Social Security – The choice of a lifetime Understanding when and how to file for Social Security benefits

NFM-11701AO (12/13) 2 Important things to keep in mind 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) Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value

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 3

4 1 Source: “SS Supplement b(2)", Social Security Administration 2 FRA = Full retirement age. For this data, FRA is 66. When does the filing decision happen? New Social Security claimants in a calendar year 1 Less than one in three individuals filed for full benefits at FRA 2 or later

5 Meet Jim & Linda 3 Assumes average life expectancy of 83 for men and 86 for women and 2.5% annual cost-of-living adjustments (COLA). $2,300 Jim’s SS benefit at full retirement age. $1,200 Linda’s SS benefit at full retirement age. $973,428 Cumulative benefit if both file for Social Security at 62 3 $1,273,620 Cumulative benefit if both optimize SS benefits 3 62-year-old married couple $300,192 Cumulative benefit lost by filing early

Significant income for retiree households 8 Retirement income sources for the mass affluent 4 4 LIMRA Retirement Income Reference Book, 2012; “Sources of Retirement Income study”, LIMRA, Employment & other: 14% Personal assets & retirement plans: 16% Social Security : 32% Pensions: 38%

Significant income for retiree households 8 Avg. % of retirement income sources 4 LIMRA Retirement Income Reference Book, 2012; “Sources of Retirement Income study”, LIMRA, Employment & other: 14% Personal assets & retirement plans: 15% Social Security : 33% Pensions: 38%

Will Social Security be there for you? 8 With no legislative changes, Social Security would pay 75% of benefits afterward 4 5 Source: Social Security Administration, “Summary of 2013 Annual Reports”, Social Security and Medicare Boards of Trustees. Full benefits payable to at least

9 Will you be there for Social Security? chance of reaching age… 65-year-old male 65-year-old female 65-year-old spouse % chance of reaching age… 25% 4 LIMRA Retirement Income Reference Book, 2012; “Sources of Retirement Income study”, LIMRA, 2011

More than a monthly check 10 Guaranteed lifetime income Indexed to inflation Spousal and survivorship benefits Preferential tax treatment Old Age, Survivors and Disability Insurance (OASDI)

Social Security Act of Ida May Fuller: First recipient of a monthly Social Security check (1940) Ida May Fuller: First recipient of a monthly Social Security check (1940) Designed to help older Americans living in poverty during the Great Depression Never meant to be sole source of retirement income

Primary Insurance Amount (PIA) 12 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 ssa.gov)

Full Retirement Age (FRA) EARLYFRADELAY Birth year 1943 – – later FRA mos mos mos mos mos. 67 Eligible for 100% of benefits

Early & delayed filing affects PIA 14 75% % of full Social Security benefit received % 132% 86% 80% 108% 124% 116% 93% Start SS age… In 2014, people born in 1948 will reach 66 No benefit in delaying past 70

Social Security filing options 15 Deemed filing File for all eligible benefits Benefits discounted if filing before FRA Standard filing File & suspend File restricted File for all eligible benefits Allows spouse to collect spousal benefits Allows you to begin spousal or survivor benefits only PIA More options if you wait….

Spousal filing rules 16 Eligibility Eligible at 62 Married for at least one year One spouse must file for the other to claim benefits Up to 50% of spouse’s PIA Benefits

For surviving spouses 17 EligibilityBenefits Married for at least 9 months Benefits can be taken as early as age 60 Spouse’s PIA including delayed retirement credits earned Survivor benefits can be received independent of individual benefits

At 66… Jim files and suspends Linda files restricted for spousal benefits Linda mo. benefit: $1,269 At 70… Both spouses switch to their own benefits with credits for delaying Linda mo. benefit: $1,929 Jim mo. benefit: $3,698 At 83… Jim passes away Linda starts survivor benefits at Jim’s PIA Linda mo. benefit: $5,097 Optimizing spousal and survivor benefits 18 File & Suspend with File Restricted Cumulative SS benefits: $1,273,620

For divorced spouses 19 EligibilityBenefits Married for at least 10 years Currently unmarried or remarried after age 60 Ex-spouse does not have to file Spousal and survivor benefits No impact on ex-spouse’s benefit Not subject to the family maximum

For dependent children 20 EligibilityBenefits Dependent under age 18 Disabled dependents if disability occurred before age 22 50% of parent’s PIA 75% of survivor’s benefit

For disabled individuals 21 EligibilityBenefits Qualifying medical condition Recent work test (individual) Duration of work test (individual) Individual benefit Spousal benefit Survivor benefit

22 Making your filing decision easier

Simplifying Social Security decisions 23 Identifies optimal filing strategies and allows you to adjust parameters to compare different strategies Helps you integrate Social Security into your comprehensive retirement income plan Provides instructions on how to file Social Security 360 Analyzer Tool ®

Compare filing strategies 24 The client’s Social Security report shows cumulative benefits of an optimization strategy vs. early filing and alternative filing strategies

Analyze break-even points 25 Illustrates which of the outlined strategies provides the best outcome at any given set of whole year death age combinations.

Identify income gaps 26 The report illustrates annual Social Security cash flow for the suggested filing strategy vs. projected retirement income needs.

Gathering inputs for your analysis 27 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.

The choice of a lifetime 28 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

Three steps in Social Security planning 29  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

30 Appendix

$1 withheld for every $2 above annual limit ($15,480) $1 withheld for every $3 above annual limit ($41,400) No limit on earnings At FRA Working in retirement 31 Before FRA After FRA Withheld earnings are returned

For same-sex couples 32 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 Information as of October 30, 2012

33 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

34 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

35 How GPO reduces benefits Spouse 1: Worked in government throughout career Receiving $2,100 monthly pension GPO = $1,400 (2/3 of $2,100) Spouse 2: Worked in private sector Paid FICA taxes PIA: $2,000/month 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

Social Security – Up to 85% taxed Immediate annuity income Cash-value life insurance Roth IRAs and 401(k)s Interest from municipal bonds Loans from life insurance policies Pension Income Traditional Retirement accounts (401(k), IRA) Interest and dividend income Social Security concern: Taxation 36 Taxable retirement income Partially taxable retirement income Tax-free retirement income

How delaying may reduce tax burden 37 * Adjusted Gross Income Social Security income increases 79% Taxable income decreases 40% Taxable SS Benefit$32,300$24,700 Taxable Income (AGI + SS Income test) $94,300$56,700 Early SS filingDelayed SS Target Pre-Tax Income$100,000 SS Income$38,000$68,000 Traditional retirement account income* $62,000$32,000