Making Government Benefits Work For You Understanding Social Security and Medicare

Living Longer 50% chance of living to 25% chance of living to 50% chance of living to 25% chance of living to at least 1 person has a 50% chance of living to at least 1 person has a 25% chance of living to Source: Society of Actuaries’ Annuity RP-2014 Total Healthy Annuitant rates, Scale MP Figures assume you are in good health. A healthy 65-year-old female has a 50% chance of living until age 89 (24 more years). Life Expectancy Upon Retirement at Age 65 2

But Still Collecting Early Source: Social Security Administration’s Annual statistical supplement,

Rules of Retirement Benefits Individual Benefits

Source: Social Security Administration ( Best 35 Years Online Statements or Retirement Estimator 5

The Tradeoff for Individual Benefits Age 62 Age 70 Full Retirement Age Reduced BenefitsIncreased Benefits Source: Social Security Administration ( Primary Insurance Amount (PIA) Full Retirement Age (FRA) or earlier and later

Collecting Early: The Cost Source: Social Security Administration ( Assumes full retirement age of 66. Percentage of FRA Benefits Cost of Collecting Early 7

Collecting Early: Consider These Questions Working  Are you actually retiring?  Will you work, even part-time, before FRA? Longevity  How is your health?  Is there a expectation of longevity? Spouse  Are you married?  What is the age difference between spouses?  Whose benefits can the spouse collect? 8

Collecting Early: Continuing to Work Source: Social Security Administration ( Your Age2016 limitWhat Happens Above the Limit Under FRA$15,720/year $1 of benefits withheld per $2 of earnings above limit Year reach FRA$41,880/year $1 of benefits withheld per $3 in earnings above limit for months prior to reaching FRA Month reach FRA and beyondNoneNothing Applies to any retirement benefits collected before FRA. Earnings limit looks at wages only Retirement Earnings Limit 9

Changing Your Mind Source: Social Security Administration ( 10

Collecting Late: The Guaranteed Increase Source: Social Security Administration ( Assumes full retirement age of 66 and individual born in 1943 or later. Percentage of FRA Benefits Increases for Collecting Late 11

A Question of Longevity % of PIA % of PIA % of PIA Break Even Analysis Age 78 Age 82.5

Rules of Retirement Benefits Spousal and Survivor Benefits

Spousal Benefits - Amount Age 70 Source: Social Security Administration ( FRA Age 62 Collect Spousal- $1,100 Collect - $2, Jordan Alex Jordan PIA: $2,200 Alex PIA: $0 50% x $2,200 $1,100

Spousal Benefits - Amount Age 70 Source: Social Security Administration ( FRA Age 62 Collect Spousal- $1,100 Collect - $1, Jordan Alex Jordan PIA: $2,200 Alex PIA: $0 50% x $2,200 $1,100

Spousal Benefits - Reduction 16 Source: Social Security Administration ( Maximum Spousal Benefit Amount Percentage of FRA Spousal Benefits 70% 75% 83% 92% 100% 0% 50% 100% 150% Age 62Age 63Age 64Age 65Age 66 (FRA) Age 67Age 68Age 69Age 70

Source: Social Security Administration ( *If request to suspend is made after April 30 th, Jordan PIA: $2,200 Alex PIA: $0 Spousal Benefits - Eligibility Age 70 FRA Age 62 Collect Spousal- $1,100 $2,904 Jordan Alex Collects Individual Benefit Increased 32% Collects Spousal Benefit (no increase)

Source: Social Security Administration ( *If request to suspend is made after April 30 th, Jordan PIA: $2,200 Alex PIA: $0 Spousal Benefits - Eligibility Age 70 FRA Age 62 $770 $1,650 Jordan Alex Collects Individual Benefit Reduced 25% Collects Spousal Benefit Reduced 30%

Source: Social Security Administration ( *If request to suspend is made after April 30 th, Jordan PIA: $2,200 Alex PIA: $0 Spousal Benefits – File & Suspend Age 70 FRA Age 62 Collect Spousal- $1,100 $2,904 Jordan Alex Collects Individual Benefit Increased 32% Collects Spousal Benefit $0 Files & Suspend Individual Benefit

