1. Making Government Benefits Work For You
Understanding Social Security and Medicare

2. Living Longer Life Expectancy Upon Retirement at Age 65
50% chance of living to
25% chance of living to
50% chance of living to
Many of you I’m sure are aware of the medical advances and healthier lifestyles have increased longevity. A couple who reaches 65 has a 50% chance to living into their early 90’s and 25% into their late 90’s. So we can assume from these statistics 1 person from a couple will live into their 90s. However people are not taking longevity into account when taking their benefits.
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 Figures assume you are in good health.

3. But Still Collecting Early
In fact 73% of people collecting Social Security benefits today are collecting reduced amounts because they collected early, often as early as age 62. Why, in the face of longevity, do many people collect benefits when they hit age 62? Probably because they can. Even though so many people are concerned with longevity, they are willing to except reduced benefits for life to avoid not getting their fair share of benefits because they may die early.
But longevity is a reality. In 2014 there were over 2.1 million people over the age of 90 collecting Social Security benefits. There were about 60,000 people over the age of 100 collecting benefits.
Source: Table 5.A10
Source: Social Security Administration’s Annual statistical supplement, 2014.

4. Rules of Retirement Benefits
Now let’s dive into some of the rules.
Individual Benefits

5. Online Statements or Retirement Estimator
Individual Benefits
Most workers pay into the program with each paycheck and will qualify for Social Security benefits at retirement. Workers pays FICA tax up to the Social Security wage base ($118,500 in 2016) toward Social Security. This amount is matched by the worker’s employer. To be fully insured, a worker needs 40 credits. A maximum of 4 credits can be earned per year. For 2016, one credit is earned for every $1,260 of wages.
Currently, individuals who are paying FICA taxes and are at least age 60 should be receiving a Social Security benefits statement in the mail about three months before their birthday. This statement includes earnings record on page 3. You should check this carefully because benefits will be based off this record, mistakes and all. If you spot any mistakes, call the Social Security administration to correct them.
Benefits are based on the best 35 years of work history and the benefits reflected on your statement reflect the assumption that you will continue to earn your current salary (from the last two years) until you begin to collect benefits.
You should also review the information on page 2. This is where you will find three key numbers: your monthly benefits if you elect to collect at full retirement age, monthly benefits if you collect at age 70 and their monthly benefits if they collect at age 62.
The Social Security Administration has a calculator on their website which will allow you modify the expected retirement date and wage assumptions to create a more accurate estimate of expected benefits.
Best 35 Years
Online Statements or Retirement Estimator
Source: Social Security Administration (

6. The Tradeoff for Individual Benefits
Full Retirement Age
Age 62
Age 70
Reduced Benefits
Increased Benefits
Primary Insurance Amount (PIA)
You have the option to start collecting benefits anytime between age 62 and age 70. However, if you collect before full retirement age, you will collect reduced benefits. If you wait until full retirement age, you will be eligible for full benefits (also known as the primary insurance amount). If you wait until after full retirement, you will be eligible for an increased benefit.
Full retirement age is not the same for everyone. For those born 1937 or earlier, it is 65. For those approaching retirement right now, it is right around age 66 which we will use as full retirement age for the remainder of the seminar.
Full Retirement Age (FRA) 65
1937 or earlier 66 67
1960 and later
Source: Social Security Administration (

7. Collecting Early: The Cost
Cost of Collecting Early
As we saw before, the majority of individuals take benefits before full retirement age. If you elect to take benefits early, benefits will be permanently reduced. The payment is not adjusted when you reach FRA. What else should you consider before you go ahead and agree to a permanently reduced benefits?
Percentage of monthly reduction and total reductions are approx due to rounding. Actual reductions are 5/9 of 1% per month or .555 for the first 3 years and 5/12 of 1% (.416) for subsequent months.
Percentage of FRA Benefits
Source: Social Security Administration ( Assumes full retirement age of 66.

8. 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?
Among other things, you need to consider current health, family history of longevity, and, if you are married, the age difference between you and your spouse.
One extremely important consideration that could directly influence you not to collect early, is whether or not you are actually retiring. Are you grabbing the benefit because you can? Or are you grabbing the benefit because you’re actually retiring and need the income?

