1. Taking the Mystery out of Retirement It’s All About Planning Session Three Social Security (A Serious When & How Dilemma)

2. 6/13/2016Copyright - Next Level Results, Inc.2 Social Security  History Enacted into law in 1935. Created in response to the depression of the early 1930’s. It’s original intent was to stimulate the economy by incenting to leave the workplace and make way for younger workers, not as a retirement plan.

3. 6/13/2016Copyright - Next Level Results, Inc.3 Social Security When Social Security began in 1935, only 40% of workers were included, and they paid 1% of the first $3,000 they earned. Today about 95% of American workers and self- employed persons now pay in to, and may draw benefits from Social Security.

4. 6/13/2016Copyright - Next Level Results, Inc.4 Social Security Worker benefits are not directly related to need. Worker benefits are based on income through years of working. The amount of your worker benefits will be between 25% of your average income (if your income is high), and 50% (if your income is low).

5. 6/13/2016Copyright - Next Level Results, Inc.5 Social Security Social Security earnings subject to the payroll tax are $118,500 in 2015. About 6% of workers will pay higher taxes as a result of this change. Benefits increase yearly, if justified by the cost of living. The increase in January 2015 was 1.7%.

6. Social Security After the 1.7% COLA in 2015, the average annual Social Security benefit for retired workers is expected to increase by $22.00 to $1,328. The average monthly benefit for couples who are both receiving benefits will climb by $36.00 to $2,176, or $26,112 per year, after the cost of living adjustment. 6/13/2016Copyright - Next Level Results, Inc.6

7. Social Security The maximum possible benefit a retiree can claim in 2015, at full retirement age (FRA), is $2,663. 6/13/2016Copyright - Next Level Results, Inc.7

8. Social Security  What’s the $ Value of Your Social Security Benefit? If, at his FRA, a 50 year old man had accrued a Social Security monthly benefit of $1,750. In order to generate the same amount of income at age 70, the individual today would have to pay $436,517 into an immediate annuity. 6/13/2016Copyright - Next Level Results, Inc.8

9. Value of Inflation Protection (COLA) Example: Worker with average pre-retirement income of $ 30,000 (Retiring at age 66 in 2014) 1 st Year of Retirement Pension $ 13,000/50% Social Security $ 13,000/50% Inflation 3% per year 6/13/2016Copyright - Next Level Results, Inc.9

10. Value of Inflation Protection (COLA) Worker with pre-retirement income of $32,000 6/13/2016Copyright - Next Level Results, Inc.10 5 th Year of Retirement Pension $ 13,000/47% Social Security $ 14,632/53% 10 th Year of Retirement Pension $ 13,000/43% Social Security $ 16,962/57% 20 th Year of Retirement Pension $ 13,000/36% Social Security $ 22,796/64%

11. 6/13/2016Copyright - Next Level Results, Inc.11 Social Security The Social Security Administration uses your highest 35 years of income (not continuous) to come up with your average monthly benefit. If you stop working before you have 35 years of earnings, some of your earning years will end up being 0’s.

12. 6/13/2016Copyright - Next Level Results, Inc.12 Social Security  What Is Your Full Retirement Age? In 1983, Congress gradually raised the full retirement age (FRA) from 65 to 67. If you were You can’t collect How much you born in… full benefit until lose at age 62 1937 or earlier65 20.00% 193865 & 2 months 20.83 193965 & 4 months 21.67

13. 6/13/2016Copyright - Next Level Results, Inc.13 Social Security If you were You can’t collect How much you born in… full benefit until lose at age 62 1940 65 & 6 months 22.50 % 1941 65 & 8 months 23.33 1942 65 & 10 months 24.17 1943 -1954 66 25.00 1955 66 & 2 months 25.80

14. 6/13/2016Copyright - Next Level Results, Inc.14 Social Security If you were You can’t collect How much you born in… full benefit until lose at age 62 1956 66 & 4 months 26.66 % 1957 66 & 6 months 27.50 1958 66 & 8 months 28.33 1959 66 & 10 months 29.17 1960 or later 67 30.00

15. 6/13/2016Copyright - Next Level Results, Inc.15 Social Security  If your FRA is 66: At age 62, your benefits would be 25% less. At age 63, your benefits would be about 18% less. At age 64, your benefits would be about 10% less.