Suspending Benefits is Still an Option (With New Consequences) Age 70 Source: Social Security Administration ( *If request to suspend is made after April 30 th, FRA Age 62 $770 $1, Suspend Collecting Individual Benefit* Spousal Benefit Turned Off* $770 $2,178 Higher Earner Lower Earner Jordan PIA: $2,200 Alex PIA: $0 Collects Individual Benefit Reduced 25% Collects Individual Benefit Increased 32% Collects Spousal Benefit Reduced 30% Collects Spousal Benefit (no increase)

Adding Spousal Benefits to Individual Benefits Jordan PIA: $2,200 Alex PIA: $600 $0 $200 $400 $600 $800 $1,000 $1,200 Age 62Age 66 (FRA)Age 70 Own $600 Own $450 Own $792 Spousal $350 Spousal $500 Spousal $ % -25% $1,100 Max +32% $1,100 $800 Source: Social Security Administration ( 21

Survivor Benefits Jordan PIA: $2,200 Alex PIA: $600 Jordan’s Benefits (63, 6 months) $1,833 Survivor Benefits $1,833 Jordan’s Benefits (70) $2,904 Survivor Benefits $2, Source: Social Security Administration’s Annual statistical supplement, Assumes full retirement age of 66 and primary insurance amount of $2,200.

Collection Strategies

Jordan’s Benefits $277,200= $1,650 x 168 months Jordan’s BenefitsAlex’s Benefits $277,200$75,600= $450 x 168 months = $1,815 x 84 months Jordan’s BenefitsAlex’s BenefitsSpousal Benefits $277,200$75,600$58,800= $350 x 168 months Jordan’s BenefitsAlex’s BenefitsSpousal BenefitsSurvivor Benefits $277,200$75,600$58,800$152,460 Jordan’s BenefitsAlex’s BenefitsSpousal BenefitsSurvivor BenefitsTotal $277,200$75,600$58,800$196,020$607,620 Married Couple – Collect at Age 62 Age (FRA) 70 Collect Individual Benefits - $1,650 Collect Individual Benefits - $450 Collect Adjusted Spousal Benefits - $350 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Jordan Alex 24

Both Age 62 $607,620 Both Age 62Both FRA $607,620$633,600 Married Couple – Collect at Age 66 (FRA) Age 6274 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Jordan Alex Collect Individual Benefits - $2,200 Collect Individual Benefits - $600 Collect Adjusted Spousal Benefits - $ (FRA) 70 25

Both Age 62Both FRA $607,840$633,600 Both Age 62Both FRABoth Age 70 $607,840$633,600$601,920 Married Couple – Collect at Age 70 Age 6274 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Jordan Alex $2,904 $792 $ (FRA) 70 26

Both Age 62Both FRABoth Age 70 $607,620$633,600$601,920 Both Age 62Both FRABoth Age 70Strategy $607,620$633,600$601,920$634,320 Married Couple – Large Difference in Benefits Age 6274 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Jordan Alex $2,904 $500 $ (FRA) 70 27

Both Age 62Both FRABoth Age 70 $858,060$976,800$1,012,704 Both Age 62Both FRABoth Age 70Strategy $858,060$976,800$1,012,704$1,027,104 Married Couple – Large Difference in Benefits Age 6274 Jordan YOB: 1955 PIA: $2,200 Lives through age 85 Alex YOB: 1955 PIA: $600 Lives through age 92 Jordan Alex $2,904 $500 $ (FRA) 70 28

Both Age 62Both FRABoth Age 70Strategy $941,310$1,052,400$1,154,736 $1,200,336 Restricted Application Still Available if Born 1953 or Earlier Age 62 Jordan YOB: 1949 PIA: $1,900 Lives through age 85 Alex YOB: 1953 PIA: $1,800 Lives through age 92 Jordan Alex Collect Spousal - $950 $2, (FRA) 70 $2, (FRA) 70

Widow – Significant Individual Benefits Age (FRA)70 $2,904Survivor Benefits - $1,788 Chris PIA: $2,200 Survivor: $2,500 Lives through age 92 Age 62FRAAge 70Strategy $753,300$810,000$801,504 $1,016,004 30

