A Closer Look At Your Social Security Benefits

David Whitney and Danielle Yvette Sellers 0236362-00005-00 Ed.11/2013

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Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

This guide presents a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation . This information is based on current law which can be changed at any time. Slide 2 of 40

Agenda



Individual Benefits



Spousal Benefits



Social Security Maximization Strategies

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Funding and Calculation of Benefits

Becoming eligible



40 quarters

of wages that were subject to Social Security payroll taxes  Quarters do not need to be consecutive

Benefits calculated based on average of the 35 highest years of earnings

  $0 used in all years less than 35 Will result in a lower benefit Source: SSA Publication No. 05-10003, ICN 451385, February 2012

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When Is My Full Retirement Age (FRA)?

Date of Birth 1943-1954 1955 1956 1957 1958 1959 1960 and later Full Retirement Age

66 66 and 2 months 66 and 4 months 66 and 6 months 66 and 8 months 66 and 10 months 67 Source: www.ssa.gov as of October 2012

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Can I Take My Benefits Early?

Age 62 63 64 65 66 FRA 66

25% reduction 20% reduction 13.3% reduction 6.7% reduction full benefits

Age 62 63 64 65 66 67 FRA 67

30% reduction 25% reduction 20% reduction 13.3% reduction 6.7% reduction full benefits Source: www.ssa.gov as of October 2012

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Taking Benefits and Working

Retirement Earnings Test Under Full Retirement Age (FRA) In the year you reach Full Retirement Age (FRA) If you are at Full Retirement Age (FRA)

Give up $1 in benefits for every $2 you earn above a $ above a

15,120 limit

Give up $1 in benefits for every $3 you earn

$40,080 limit

No penalty Source: www.ssa.gov as of October 2012

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Working While Collecting Social Security

John is age 62 with a $12,000 annual benefit



Still working, earns

•

$9,880 $25,000 per year

over the earnings threshold • Will give up

$4,940

of benefits • Receives only

$7,060

in benefits this year 

At full retirement age, no longer any benefit reduction

This is a hypothetical example for illustrative purposes only.

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Benefits of Waiting

Increase in benefits for clients with Full Retirement Age (FRA) of 66/67 Age 67 68 69 70 FRA 66

8% increase 16% increase 24% increase 32% increase

Age 68 69 70 FRA 67

8% increase 16% increase 24% increase Source: www.ssa.gov as of October 2012

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Social Security Maximization Strategy

Break even Points: Age 70 vs. 66: Age 81 Age 66 vs. 62: Age 76 Age 70 vs. 62: Age 79

This is a hypothetical example for illustrative purposes only. This assumes a full retirement age benefit of $24,000 a year, an annual cost of living adjust of 3%, and the client living to age 95.

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Taxation of Social Security Benefits

Benefits may be taxable depending on the amount of your provisional income Provisional Income includes:

 ½ Social Security benefits  Income from municipal bonds      Wages Business income Interest Capital gains Dividends    Traditional IRA distributions Rental income And more…

Provisional Income does not include:

 Tax-deferred build-up inside IRAs, 401(k)s and annuities   Income from Roth IRAs Non-taxable income from life insurance

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Taxation of Social Security Benefits

Benefits only taxable if provisional income exceeds: Single or Head of Household



$25,000

= Social Security not taxable 

$25,000 - $34,000

= up to

50% taxable

 Above

$34,000

= up to

85% taxable Married Filing Jointly

  

$32,000

= Social Security not taxable

$32,000 - $44,000

= up to

50% taxable

Above

$44,000

= up to

85% taxable

Source: www.ssa.gov as of October 2012 Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

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Spousal Benefits

Spousal Benefits

Married individuals can claim Social Security benefits based on

  Personal earnings record, or Spouse’s earnings record

If electing based on spouse’s earnings record

 Spousal benefit is up to 50% of their spouse’s Social Security benefit  Cannot claim spousal benefit until the spouse files for benefits Source: www.ssa.gov as of October 2012

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Spousal Benefit

How is the spouse’s benefit calculated?