9. 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
Social Security benefits are intended to be supplemental retirement income. So the SSA really wants you to be retired when you collect them. Therefore, they will penalize you for collecting early if you are not actually retired. If you collect benefits early, you will be subject to an annual earnings test which looks exclusively at salary. Prior to full retirement age, if you earn more than the threshold amount ($15,720 in 2016), you lose $1 of benefits for every $2 earned over the threshold. Now keep in mind, this is on top of already reduced benefits.
For the year in which you reach full retirement age, a different rule applies. The threshold is $41,880 in And the rule is that you lose $1 in benefits for every $3 in earnings over the threshold. Once full retirement age is reached (in August and beyond), there is no threshold so you can earn any amount after that with no reduction in benefits.
This applies to all retirement benefits – individual, spousal, child and survivor – collected before FRA.
Applies to any retirement benefits collected before FRA.
Earnings limit looks at wages only.
Source: Social Security Administration (

10. Changing Your Mind
If someone starts collecting their benefits prior to FRA and they find themselves returning to work and having their benefits withheld, they can consider a Withdrawal of Application. This essentially allows a do-over. The do-over provision is allowed only if the application is withdrawn within the first 12 months after starting benefits.  Then the worker can repay benefits, and essentially start over.  The unlimited “do-over” provision was prohibited by the SSA several years ago.
The benefits are simply suspended, and once the worker re-applies, SSA recalculates the worker’s benefit based on the revised work history. 
They need to repay the SSA everything they had received to date, along with any family benefits paid on their work history, and then they can subsequently apply as if it were their first time applying.
The SSA has recently restricted the use of the Withdrawal to within 12 months of collecting benefits and will only allow one withdrawal per lifetime.
Source: Social Security Administration (

11. Collecting Late: The Guaranteed Increase
Increases for Collecting Late
So far we have discussed the drawback to collecting early or working when collecting benefits. Let’s switch gears to show what happens if you wait to collect benefits. You will be awarded guaranteed increases to your benefits of 8% per year (assuming you were born in 1943 or later) per year deferred beyond full retirement age up until age 70. For someone with a FRA of age 66, this could be an increase of 32% by age 70.
Percentage of FRA Benefits
Source: Social Security Administration ( Assumes full retirement age of 66 and individual born in 1943 or later.

12. A Question of Longevity
Break Even Analysis
Age 82.5
Deciding what age to collect benefits as a single filer simply comes down to the question: How long do you think you will live? However by comparing payment cash flows you are able to determine a break even point that allows you to make a more informed decision.
Whether you start receiving lower benefits early or waiting and collecting a higher benefit amount later, at some point you will break even, which means you will receive the same amount of money no matter when you started collecting.
In the first example the break even analysis shows collecting at age 62 vs. collecting at full retirement age, in this example the break even point is the age of 78.
In the second example the breakeven when taking at FRA vs. 70 is 82 and 6 months. If you think you will live beyond 82 and 6 months, you might opt to receive larger checks later and begin collection at age 70.
While it’s impossible to know exactly how long you will live, you can make a reasonable guess about your current health and family history and looking at your break even age can help you when making your collection decision.
Age 78 62
75%
of PIA 66
100%
of PIA 70
132%
of PIA

13. Rules of Retirement Benefits
Now let’s dive into some of the rules.
Spousal and Survivor Benefits

14. Spousal Benefits - Amount
Jordan
PIA: $2,200
Alex
PIA: $0
50% x $2,200
$1,100
Age 62
FRA
Let’s take a look at a sample married couple, Jordan and Alex. Jordan worked and his Primary Insurance Amount is $2,200. Alex did not work, therefore did not pay into social security for at least ten years and therefore has a PIA of $0.
There are four key things to make sure your clients know about Spousal Benefits:
First, a spousal benefit is equal to 50% of their partner’s Primary Insurance Amount (PIA) once they themselves reach their Full Retirement Age (FRA).
Because Jordan has a PIA of $2,200, once Alex reaches her FRA of 66, the spousal benefit is equal to half of that or $1,100.
So, at FRA, Jordan could get a check for $2,200 every month and Alex could receive $1,100 a month.
Age 70
Jordan
Collect - $2,200
Alex
Collect Spousal- $1,100
Source: Social Security Administration (