Important Notes Regarding Collection Strategies 1.Filing and Suspending Voluntary Suspension request made after April 30 th, 2016: During suspension, any spousal or dependent child benefit will also be turned off No retroactive payments of suspended benefits The filer won’t be able to claim any other benefit while their benefit is suspended. 2.Restricted Application Still available if born on or before January 1 st, If born after 1/1/54, deemed filing will apply regardless of age 31

62 10 Unmarried Spousal Benefits  Married to ex-spouse for 10+ years  Unmarried  Both are at least age 62  Divorced for at least 2 years* Additional Beneficiaries – Divorced Spouse *2 years does not apply if the individual was eligible for spousal benefits at the time of divorce. Source: Social Security Administration ( Spousal Benefits  Married to ex-spouse for 10+ years  Unmarried  Both are at least age 62  Divorced for at least 2 years* Survivor Benefits  Married to ex-spouse for 10+ years  Unmarried or married after age 60  At least age 60 32

Taxation of Social Security benefits Provisional Income = ½ Social Security Benefits + Modified Adjusted Gross Income Source: Social Security Administration ( Single $0 $25,000 $34,000 Married, Filing Jointly $0 $32,000 $44,000 0% of Benefits are Taxable 7-85% of Benefits are Taxable 0-50% of Benefits are Taxable 33

Next steps 1. Understand the fundamental rules 2. Recognize the options and benefits available 3. Incorporate the collection decision into retirement plans 34

Medicare

Part A Hospital Insurance Part B Medical Insurance Part C Medicare Advantage What is Medicare? A federal health insurance program for people 65 and over* * And for many disabled people. Part A Hospital Insurance Part B Medical Insurance Part D Prescription Drug Coverage Medigap 36

Understanding the Costs of Part A * 60 non-renewable days with $630 per day copayment. † Assumes use of 60 lifetime reserve days. Source: Centers for Medicare & Medicaid Services Cost for an In-Hospital Stay Days 1-60$1,288 deductible Days 61-90$322 per day copayment Days 91+All costs or lifetime reserve days* † Out of Pocket Costs for a Hospital Stay (2016) 37

Understanding the Costs of Part B Source: SSA Publication No Single≤$85K$85K+$107K+$160K+$214K+ Joint≤$170K$170K+$214K+$320K+$428K+ Separate≤$85K$85K+$129K+ Monthly Part B Premiums 38

Enrolling in Parts A & B Collecting Social Security Benefits at age 64 and 9 months? Automatically Enrolled in Parts A & B Should Apply 3 Months Before age 65 YesNo Enrollment Periods for Part B Initial 7-month period between age 64 and 9 months and age 65 and 3 months General Jan 1-Mar 31 each year Surcharges may apply Special Anytime while covered by a current employer’s plan or within 8 months of separation 39

Still working at age 65? * Assumes an employer with 20 or more employees. Delay Part B Potentially redudant Premium may be higher May trigger Medigap choice Medicare is secondary to employer’s plan while working* Sign up for Part A It may pick up costs not covered by employer’s plan 40

Understanding the Costs of Part D Source: Centers for Medicare & Medicaid Services. 95% Medicare Benefit (Catastrophic Coverage) 100% No Medicare Coverage in Doughnut Hole 75% Medicare Benefit (Initial Coverage) $360 Deductible 25% $4,700 out-of- pocket reached 5% (min. co pay $2.95 generic or $7.40 brand) $360 $3,310 $4,850 You Pay Medicare Pays 41

Choosing the Right Part D Plan Source: Centers for Medicare & Medicaid Services. What’s Most Important? Cost Premiums Deductibles Co-pays Coverage Which drugs are covered? Are there rules for getting them? Are there restrictions on specific drugs or limits on number of prescriptions? Do they cover prescriptions in the “doughnut hole”? Convenience Participating pharmacies Mail order prescriptions 42

Do You Need a Medigap Policy? Source: Centers for Medicare & Medicaid Services. Plan A Plan B Plan C Plan D Plan F Plan G Plan K Plan L Plan M Plan N Deductibles Extended Hospitalization Coinsurance Costs in excess of Medicare- approved charges Most self- administered prescription drugs Nursing home costs 43