  Gary’s full retirement age benefit:

$2,000

Amy has no earnings history

Amy is entitled to the greater of:

  50% of Gary’s benefit:

$1,000

Amy’s own benefit: $0

Amy’s benefit is increased to $1,000:

 The $1,000 increase is Amy’s spousal benefit

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Taking Spousal Benefits Early

Lower-earning spouse files for benefits before Full Retirement Age (FRA)

 Own benefit reduced  Spousal benefit reduced as well

Age 62 63 64 65 66 % Reduced FRA 66

35% spousal benefit 37.5% spousal benefit 41.7% spousal benefit 45.8% spousal benefit 50% spousal benefit Source: www.ssa.gov as of October 2012

Age 62 63 64 65 66 67 % Reduced FRA 67

32.5% spousal benefit 35% spousal benefit 37.5% spousal benefit 41.7% spousal benefit 45.8% spousal benefit 50% spousal benefit

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Reduced Spousal Benefit

Amy, the lower earning spouse, files for benefits before her full retirement age

   Gary’s FRA benefit:

$2,000

Amy’s FRA benefit: $0 Amy’s FRA spousal benefit is

$1,000 What if Amy takes benefits at age 62?

 At age 62, her spousal benefit is reduced to 35% of Gary’s FRA benefit ($2,000 x 35% = $700)  Receives

$700

per month instead of $1,000 per month This is a hypothetical example for illustrative purposes only.

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Survivor Benefits

Source: www.ssa.gov as of October 2012

Surviving spouse can receive or step up to the benefit of the deceased spouse



If survivor is full retirement age, 100% of spouse’s benefit



Generally survivor benefits begin at age 60

• Survivor benefits reduced if received before full retirement age – up to 28.5% • Exceptions for surviving spouse with children who are under 19 

Survivor can switch to his or her own benefits

• Advantageous if greater when full retirement age reached

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Social Security and Other Pension Benefits



Government Pension Offset

• Affects spousal / survivor benefits if the spouse / survivor has a pension from a government • 2/3 of what you receive from your government pension will be subtracted from your Social Security benefit 

Windfall Elimination Provision

• If you work for an employer who does not withhold Social Security taxes from your salary, such as a government agency, any pension you receive based on that work may reduce your Social Security benefits up to 50% • Pension from an employer where Social Security taxes were paid is not taken into consideration

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Can I Collect Benefits from a Divorced Spouse?

Possible to collect benefits from a divorced spouse

 Survivor benefits  Retirement benefits

Retirement benefits:

 Your marriage lasted at least 10 years  Cannot be remarried  Your ex-spouse is entitled to Social Security Source: www.ssa.gov as of October 2012

Slide 20 of 40 Survivor benefits:

   Marriage lasted for 10 years At least age 60 or older Cannot remarry until over age 60

Social Security Maximization Strategies

Social Security Maximization Strategy

Age 62 66 85 92 Jen and Matt are married and both

62 years old

Matt dies at

age 85

Jen dies at

age 92 Matt’s

full monthly Social Security benefit at

age 66

will be

$2,000

This is a hypothetical example for illustrative purposes only.

Jen

stayed home and raised the family, so she has

no earned Social Security

benefits of her own

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Social Security Maximization Strategies Option 1:

File Early At Age 62 Matt files, lives 23 years

 Reduced benefit of

$1,500

month / $18,000 year for 23 years

Jen files, lives 30 years

  Reduced spousal benefit of years

$700 month

/ $8,400 year for 23 Survivor benefit of

$1,650 month

/ $19,800 year for 7 years This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategies Option 2:

File At Full Retirement Age Matt files at 66, lives 19 years

 Receives

$2,000

per month / $24,000 per year

Jen files at 66, lives 26 years

  Receives

$1,000

per month / $12,000 per year for 19 years Survivor benefits of

$2,000

month / $24,000 year for 7 years This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategies Option 3:

