Securing Your Retirement Transforming Social Security Into a Winning Retirement Strategy Lori J. Ellingson, CRPC®
Black Rock investment is not affiliated or registered with Voya Financial Advisors, Inc. Any information provided by this individual is provided entirely on behalf of the individual and is no way related to Voya Financial Advisors or its representative. Lori Ellingson, nor Voya Financial Advisors give specific legal or tax advice. Please consult with your professional tax or legal advisor for your personal situation. Securities & Investment Advisory Services Offered Through Voya Financial Advisors, Member SIPC
Living Longer Life Expectancy Upon Retirement at Age 65 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 A healthy 65-year-old female has a 50% chance of living until age 89 (24 more years). Source: Society of Actuaries’ Annuity RP-2014 Total Healthy Annuitant rates, Scale MP-2014. Figures assume you are in good health. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
But Still Collecting Early Source: Social Security Administration’s Annual statistical supplement, 2014. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Rules of Retirement Benefits Individual Benefits
Online Statements or Retirement Estimator Individual Benefits Best 35 Years Online Statements or Retirement Estimator www.ssa.gov Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
The Tradeoff for Individual Benefits Full Retirement Age Age 62 Age 70 Reduced Benefits Increased Benefits Primary Insurance Amount (PIA) Full Retirement Age (FRA) 65 1937 or earlier 66 1943-1954 67 1960 and later Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collecting Early: The Cost Cost of Collecting Early Percentage of FRA Benefits Source: Social Security Administration (www.ssa.gov). Assumes full retirement age of 66. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collecting Early: Consider These Questions Working Is the client actually retiring? Will the client work, even part-time, before FRA? Longevity How is the client’s health? Is there a expectation of longevity? Spouse Is the client married? What is the age difference between spouses? Whose benefits can the spouse collect? FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collecting Early: Continuing to Work 2016 Retirement Earnings Limit Your Age 2016 limit What 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 beyond None Nothing Applies to any retirement benefits collected before FRA. Earnings limit looks at wages only. Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Changing Your Mind Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collecting Late: The Guaranteed Increase Increases for Collecting Late Percentage of FRA Benefits Source: Social Security Administration (www.ssa.gov). Assumes full retirement age of 66 and individual born in 1943 or later. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
A Question of Longevity Break Even Analysis Age 82.5 Age 78 62 75% of PIA 66 100% of PIA 70 132% of PIA FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Rules of Retirement Benefits Spousal and Survivor Benefits
Spousal Benefits - Amount Jordan PIA: $2,200 Alex PIA: $0 50% x $2,200 $1,100 Age 62 FRA Age 70 Jordan Collect - $2,200 Alex Collect Spousal- $1,100 Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Spousal Benefits - Amount Jordan PIA: $2,200 Alex PIA: $0 50% x $2,200 $1,100 Age 62 FRA Age 70 Jordan Collect - $1,650 Alex Collect Spousal- $1,100 Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Spousal Benefits - Reduction Maximum Spousal Benefit Amount 150% 100% 100% 100% 100% 100% 100% 92% 83% 75% Percentage of FRA Spousal Benefits 70% 50% 0% Age 62 Age 63 Age 64 Age 65 Age 66 Age 67 Age 68 Age 69 Age 70 (FRA) Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Spousal Benefits - Eligibility Jordan PIA: $2,200 Alex PIA: $0 Age 62 FRA Age 70 Jordan $2,904 Collects Individual Benefit Increased 32% Alex Collect Spousal- $1,100 Collects Spousal Benefit (no increase) Source: Social Security Administration (www.ssa.gov). *If request to suspend is made after April 30th, 2016. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Spousal Benefits - Eligibility Jordan PIA: $2,200 Alex PIA: $0 Age 62 FRA Age 70 Jordan $1,650 Collects Individual Benefit Reduced 25% Alex $770 Collects Spousal Benefit Reduced 30% Source: Social Security Administration (www.ssa.gov). *If request to suspend is made after April 30th, 2016. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Spousal Benefits – File & Suspend Jordan PIA: $2,200 Alex PIA: $0 Age 62 FRA Age 70 Jordan $0 $2,904 Files & Suspend Individual Benefit Collects Individual Benefit Increased 32% Alex Collect Spousal- $1,100 Collects Spousal Benefit Source: Social Security Administration (www.ssa.gov). *If request to suspend is made after April 30th, 2016. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Suspending Benefits is Still an Option (With New Consequences) Jordan PIA: $2,200 Alex PIA: $0 Age 62 FRA Age 70 Higher Earner $1,650 Suspend Collecting Individual Benefit* $2,178 Collects Individual Benefit Reduced 25% Collects Individual Benefit Increased 32% Lower Earner $770 Spousal Benefit Turned Off* $770 Collects Spousal Benefit Reduced 30% Collects Spousal Benefit (no increase) Source: Social Security Administration (www.ssa.gov). *If request to suspend is made after April 30th, 2016. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Suspending Benefits - Lump Sum Option Eliminated Jordan PIA: $2,200 If Request to Suspend Benefit is Made After April 2016 FRA Age 69 File and Suspend $2,200 Asks for Retroactive Payments Lump Sum Equal to three years of suspended payments ~ 79,200
Adding Spousal Benefits to Individual Benefits Jordan PIA: $2,200 Alex PIA: $600 $1,200 $1,100 $1,000 Spousal $308 $1,100 Max Spousal $500 $800 -30% $800 Spousal $350 $600 +32% Own $792 $400 Own $600 -25% Own $450 $200 $0 Age 62 Age 66 (FRA) Age 70 Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Jordan’s Benefits (63, 6 months) $1,833 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 $2,904 Source: Social Security Administration’s Annual statistical supplement, 2014. Assumes full retirement age of 66 and primary insurance amount of $2,200. FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collection Strategies
Married Couple – Collect at Age 62 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Age 62 66 (FRA) 70 74 Jordan Collect Individual Benefits - $1,650 Collect Individual Benefits - $450 Alex Collect Adjusted Spousal Benefits - $350 Jordan’s Benefits Alex’s Benefits Spousal Benefits Survivor Benefits $277,200 $75,600 $58,800 $152,460 Jordan’s Benefits Alex’s Benefits Spousal Benefits $277,200 $75,600 $58,800 = $350 x 168 months Jordan’s Benefits Alex’s Benefits Spousal Benefits Survivor Benefits Total $277,200 $75,600 $58,800 $196,020 $607,620 Jordan’s Benefits Alex’s Benefits $277,200 $75,600 = $450 x 168 months Jordan’s Benefits $277,200 = $1,650 x 168 months = $1,815 x 84 months FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Married Couple – Collect at Age 66 (FRA) Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Age 62 66 (FRA) 70 74 Jordan Collect Individual Benefits - $2,200 Collect Individual Benefits - $600 Alex Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA $607,620 $633,600 Both Age 62 $607,620 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Married Couple – Collect at Age 70 Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Age 62 66 (FRA) 70 74 Jordan $2,904 $792 Alex $308 Both Age 62 Both FRA Both Age 70 $607,840 $633,600 $601,920 Both Age 62 Both FRA $607,840 $633,600 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Married Couple – Large Difference in Benefits Jordan YOB: 1955 PIA: $2,200 Lives through age 75 Alex YOB: 1955 PIA: $600 Lives through age 84 Age 62 66 (FRA) 70 74 Jordan $2,904 $450 Alex $500 Both Age 62 Both FRA Both Age 70 Strategy $607,620 $633,600 $601,920 $634,320 Both Age 62 Both FRA Both Age 70 $607,620 $633,600 $601,920 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Married Couple – Large Difference in Benefits Jordan YOB: 1955 PIA: $2,200 Lives through age 85 Alex YOB: 1955 PIA: $600 Lives through age 92 Age 62 66 (FRA) 70 74 Jordan $2,904 $450 Alex $500 Both Age 62 Both FRA Both Age 70 $858,060 $976,800 $1,012,704 Both Age 62 Both FRA Both Age 70 Strategy $858,060 $976,800 $1,012,704 $1,027,104 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Married Couple – Large Difference in Benefits Jordan YOB: 1950 PIA: $2,200 Lives through age 75 Alex YOB: 1950 PIA: $600 Lives through age 85 Age 62 66 (FRA) 70 74 Jordan $2,904 Collect Individual Benefits - $450 Alex Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA Both Age 70 Strategy $629,400 $660,000 $636,768 $683,568 Both Age 62 Both FRA Both Age 70 $564,060 $580,800 $532,224 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