Getting the Most From Medigap Sources: Weiss Ratings (as of October 2011); Medicare.gov. Shop around! Medigap Plan F for a 65-year-old woman could cost: $869$5,295 $4,426 Most Popular Plans (by percent of total Medigap spending)  Deductibles, coinsurance and excess charges for Parts A & B  Nursing facility care  Hospice care  Foreign travel emergency  First three pints of blood Most Popular Plans (by percent of total Medigap spending) Plan F Covers 44

Next Steps 1.Find a Medicare resource to help your clients understand their options  Heath Insurance Specialists  Volunteer State Agencies  SHIP Medicare [your state] 2.Help your clients decide between original Medicare and Medicare Advantage 3.Construct an implementation timetable 45

Important Notes This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice. BLACKROCK is a registered trademark of BlackRock, Inc. © 2016 BlackRock, Inc. 5/16USR

Government Pension Offset (GPO) Your pension could reduce your spousal or survivor benefits Pension $1,500 Offset $1,000 =X 2/3 Spousal Benefits $1,100 $100 Survivor Benefits $2,200 $1,200 48

PIA = 90% + 32% + 15% PIA = 40% + 32% + 15% Windfall Elimination Provision (WEP) Your pension could reduce your own benefits * Changed annually by changes in the national indexing average wage. Numbers for Source: Social Security Administration ( Age 22 Age 62 Age 42 Teacher PIA = 90% + 32% + 15% of the first $856* of AIME of the next $4,301* of AIME of AIME over $5,157* of the first $856* of AIME of the next $4,301* of AIME of AIME over $5,157* WEP Age 32 Age 52 Lockheed Martin 49

Widow – Lower Individual Benefits Age (FRA)70 Collect Survivor Benefits - $2,500 Individual - $750 Chris PIA: $1,000 Survivor: $2,500 Lives through age 92 Age 62FRAAge 70Strategy $753,300$810,000$690,000 $846,000 50

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Suspending Benefits - Lump Sum Option Eliminated 52 Age 69 FRA $2,200 Asks for Retroactive Payments File and Suspend Jordan PIA: $2,200 Lump Sum Equal to three years of suspended payments ~ 79,200 If Request to Suspend Benefit is Made After April 2016

Additional Beneficiaries *Subject to family maximum. Source: Social Security Administration ( You or Your Retirement Age Spouse, Collecting Benefits Your Unmarried Child 50% of your PIA*  Under age 18 (19 if in high school)  Any age if disabled before age 22 Your Younger Spouse 50% of your PIA*  Caring for your child who is under age 16 or disabled before age 22 53

Both Age 62Both FRABoth Age 70 $564,060$580,800$532,224 Both Age 62Both FRABoth Age 70Strategy $629,400$660,000$636,768$683,568 Married Couple – Large Difference in Benefits Age 6274 Jordan YOB: 1950 PIA: $2,200 Lives through age 75 Alex YOB: 1950 PIA: $600 Lives through age 85 Jordan Alex $2,904 Collect Adjusted Spousal Benefits - $500 Collect Individual Benefits - $ (FRA) Spouse Only Benefit- $300

Both Age 62Both FRABoth Age 70Strategy $858,060$976,800$1,012,704$1,041,504 Married Couple – Large Difference in Benefits Jordan YOB: 1950 PIA: $2,200 Lives through age 85 Alex YOB: 1950 PIA: $600 Lives through age 92 Age 6274 Jordan Alex $2,904 Spouse Only Benefit- $300 Collect Adjusted Spousal Benefits - $500 Collect Individual Benefits - $ (FRA) 70 55

Suspending Benefits is Still an Option (With New Consequence) Age 70 Source: Social Security Administration ( FRA Age 62 $ $2,904 Higher Earner Ex Jordan PIA: $2,200 Courtney Ex-Spouse Collects Individual Benefit Increased 32% Collects Spousal Benefit Reduced 30%

Suspending Benefits is Still an Option (With New Consequence) Age 70 Source: Social Security Administration ( FRA Age 62 $ Files for and Suspends Individual Benefit Spousal Benefit Turned Off $770 $2,904 Higher Earner Ex Jordan PIA: $2,200 Courtney Ex-Spouse Collects Individual Benefit Increased 32% Collects Spousal Benefit Reduced 30% Benefit remains The same