15. Spousal Benefits - Amount
Jordan
PIA: $2,200
Alex
PIA: $0
50% x $2,200
$1,100
Age 62
FRA
It is important to make sure that your clients understand that it is 50% of the PIA, not 50% of the benefit being collected.
If Jordan collects his benefit early at age 62 and locks in a lower benefit for himself, as long as Alex waits until FRA, she can still receive the full $1,100.
Age 70
Jordan
Collect - $1,650
Alex
Collect Spousal- $1,100
Source: Social Security Administration (

16. Spousal Benefits - Reduction
Maximum Spousal Benefit Amount
150%
100%
100%
100%
100%
100%
100%
92%
83%
The second key thing to share with your clients about a Spousal Benefit is that:
WHEN Alex collects her spousal benefit can impact the total she takes home. If she collects spousal benefits before FRA, her spousal benefits will be reduced (please note that collecting four years early results in a 30% lower benefit). On the other hand, she is not rewarded for waiting beyond FRA. Spousal benefits do not receive delayed retirement credits, so there’s no incentive to wait to collect a spousal benefit beyond full retirement age.
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 (

17. Spousal Benefits - Eligibility
Jordan
PIA: $2,200
Alex
PIA: $0
Age 62
FRA
Age 70
Jordan
Third, Jordan must file for his benefit in order for Alex to be eligible to collect a spousal benefit.
So if they are both the same age and Jordan waits until 70 to file and collect, Alex must wait until 70 to collect the spousal benefit.
$2,904
Collects Individual
Benefit Increased 32%
Alex
Collect Spousal- $1,100
Collects Spousal
Benefit (no increase)
Source: Social Security Administration ( *If request to suspend is made after April 30th, 2016.

18. Spousal Benefits - Eligibility
Jordan
PIA: $2,200
Alex
PIA: $0
Age 62
FRA
Age 70
Jordan
$1,650
If Jordan files and collects at 62, Alex can collect a reduced spousal benefit at that point.
Collects Individual
Benefit Reduced 25%
Alex
$770
Collects Spousal
Benefit Reduced 30%
Source: Social Security Administration ( *If request to suspend is made after April 30th, 2016.

19. 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
With recent legislation, voluntary suspension requested after April 30th, 2016 has new consequences:
During suspension, any spousal or dependent child benefit will also be turned off. The filer must begin collecting benefits again in order for others to be eligible to collect off of their record.
The option to request retroactive payments of those suspended benefits will not be available.
The filer won’t be able to claim any other benefit while their benefit is suspended.
These changes render the “file & suspend” strategy mute if the suspension is requested after April 30th, 2016.
Your client may still choose to take advantage of voluntary suspension. If your client elects to collect benefits early but then, at or after FRA, decides he would rather earn the raise instead of receiving a monthly SS check (for example, collected at 62 to cover health insurance premiums, but once enrolled in Medicare the extra income isn’t needed), he has the option to suspend collection of benefits.
When Jordan files and collects reduced benefits at age 62, he enables Alex to collect spousal benefits at age 62 as well. If Jordan requests voluntary suspension after April 30th, 2016, Alex or any minor dependent children will not be eligible for spousal or dependent benefits. At age 70 when he reinstates his benefits, Alex and or dependent children are once again able to collect spousal and dependent benefits.
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 ( *If request to suspend is made after April 30th, 2016.

