Exploring your best options Social Security Hello and welcome today’s session on Social Security, exploring your best options. Deciding when and how to claim Social Security is one of the biggest decision pre-retirees have to make. By choosing to attend this workshop, you have taken an important step towards a better understanding of this important source of retirement income. William Stark 12/13/2017

What we’ll cover today Things to consider before collecting Social Security – retirement income Claiming strategies Taking action Unless otherwise noted, the Social Security statistics and numbers presented are from ssa.gov, and are current as of December 2016. We will cover a lot of ground today on this topic. First, we will set the stage with some general observations about risk faced by retirees Second, we’ll explore the basics of Social Security – what it provides, who is eligible to receive it, and when benefits begin Then we’ll move into claiming strategies that you can use to maximize your Social Security benefits We’ll end with resources you can use to help you explore your options Many of the concepts in this workshop are described in the Guide to Social Security – Exploring your best options. This is yours to keep. Feel free to make notes in the booklet throughout the workshop.

Consider these before collecting With quite a bit of cash at stake, deciding when to claim is a big decision. Your workbook includes a notes page for you to gather your ideas on the things you should consider before collecting. Record your thoughts as we go through these next few slides, so you have everything in place for your meeting with your advisor.

Longevity Chances of living beyond age 65 As we work through the options for electing Social Security, longevity is an important consideration when determining what claiming option is best for you. In other words, how long do you think you will live? Let’s look at some of the averages as shown in this graphic. Americans are living longer, which is great, but it also means we have to realistically plan income for longer retirements. One in four women who reach age 65 will live to age 96, one in four men who reach age 65 will live to age 94. And for a couple who reach age 65, one in four will have one spouse live until age 98. Do you have longevity in your family? Are you in relatively good health? Take a minute now to jot down things like how long your parents and grandparents each lived, or any notable health concerns you want to factor in to your decision of when to claim benefits. Assumes a person is in good health. 2015 Individual Annuity Mortality Basic Table projected for mortality improvement from base year 2015, American Academy of Actuaries.

Marital status Most of us know that Social Security offers spousal and survivor benefits for married couples and widows. What many don’t realize is that people who are divorced may qualify for certain benefits. A recent Securian study revealed that 43% of pre-retirees surveyed didn’t know that an ex-spouse may be eligible for Social Security spousal benefits. Take a minute to record the following items for your meeting with your advisor. Things like how long your current or any past marriages have lasted are important. If you are divorced, how long has it been since the divorce? And does your spouse or former spouse have a work history and could qualify for spousal benefits?

Will you work in retirement? You’ll also need to consider whether or not you will continue to earn income in retirement. Because income earned affects your Social Security benefits (if you collect prior to Full Retirement Age), and impacts the amount you may pay in taxes, it is important to take into account any future work plans when you are deciding when to claim Social Security. This statistic from a recent study shows that 5 in 10 boomers still working don’t expect to retire until age 66 or older, with 1 in 10 planning to never retire. Take a minute to write down your thoughts on work in retirement for your meeting with your advisor. Will you continue to earn income? Do you plan to continue your current profession? Or, would you like to explore a new profession? Are there any new entrepreneurial efforts?

Other retirement income sources Finally, the last thing to consider is any other sources of retirement income. If you have retirement savings or a pension you may be able to delay collecting Social Security benefits. If not, delaying may not be possible for you. Take a minute now to jot down all your sources of retirement income to share with your advisor. Do you have a pension? 401(k)? Other investments? Could you afford to delay taking Social Security?

Cornerstone of retirement income For many Americans, Social Security is a primary source of income and for many, it is the only source of income that is both guaranteed for life and with a cost of living component. Let’s learn more about this important retirement income source and why many consider it the cornerstone in building a solid retirement income strategy.