16. Social Security  Social Security offers three distinct types of benefits for retired workers and/or their spouses: 1. The basic retirement worker benefit, which is determined by how long an individual works and how much he earns. 2. A spousal benefit, which provides a worker’s spouse with a benefit once the worker has claimed his own benefit. 6/13/2016Copyright - Next Level Results, Inc.16

17. Social Security 3. A survivor benefit, which provides a surviving spouse with a benefit after a worker’s death. 6/13/2016Copyright - Next Level Results, Inc.17

18. 6/13/2016Copyright - Next Level Results, Inc.18 Social Security  Six Misconceptions About Social Security 1. It’s usually a good idea to start benefits at age 62, as soon as you become eligible. Reality: This reasoning is usually based on fear, ignorance, health, or economic situations. When to start benefits is a complex decision that should be personalized for each individual.

19. 6/13/2016Copyright - Next Level Results, Inc.19 Social Security 2. If you don’t start benefits early, you must wait a certain number of years to “break-even”. Reality: While there is no universal break-even age, because the variables behind the calculation can change, most people will benefit from waiting until their FRA to begin taking benefits.

20. 6/13/2016Copyright - Next Level Results, Inc.20 Social Security 3. If you keep working after you start benefits before your FRA, you could permanently lose part or even all of your benefits. Reality: Any benefit reductions are only deferred until you reach your FRA, when your future Social Security benefits are recalculated to compensate for the benefit reductions.

21. 6/13/2016Copyright - Next Level Results, Inc.21 Social Security 4. If you keep working after full retirement age, you will keep paying FICA into the system but you won’t earn any more benefit credits. Reality: Your SS benefits will be recalculated for every year in in which you work, and they are based on your 35 highest years of inflation adjusted earnings. If you earn enough for the year to be one of your highest 35 years, then your benefits will increase.

22. 6/13/2016Copyright - Next Level Results, Inc.22 Social Security 5. The tax on Social Security benefits isn’t enough to worry about. Reality: First, it is possible and perhaps likely that the taxable portion could increase to 100% in the future, as a politically attractive way to strengthen the system’s fiscal status. Secondly, because SS benefits are usually paid monthly, they offer little tax planning flexibility.

23. 6/13/2016Copyright - Next Level Results, Inc.23 Social Security 6. Social Security Cost of Living Adjustments (COLAs) don’t really help seniors offset inflation. Reality: The Cost of Living Adjustments (COLA) is perhaps Social Security’s most powerful long-term planning benefit. For an 85 year-old person who started benefits 20 years ago, cumulative COLAs now provide more benefit than the starting benefit itself.

24. 6/13/2016Copyright - Next Level Results, Inc.24 Social Security  When to Start Social Security Benefits About half of all workers start collecting benefits early, at age 62. Why?  Unable to work for health reasons.  Economic circumstances.  Poor longevity odds.  Make a better return by investing.  Uninformed decisions.

25. 6/13/2016Copyright - Next Level Results, Inc.25 Social Security Reasons to start later.  You haven’t saved enough.  You want to avoid the earnings penalty, but…  You want to postpone paying taxes.  You are concerned about your spouse’s future.

26. 6/13/2016Copyright - Next Level Results, Inc.26 Social Security By waiting, the amount of your benefits permanently increases for each year you wait, until age 70. Beginning in 2008 the annual guaranteed “credit” for postponing the start of collecting benefits rose to 8% for those born after 1942. This credit continues until you reach age 70.

27. 6/13/2016Copyright - Next Level Results, Inc.27 Social Security  Spousal Benefits Benefits for your spouse will be 50% of your benefits as a retired worker, if the following two conditions are true.  The retired worked is at their FRA, and is collecting benefits.  The spouse is at their FRA.

28. Social Security This is an important point for couples. When filing for spousal benefits, if the previous two conditions are not true, the person filing for spousal benefits will have ‘deemed’ to have filed for their own worker benefit, and that will be paid first, before any spousal benefit is paid. Your spouse may still get some of your benefits, as Social Security makes up the difference if your spouse’s benefits fall short of your benefits. 6/13/2016Copyright - Next Level Results, Inc.28

29. 6/13/2016Copyright - Next Level Results, Inc.29 Social Security  Spousal Example (Two conditions not met) You and your spouse retire at age 66 & 64. You, at your FRA of 66, have started receiving benefits of $2,174 per month. Your spouse files for spousal benefits at age 64, not her FRA of 66. Based on her own work record, she is eligible for benefits of $700 per month.