20. 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
What if Alex is entitled to an individual benefit, say $600. Well the fourth thing to tell your clients about spousal benefits is that you don’t get to add a spousal benefit to and individual benefit. They are actually netted against one another.
If Alex collected her own benefits at FRA, she would receive $600. If she collected at age 62, that would be reduced by 25% to $450. If she waited until age 70, the $600 would increase by 32% to $792.
Now if we add spousal benefits to the mix, it becomes a little more complicated. Alex’s spousal benefits at their core are worth $1,100. That means if she collects her spousal benefits at FRA along with her own, she’ll add an additional $500 of spousal benefits to her own $600 for a total of $1,100. If she takes spousal at age 62, her $500 will be reduced by 30% to $350 for a benefit total of $800. On the other hand, if she waits until age 70 for both benefits, her spousal benefit will only be enough to get her to $1,100 (her maximum spousal benefit). In this case, she would add $308 to her own $792.
So to recap:
Spousal Benefits are equal to 50% of partner’s PIA
They don’t get any bigger if you wait past FRA
Partner must have filed for individual benefits (and not requested suspension after April 2016).
Individual benefits and Spousal benefits are netted agains one another
-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 (

21. 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
Now let’s talk about survivor benefits and why they’re an important part of the decision. Over half of all the woman collecting benefits today are collecting benefits all or in part based on their husband's work history. So the decisions Jordan makes will likely impact Alex’s benefits even after he’s gone.
Unlike spousal benefits, survivor benefits are tied directly to Jordan’s collection decision. That means if he collects at age 62, he leaves Alex with significantly lower survivor benefits than if he collects at age 70.
Jordan’s Benefits (70) $2,904
Survivor Benefits $2,904
Source: Social Security Administration’s Annual statistical supplement, Assumes full retirement age of 66 and primary insurance amount of $2,200.

22. Collection Strategies
Let’s discuss how to use these rules to create the best collection strategy for your clients.

23. 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
If both collected at 62, Jordan would receive his own monthly benefits of $1,650 ($2,200 reduced by 25%). Alex would receive her own monthly benefits of $450 until Jordan passed away at age 75. She would receive an additional $350 as spousal benefits also until he passed away. When Jordan passes away, Alex would be eligible to receive $1,815 as survivor benefits in lieu of her other benefits. At the end of the day, they receive $607,620 back from Social Security.
Collect Individual Benefits - $450
Alex
Collect Adjusted Spousal Benefits - $350
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
Spousal Benefits
$277,200
$75,600
$58,800
= $350 x 168 months
Jordan’s Benefits
Alex’s Benefits
Spousal Benefits
Survivor Benefits
$277,200
$75,600
$58,800
$152,460
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

24. 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
Had they both deferred until FRA, Jordan would receive his own monthly benefits of $2,200. Alex would receive her own monthly benefits of $600. She would receive an additional $500 as spousal benefits. When Jordan passes away, Alex would be eligible to receive $2,200 as survivor benefits.
Even though they received benefits for a shorter period of time, because they received higher amounts, they actually received $633,600 back.
Collect Individual Benefits - $600
Alex
Collect Adjusted Spousal Benefits - $500
Both Age 62
Both FRA
$607,620
$633,600
Both Age 62
$607,620

25. 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
Had they deferred until age 70, they would have only received $601,920. This is a risk a lot of clients are not willing to take. When clients don’t have the longevity, deferring to age 70 may not always be in your best interest. That is why we would suggest considering strategies that provide the greatest amount of benefits and flexibility regardless of the duration of retirement.
$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

26. 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
What if the lower earner, in this case Alex, started collecting at 62, but Jordan deferred until 70. Since Jordan has not filed when Alex begins collecting, the only benefit Alex would receive at age 62, would be her own. So Alex begins collecting a reduced benefit of $450 at 62, and then at age 70, once Jordan begins collecting his benefit of $2,904, Alex can begin receiving an additional $500 as a spousal benefit. This results in Alex receiving $450 a month from 62 to 70 and then $950 a month after that. Because Jordan waited until 70, when he predeceases her, Alex receives $2,904 a month as a survivor benefit. At the end of the day they collect $634,320 from SS.
$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

27. 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
Now we add longevity to the equation. Jordan lives to 85 and Alex to 92. The strategy approach still provides the greatest amount of benefits. Will this always be the case? No. It all depends on the numbers. The higher the lower earner’s numbers are, when longevity is present, the more advantageous it becomes to have both defer to 70.
$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