Social Security beginnings Created in 1935 During the Great Depression American retirement safety net The Social Security program was created in 1935 during the Great Depression. The idea was to help build an American retirement safety net with current workers paying into the program to support former workers. Although Social Security provides more than just retirement benefits, for our discussion today we’ll keep our focus on the retirement benefits available under this program.

Social Security today Estimated 165 million workers covered Important income source for recipients 9 of 10 individuals over age 65 receive benefits Provides more than half of income for elderly beneficiaries 3 out of 4 singles 1 of 2 couples Today the Social Security Administration estimates over 165 million workers are covered under Social Security. It is an important income source for recipients, with 9 out of 10 individuals over age 65 receiving benefits. Social Security provides more than half of the income for 3 out of 4 singles, and 1 out of 2 couples.

What Social Security Retirement Benefits provide Lifetime retirement income Cost of living adjustments for inflation Spousal and survivor benefits So let’s move into what Social Security provides. Social Security provides lifetime, inflation-adjusted income. A cost of living adjustment is available annually, depending on movement in the Consumer Price Index (CPI). As you can see from the chart, in some years, there have been no increases in benefits due to low or no inflation, as measured by the CPI. Social Security retirement benefits are available not only to workers but are also available to spouses, former spouses, and survivors, providing income for those who may not qualify based on their own work record. With traditional pension plans on the decline, Social Security is one of the remaining sources of inflation-adjusted income you can’t outlive. That is why it is critical to understand how it works and how your decision on when to claim affect your lifetime benefits.

How to qualify $5,200 $1,300 40 credits required to qualify Credits earned during working years Approximately 10 consecutive years of work $5,200 $1,300 To qualify for Social Security, you must earn 40 credits. Credits are earned during your working years. In 2017 you need to earn $1,300 to earn one credit. You can earn a maximum of four credits per year, which is $5,200 in 2017. So to get forty credits, you need a minimum of 10 consecutive years of work history. But again, the number of years you need to work all depends on how many credits you earn during your working years.

Know the terms Full Retirement Age (FRA) Age at which a person becomes entitled to receive full Social Security Retirement benefits. Between 65 and 67 depending on birth year. Throughout today’s presentation you will hear a few reoccurring Social Security terms. It is important to know the “Social Security terms” up front so that you don’t miss something later on in the presentation. The first term is ‘Full Retirement Age’, commonly referred to as ‘FRA’. This is the age at which the Social Security Administration has identified a person becomes eligible to receive full, unreduced benefits. As you can see in the table, FRA is between 65 and 67 – depending on the year you were born.

Know the terms Primary Insurance Amount (PIA) The full monthly Social Security benefit you are entitled to receive at FRA. Determined by your averaged indexed monthly earnings. The second term to know is ‘Primary Insurance Amount’, also referred to as ‘PIA’. Your PIA is the full monthly Social Security benefit you are entitled to receive at your Full Retirement Age. Your PIA is based on a formula that takes into account your average indexed monthly earnings. Simply put, the more you make in your working years, the more you will receive from Social Security.

Know the terms Delayed Retirement Credit (DRC) If you delay collecting Social Security retirement benefits beyond FRA, benefits are increased annually for each year you delay claiming benefits until age 70 by 7-8%, depending on your FRA. The final term we’ll talk about is a ‘Delayed Retirement Credit’ or ‘DRC’. If you delay collecting Social Security retirement benefits beyond FRA, benefits are increased annually for each year you delay claiming benefits until age 70 by 7 - 8%, depending on your FRA.