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 62 66 (FRA) 70 74 Jordan $2,904 Collect Individual Benefits - $450 Alex Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA Both Age 70 Strategy $858,060 $976,800 $1,012,704 $1,041,504 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Restricted Application Still Available if Born 1953 or Earlier Jordan YOB: 1949 PIA: $1,900 Lives through age 85 Alex YOB: 1953 PIA: $1,800 Lives through age 92 66 (FRA) 70 74 Jordan $2,508 Age 62 66 (FRA) 70 Alex Collect Spousal - $950 $2,376 Both Age 62 Both FRA Both Age 70 Strategy $941,310 $1,052,400 $1,154,736 $1,200,336 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Additional Beneficiaries – Divorced Spouse 10 Spousal Benefits Married to ex-spouse for 10+ years Unmarried Both are at least age 62 Divorced for at least 2 years* 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 Unmarried 62 *2 years does not apply if the individual was eligible for spousal benefits at the time of divorce. Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Suspending Benefits is Still an Option (With New Consequence) Jordan PIA: $2,200 Courtney Ex-Spouse Age 62 FRA Age 70 Higher Earner $2,904 Collects Individual Benefit Increased 32% Ex $770 Collects Spousal Benefit Reduced 30% Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Suspending Benefits is Still an Option (With New Consequence) Jordan PIA: $2,200 Courtney Ex-Spouse Age 62 FRA Age 70 Higher Earner Files for and Suspends Individual Benefit $2,904 Collects Individual Benefit Increased 32% $770 Spousal Benefit Turned Off Ex $770 Collects Spousal Benefit Reduced 30% Benefit remains The same Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Widow – Significant Individual Benefits Chris PIA: $2,200 Survivor: $2,500 Lives through age 92 Age 60 62 66 (FRA) 70 74 Survivor Benefits - $1,788 $2,904 Age 62 FRA Age 70 Strategy $753,300 $810,000 $801,504 $1,016,004 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Widow – Lower Individual Benefits Chris PIA: $1,000 Survivor: $2,500 Lives through age 92 Age 60 62 66 (FRA) 70 72 Individual - $750 Collect Survivor Benefits - $2,500 Age 62 FRA Age 70 Strategy $753,300 $810,000 $690,000 $846,000 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Important Notes Regarding Collection Strategies Filing and Suspending Voluntary Suspension request made after April 30th, 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. Opportunity for those turning 66 on or before September 1st, 2016 Restricted Application Still available if born on or before January 1st, 1954. If born after 1/1/54, deemed filing will apply regardless of age Stay Up-To-Date with Changes
Social Security Tool Output
Additional Beneficiaries You or Your Retirement Age Spouse, Collecting Benefits Your Unmarried Child 50% of your PIA* Your Younger Spouse 50% of your PIA* Under age 18 (19 if in high school) Any age if disabled before age 22 Caring for your child who is under age 16 or disabled before age 22 *Subject to family maximum. Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Taxation of Social Security benefits Provisional Income = ½ Social Security Benefits + Modified Adjusted Gross Income Married, Filing Jointly $0 $32,000 $44,000 Single $0 $25,000 $34,000 0% of Benefits are Taxable 0-50% of Benefits are Taxable 7-85% of Benefits are Taxable Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
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 Survivor Benefits $2,200 $100 $1,200 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Windfall Elimination Provision (WEP) Your pension could reduce your own benefits Age 22 Age 32 Age 42 Age 52 Age 62 Teacher Lockheed Martin Lockheed Martin PIA = 90% + 32% + 15% of the first $856* of AIME of the next $4,301* of AIME of AIME over $5,157* WEP PIA = 40% + 32% + 15% PIA = 90% + 32% + 15% of the first $856* of AIME of the next $4,301* of AIME of AIME over $5,157* * Changed annually by changes in the national indexing average wage. Numbers for 2015. Source: Social Security Administration (www.ssa.gov). FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
Collecting Social Security Benefits at age 64 and 9 months? Enrolling in Parts A & B Collecting Social Security Benefits at age 64 and 9 months? Yes No Automatically Enrolled in Parts A & B Should Apply 3 Months Before age 65 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
Medicare is secondary to employer’s plan while working* Still working at age 65? Medicare is secondary to employer’s plan while working* Delay Part B Potentially redudant Premium may be higher May trigger Medigap choice Sign up for Part A It may pick up costs not covered by employer’s plan * Assumes an employer with 20 or more employees.
1. Understand the fundamental rules Next steps 1. Understand the fundamental rules 2. Recognize the options and benefits available 3. Incorporate the collection decision into retirement plans FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients.
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. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE © 2016 BlackRock, Inc. 1/16 USR-7567 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to clients. 48