Matt Files & Suspends Matt files at 66, lives 19 years, suspends benefits until age 70

 At age 70 receives

$2,640

per month / $31,680 per year

Jen files at 66, lives 26 years

  Receives

$1,000

per month / $12,000 per year for 19 years Survivor benefits of

$2,640

month / $31,680 year for 7 years This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategies

  

Matt and Jen Claim at 62

$414,000 in his benefits $193,200 in spousal benefits $138,600 in survivor benefit   

Matt and Jen Claim at 66

$456,000 in his benefits $228,000 in spousal benefits $168,000 in survivor benefit   

Matt Files & Suspends at 66

$475,200 in his benefits $228,000 in spousal benefits $221,760 in survivor benefit This is a hypothetical example for illustrative purposes only.

Total Payout: $745,800 Total Payout: $852,000 Total Payout: $924,960 Slide 26 of 40

File and Suspend

 

Increases benefits for couples who retire at different ages Things to remember

• • Married couples are eligible for benefits based on their earnings history or their spouse’s earnings history You cannot collect on your spouse’s earnings history until your spouse files for benefits • You can file for benefits and immediately suspend receiving those benefits • • Spouse who suspends the benefits continues to receive delayed retirement credits (DRC) “Suspending” spouse must have reached full retirement age This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategy

Age 62 66 70 85 92 Adam and Meghan are married and both

66 years old Meghan’s

full monthly Social Security benefit at

age 66

will be

$1,500 per month

This is a hypothetical example for illustrative purposes only. Adam dies at

age 85

Meghan dies at

age 92 Adam

is looking to retire at

age 70

, his Social Security benefit will be

$2,640 per month Slide 28 of 40

Social Security Maximization Strategy Option 1:

Meghan files and Adam waits Meghan files for benefits at age 66

  She receives

$1,500

per month / $18,000 per year for 19 years Survivor benefits of

$2,640

month / $31,680 per year for 7 years

Adam files in four years at age 70

 Adam receives

$2,640

per month / $31,680 per year for 15 years This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategy Option 2:

Adam files a Restricted Application Meghan files at 66, her benefits are unaffected At age 66 Adam files a Restricted Application

    Entitled to 50% of Meghan’s benefit In the first four years he receives

$750

per month / $9,000 per year At age 70, he switches to his own benefit Over the next 15 years, he receives

$2,640

per month / $31,680 per year This is a hypothetical example for illustrative purposes only.

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Social Security Maximization Strategies

 

Meghan Files At 66 / Adam Files At 70

 $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit

Total Payout: $1,038,960

  

Adam Uses Restricted Application

 $36,000 in spousal benefits $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit This is a hypothetical example for illustrative purposes only.

Total Payout: $1,074,960 Slide 31 of 40

Restricted Application

 

Increases benefits for couples with their own earnings history who may be retiring at different ages Things to remember

• • Individuals can collect spousal benefits and allow their personal earnings history benefits to receive delayed retirement credits You cannot collect benefits on your spouse’s earnings history until your spouse files for benefits • You cannot file a restricted application until you have reached full retirement age This is a hypothetical example for illustrative purposes only.

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Retirement Income – Then and Now

“ Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.

” “Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.” Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.* Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*

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Retirement Income – Then and Now

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Summary



Monitor your Social Security statements

• Statements are now available online. Go to socialsecurity.gov to create a secure user account and view your statement 

Evaluate impact of commencement dates on your retirement plan



Work with a Financial Professional to review your income sources and evaluate options for retirement income flexibility Slide 35 of 40

Questions?

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Disclosures

Annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. © 2013 Prudential Financial, Inc. and its related entities. Prudential Annuities, Prudential, the Prudential logo, the Rock symbol, and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. [WO# 648301 ML 13-000507 MSA130006]

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