Collecting early Potentially more payments at lower amounts Age 62 is earliest for individual or spousal benefits Decreases monthly benefit by as much as 30% Benefits remain reduced – future COLA based on lower benefit amount Reduces survivor benefits Qualifying beneficiaries may elect Social Security individual or spousal benefits as early as age 62. However, there is a cost – in the form of reduced benefits – that you pay. The reduction percentages depend on your Full Retirement Age (FRA). Earlier we discussed the phase in ages (slide 13). So if your FRA is age 67, the amount of your benefit at age 62 would be 30% less than the amount at age 67. When you collect benefits early, your benefits remain reduced even after you reach your Full Retirement Age. This lower amount is the basis for potential COLA adjustments and survivor benefits, if any. Potentially more payments at lower amounts

Early claiming example Born: 1953 FRA: 66 Monthly benefit: $2,000 Reduction at 62: 25% Monthly benefit at 62: $1,500 Here is a hypothetical example of an early route. Here we have an individual born in 1953 with a Full Retirement Age of 66 and a monthly benefit of $2,000. If she collects early at age 62, she will receive a 25% reduction in benefits, resulting in a monthly benefit of $1,500. The table shows how much she will collect at various ages by either starting early or starting at age 66. As you can see, if she lives past her early 80s she will collect more overall by waiting to collect until FRA. Hypothetical example for illustrative purposes only. Does not factor in cost of living adjustments.

Collecting later Fewer payments, greater payment amounts If past FRA, will receive DRC of 7-8% annually (depending on your FRA) Benefits increased up to age 70 As previously mentioned, delaying collecting past Full Retirement Age will result in an annual Delayed Retirement Credit of 7-8% (depending on your FRA) through age 70. The table shows the amount of the credit, depending on year of birth. Note that Delayed Retirement Credits only increase individual benefits, not spousal benefits. We will talk more about spousal benefits soon. By delaying benefits you will receive fewer payments, but they will be greater payment amounts. Fewer payments, greater payment amounts

Delayed claiming example Born: 1953 FRA: 66 Monthly benefit: $2,000 DRC: 8% Monthly benefit at 70: $2,640 Here is a hypothetical example of a later route. Once again we have an individual born in 1953 with a Full Retirement Age of 66 and a monthly benefit amount of $2,000. She is eligible for a Delayed Retirement Credit of 8%, so by waiting to start until age 70 she will have received four credits and have a monthly benefit of $2,640. The table compares how much she would have received at her Full Retirement Age, versus waiting to claim her maximum benefit at age 70. If she lives past her early 80s she will collect more by starting at age 70. Hypothetical example for illustrative purposes only. Does not factor in cost of living adjustments.

The trade off Let’s pause for a quick recap. For many of us, the concepts of FRA, PIA and DRC can be a bit challenging to remember. This picture is a simple way to cement in the effect of choosing to delay electing benefits. Remember, your Primary Insurance Amount is the amount you are entitled to at your Full Retirement Age. This is based upon qualifying quarters of working and your earned income over your lifetime. If you choose to take early benefits, you permanently lock in reduced benefits by as much as 30%. If you choose delay taking benefits to your Full Retirement Age, you will receive your full, unreduced benefit. You can further increase your Social Security benefit by electing to defer up to age 70, where Delayed Retirement Credits come into play to increase the amount of your benefit payments.

Impact of working If collecting benefits prior to FRA Some benefits may be withheld Income limit changes each year It is good to know the impact of earning income when deciding when to collect your benefits. If you choose to collect benefits early, prior to your Full Retirement Age, your benefits will be reduced by income you earn above an amount that is set each year. The amount of the reduction is $1 of benefits withheld for every $2 in earnings above the limit. If you earn income after Full Retirement Age, your benefit payments won’t be reduced. But something to keep in mind is the impact of taxes on your benefits, which we’ll cover next.

Tax considerations Step 1: Calculate your Combined Income Combined = Adjusted + nontaxable + ½ of Social Security Income Gross Income interest payments received Step 2: Determine how much is taxed based on your Combined Income by using the table below Social Security benefits may be taxed, but it all depends on the amount of other income you receive in a year. Taxable benefits are determined by a formula that adds your Adjusted Gross Income and nontaxable interest to half of your Social Security benefits (and half of your spouse’s benefits if you are filing a joint tax return). Depending on the total, you may pay tax on up to 85% of your Social Security benefits.

