to work
• Consider your filing decision in the big picture of
your overall retirement income plan
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Three steps in Social Security planning
 Get a good understanding of the basics of
Social Security
 Make an appointment to discuss your Social
Security options
 Complete a Social Security questionnaire in
advance of the meeting
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Appendix
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Working in retirement
Before FRA
$1 withheld for
every $2 above
annual limit
($15,480)
At FRA
$1 withheld for
every $3 above
annual limit
($41,400)
After FRA
No limit on
earnings
Withheld
earnings are
returned
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For same-sex couples
• June 26, 2013 – Defense of Marriage Act (DOMA)
ruled unconstitutional
• SSA currently developing and implementing policy
and processing instructions
• SSA encourages same-sex couples to apply for
benefits, even for residents of states that do not
recognize same-sex marriage
• More information at
http://www.ssa.gov/same-sexcouples/
Information as of October 30, 2012
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For government employees
Windfall elimination provision (WEP)
• Reduces individual benefit to prevent higher benefits
on top of pension income
• Changes formula used to calculate PIA
– 40% of first $816 instead of 90%6
– Reduction cannot be more than ½ of pension amount
6
Source: Social Security Administration. Based on 2013 formula
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Other benefits may be impacted
Government Pension Offset (GPO)
•Reduces a government employee’s Social Security spousal and
survivor benefits
•Benefits are reduced by ⅔ of their government pension
•If government pension is large enough, spousal or survivor
benefit may be eliminated
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How GPO reduces benefits
Spouse 1:
Spouse 2:
• Worked in government throughout
career
• Worked in private sector
• Receiving $2,100 monthly
pension
• Paid FICA taxes
• PIA: $2,000/month
• GPO = $1,400 (2/3 of $2,100)
Spouse 1 benefit before GPO
(If GPO didn’t apply)
Spouse 1 benefit after GPO
(Reduction of $1,400)
Spousal benefit
$1,000 per month
$0
Survivor benefit
$2,000 per month
$600
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Social Security concern: Taxation
Taxable retirement
income
Partially taxable
retirement income
Tax-free
retirement income
Pension Income
Traditional
Retirement accounts
(401(k), IRA)
Social Security –
Up to 85% taxed
Roth IRAs and
401(k)s
Immediate annuity
income
Interest from
municipal bonds
Interest and
dividend income
Cash-value life
insurance
Loans from life
insurance policies
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How delaying may reduce tax burden
Early SS filing
Delayed SS
Target Pre-Tax Income
$100,000
$100,000
SS Income
$38,000
$68,000
Traditional retirement
account income*
$62,000
$32,000
Taxable SS Benefit
$32,300
$24,700
Taxable Income
(AGI + SS Income test)
$94,300
$56,700
Social
Security
income
increases
79%
Taxable
income
decreases
40%
* Adjusted Gross Income
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