30. Social Security Because she filed for a spousal benefit prior to her FRA, Social Security deems she has filed for her own worker benefit and pays that first. She is also not eligible for the full 50% spousal benefit. She receives 46% of her spouse’s benefit of $2,174, which is $1,000. Your spouse would receive a combination of benefits. $700 from her work record, and $300 ($1,000 - $700) from your benefit, for a total of $1,000. 6/13/2016Copyright - Next Level Results, Inc.30

31. 6/13/2016Copyright - Next Level Results, Inc.31 Social Security As seen in the previous example, if a worker reaches FRA earlier than his/her spouse, and their spouse wants to start their spousal benefit early, then the benefit amount is no longer 50 %.  At age 64, about 46% of the full benefit.  At age 63, about 42% of the full benefit.  At age 62, about 37.5 % of the full benefit.

32. 6/13/2016Copyright - Next Level Results, Inc.32 Social Security  Benefits for Divorced Spouses You are eligible for dependent benefits, if both you and your former spouse have reached 62. Your marriage lasted 10 years and, if you have re-married, the marriage took place after age 60.

33. Social Security You have been divorced 2 years.* Unlike the rules for married couples applying for spousal benefits, your ex-spouse does not have to be collecting their worker benefit, for you to be able to apply. *This 2 year waiting period doesn’t apply if your former spouse was already collecting retirement benefits before the divorce. 6/13/2016Copyright - Next Level Results, Inc.33

34. 6/13/2016Copyright - Next Level Results, Inc.34 Social Security  What If I Work While Receiving Benefits? If you are under your FRA when you start taking Social Security, $1 in benefits will be deducted for each $2 you earn above the annual limit. For 2015 that limit is $15,720. In the year you reach your FRA, $1 in benefits will be deducted for each $3 you earn above a different limit, but only counting earnings before the month you reach FRA. For 2015 that limit is $41,880.

35. 6/13/2016Copyright - Next Level Results, Inc.35 Social Security Starting with the month you reach full retirement age, you will get your Social Security benefits with no limit on your earnings. Once you reach FRA, Social Security recalculates your future benefits to compensate for any benefits lost due to the earnings test.

36. 6/13/2016Copyright - Next Level Results, Inc.36 Social Security  Are Social Security Benefits Taxed? Taxes on Social Security are determined from the following reported items:  Tax Exempt Interest Income (received or accrued)  50% of Social Security Income  Capital Gains  Ordinary Income (including IRA distributions)  Retirement Income

37. Social Security If your income from those items, as an individual is between $25,000 and $34,000 (or for a couple filing jointly, between $32,000 and $44,000) you may have to pay income taxes on 50% of your Social Security benefits. If your income from those items is more than $34,000 as an individual ($44,000 for a couple filing jointly), you may owe income taxes on up to 85% of your benefits. 6/13/2016Copyright - Next Level Results, Inc.37

38. 6/13/2016Copyright - Next Level Results, Inc.38 Social Security  Will I Receive My Social Security Benefits? The first of the 76-78 million baby boomers (born from 1946 – 1964) turned 62 in 2008. An estimated 10,000 a day will become eligible for Social Security benefits over the next 20 years. In 2010, Social Security began paying out more in benefits than it collected each year in payroll taxes.

39. 6/13/2016Copyright - Next Level Results, Inc.39 Social Security If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2033. In order for Social Security to survive, changes will have to be made, but what and when are yet to be determined. Stay tuned….

40. 6/13/2016Copyright - Next Level Results, Inc.40 Social Security  Resources - Books Social Security, Medicare & Government Pensions – NOLO The Social Security Fix-It Book – Center for Retirement Research (Boston College)  crr.bc.edu crr.bc.edu

41. 6/13/2016Copyright - Next Level Results, Inc.41 Social Security  Resources - Websites Social Security Web Site  ssa.gov ssa.gov To Decide when to take Social Security  analyzenow.com analyzenow.com  metlife.com/Social Security

42. 6/13/2016Copyright - Next Level Results, Inc.42 Social Security  Local Social Security/Medicare Offices 1-800-772-1213 Mon, Tue, Thu, Fri 9:00 AM – 4:00 PM Wed 9:00 AM - Noon

43. 6/13/2016Copyright - Next Level Results, Inc.43 Social Security Thank You! Questions? Please Complete the Feedback Form! Bob Schulz http://www.retirementguy.org rhschulz2000@gmail.com