Claiming strategies We’ve spent some time looking at the basics of Social Security. Now let’s move onto some Social Security claiming strategies that may apply to you or someone you know. We will look at the basics for married couples, some claiming strategies for them to consider as well as benefits to be aware of for divorced or deceased spouses.

Strategies for spouses… If you are married you need not be eligible for individual benefits to claim a spousal benefit. A spousal benefit is up to 50% of your spouse’s PIA. You can claim a spousal benefit if… You are age 62 or older You have been married for at least one year Your spouse has filed for benefits. If your spouse has suspended benefits, they must have suspended them prior to April 30, 2016. If you are married, you need not be eligible for individual benefits to claim a spousal benefit. A spousal benefit is up to 50% of your spouse’s PIA. So, if you don’t have a work history to qualify for Social Security yourself, you can still get benefits this way. Or if you have a work history but your spouse’s benefit is double or more what your are entitled to, you may receive more by claiming a spousal benefit. You can claim a spousal benefit if you are age 62 or older, AND have been married for at least one year, AND your spouse has filed for benefits. Note that if your spouse has suspended collecting their benefits, they must have suspended them prior to April 30, 2016 for you to still be collecting a spousal benefit. This is due to some newer legislation that was passed at the end of 2015, which I’ll cover in more detail next.

Advanced strategies for spouses One spouse collects and other defers Possibly due to one spouse still working Legislation passed in the 2015 Budget Act sought to “close loopholes” affecting two advanced claiming strategies you may have heard of: File and suspend (voluntary suspension) Restricted application Advanced claiming strategies allow one spouse to collect while the other defers. This can be possibly due to one spouse still working, or as often used, to earn Delayed Retirement Credits. You may have heard about some changes that took place to Social Security claiming options at the end of 2015. The Bipartisan Budget Act of 2015 was signed into law. Section 831 of the Act was entitled, Protecting Social Security Benefits, Closure of Unintended Loopholes, and it included provisions which affected two advanced claiming strategies you may have heard of: the file and suspend strategy, and restricted application strategy. You may be familiar with these terms, either through your own planning or hearing from friends and family, so next I would like to give an overview of what they are, and how they’ve changed.

File and suspend strategy has changed New rules Rules depend on date of birth Those who have already filed and suspended Benefits are unaffected. Those born on or before April 30, 1950 “File and Suspend” strategy is available IF request for benefit suspension submitted before April 30, 2016. Those born after April 30, 1950 No spousal or family benefits based on a filer’s earning record will be paid to anyone else while benefits are suspended. Here are how the rules apply to file and suspend going forward. [Walk through table on slide]

Claiming strategy File and suspend This strategy changed for benefits suspended after 4-29-16 May voluntarily suspend retirement benefit payments up to age 70 May earn delayed retirement credits during suspension Others will not be able to receive benefits during suspension Exception: divorced spouse will be able to continue receiving benefits. Part B Medicare premiums cannot be deducted from suspended benefits. This strategy changed for benefits suspended after 4-29-16 May voluntarily suspend retirement benefit payments up to age 70 May earn delayed retirement credits during suspension Others will not be able to receive benefits during suspension Exception: divorced spouse will be able to continue receiving benefits. Part B Medicare premiums cannot be deducted from suspended benefits.

Restricted application strategy has changed New rules Rules depend on age Those who have already filed a restricted application Benefits are unaffected. (Unless the other spouse suspends after April 29, 2016.) Those born on or before January 1, 1954 “Restricted Application” strategy available when Full Retirement Age is reached. (Unless the other spouse suspends after April 29, 2016.) Those born after January 1, 1954 “Restricted Application” strategy no longer available. Upon filing, will be “deemed” to have filed for ALL benefits to which entitled. Restricted application was affected by the 2015 Bipartisan Budget Act, but a little differently. The chart shows how it will work going forward. Anyone who has already filed a restricted application can continue under the old rules; their benefits are unaffected (unless the other spouse suspends their benefit after April 29, 2016.) The availability of this option outside of those already using it depends on your age. If you were born on or before January 1, 1954, you will retain the right to use this strategy once you reach Full Retirement Age (the only exception is if your spouse suspends their benefit after April 29, 2016.). For all others, when you file in the future you will automatically be deemed to have filed for all benefits to which you are entitled, so you effectively will not be able to use this strategy.

Claiming strategy Restricted application Restricts your claim for Social Security retirement benefits to spousal benefits only This strategy recently changed and may be unavailable for some retirees If born on or before 1-1-54, only available at FRA If born after 1-1-54, this strategy is not available Restrict your claim for SS retirement benefits to spousal benefits only This strategy recently changed and may be unavailable for some retirees If born on or before 1-1-54, only available at FRA If born after 1-1-54, this strategy is not available

Strategies for former spouses If you are divorced you can claim a spousal benefit on your ex-spouse’s earnings if … Your marriage lasted 10 years or more You (the claimant) have not remarried You (the claimant) are not entitled to a higher individual benefit Both you and your ex-spouse are age 62 or older Your former spouse has already filed for benefits OR you have been divorced for at least two years. Not everybody knows that spousal benefits are available to former spouses as well. These benefits apply even if your former spouse has remarried. Why does this matter? If your former spouse earned substantially higher benefits than your own, you may be entitled to apply for the spousal benefit, with is 50% of your ex-spouse’s benefit. If you are divorced, you can claim a spousal benefit if… [review points on slide]

Strategies for widows / widowers Surviving spouses can receive: Reduced benefits as early as age 60 or Full benefits at FRA or older If survivor qualifies for benefits on own earnings record, may switch from survivor to own retirement benefit If you are a widow or widower, you may be eligible for a survivor benefit. [Review points on slide]

Social Security tomorrow Much press about future of Social Security Currently 2.8 workers for each beneficiary By 2035 it will be 2.1 workers Tax and benefit changes most likely to affect younger workers Bipartisan Budget Act of 2015 changed rules for couples There is much press about the future of Social Security. While no one can predict the future, we do know enough about the program to project that there will be some changes down the road. Currently there are 2.8 workers for each beneficiary. As more and more of the baby boom generation moves into retirement, by 2035 there will be 2.1 workers for every beneficiary. This puts financial strain on the funding of benefits. If history is any indicator, changes to the program are more likely to affect younger workers. The last time there was a major reform was in 1983, when qualification for full benefits was pushed out beyond age 65 for younger workers. We’ve recently seen some appetite for change in the form of the 2015, the Bipartisan Budget Act, which modified the rules for certain claiming strategies.

Taking action Now that you’ve taken a first step in exploring your Social Security options, use these important resources to continue learning.

Learn even more Visit ssa.gov for benefit and program info Create an account to view your earnings and estimated retirement benefits Access a benefits application form Find an office near you [Read slide]

Social Security is something that many people don’t put enough thought into. According to a 2015 Securian study, [review points on slide].

It helps to have a guide Social Security is an important source of retirement income Many options and additional strategies for collecting benefits Your story and circumstances are unique to you We can prepare a simple or comprehensive estimate for you The good news is that by attending today’s presentation you have taken an important first step in developing your Social Security strategy. Deciding when and how to collect your benefits is a huge decision. So it is important to have a financial advisor to help you navigate things. You can use today’s workbook as a reference tool for when you work with your advisor. Everyone’s retirement journey is unique, so it is important to have access to planning tools that can take many factors into account. With Securian’s Social Security calculators, we can prepare a simple or comprehensive Social Security estimate for you.

I want to thank you very much for you time and attention today I want to thank you very much for you time and attention today. Social Security is an important part of your retirement income strategy, and I am happy to answer any questions you may have at this time. 37

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