28. 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
Another strategy to consider applies when the lower earner’s PIA is larger than the spousal benefit. This strategy was impacted by the recent legislative changes. Now this strategy only works for people born on or prior to January 1st, 1954.
Jordan as the older of the two, waits until 70 to collect. Alex, files a restricted application at FRA. The restricted application is only for the spousal benefit she is entitled to receive. She does not file for her benefit or suspend her benefit. She leaves her benefit untouched. At age 70, she files an application to collect her individual benefit (after it has grown 32%).
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

29. Widow – Significant Individual Benefits
Chris PIA: $2,200 Survivor: $2,500 Lives through age 92
Age 60 62
66 (FRA) 70 74
Another time to potentially switch between benefits is when you have a client who is a widow and entitled to survivor benefits and has a good size benefits of her own as well. Chris might compare her own benefits to her survivor and just collect the highest, but the best way to maximize her benefits would be to start collecting one and then switch to the other. She could file for survivor benefits at 60 and received reduced benefits and then allow her own to grow all the way up to age 70 and switch her own benefits of $2,904. Using this strategy could boost her lifetime income by around $200,000!
Survivor Benefits - $1,788
$2,904
Age 62
FRA
Age 70
Strategy
$753,300
$810,000
$801,504
$1,016,004

30. 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.
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
Filing and Suspending
If your client requests a voluntary suspension after April 30th, 2016, three new consequences will occur:
During suspension, any spousal or dependent child benefit will also be turned off. The filer must begin collecting benefits again in order for others to be eligible to collect off of her record.
The option to request retroactive payments of those suspended benefits will not be available.
The filer won’t be able to claim any other benefit while her benefit is suspended.
The Social Security Administration (SSA) currently allows individuals to submit an application up to four moths early.
2. Restricted Application
Restricted applications are only available to clients who reach the age of 62 during Because the SSA considers a person to have reached a given age the day prior to the actual date, that means a person born on or before January 1st, 1954 will still be able file a restricted application once she reaches FRA.
If born after 1/1/54, your client will always have to take the individual benefit first and then the spousal benefit, even after full retirement age. So if her individual benefit is larger than the spousal benefit, she won’t be able to collect a spousal benefit.

31. Additional Beneficiaries – Divorced Spouse10
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
If you have been married for at least 10 years. Are currently unmarried and both you and your ex-spouse are at least age 62, you may be eligible for spousal benefits under the same rules as we discussed earlier. If your ex-spouse has passed away and you are unmarried (or your current marriage started after age 60) and at least age 60, you may be eligible for survivor benefits. 62
*2 years does not apply if the individual was eligible for spousal benefits at the time of divorce.
Source: Social Security Administration (

32. 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
You may have to pay taxes on your Social Security retirement benefits. If your provisional income (1/2 SS benefits + MAGI) is below $25,000 if you’re single or $32,000 if you’re married, your benefits are tax-free. If it’s above these amounts but below $34,000 if you’re single or $44,000 if you’re married, your benefits could be taxable anywhere between 0% and 50%. If it’s above $34,000 if you’re single or $44,000 if you’re married, your benefits could be taxable anywhere between 7% and 85%.
If any of your benefits are taxable, you add that amount onto your taxable income for the year and are taxed at your appropriate marginal income tax rate.
0-50% of Benefits are Taxable
7-85% of Benefits are Taxable
Source: Social Security Administration (

33. 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
(Read slide.)

34. Medicare

35. Prescription Drug Coverage
What is Medicare?
A federal health insurance program for people 65 and over*
Part A
Hospital Insurance
Part C
Medicare Advantage
Part A
Hospital Insurance
Part B
Medical Insurance
Part B
Medical Insurance
So what is Medicare?
Medicare is made up of four parts, A, B, C and D which make up hospital insurance, medical insurance, alternative plans that are Medicare Advantage plans as well as prescriptions drug plans. And there are a lot of decisions to weigh when clients are making their choices. It’s also important to know as you’re creating retirement plans for your clients that Medicare is only expected to pay about half of medical expenses, and that can be a significant amount of money. Since clients may be left facing high out-of-pocket bills, they need to make sure their plan is set up to accommodate these expenses.
When clients enroll in Medicare, they are automatically enrolled in the original Medicare plan (parts A&B) which is a fee-for-service plan offered by the federal government and available anywhere in the US. If clients don’t want the original plan, they need to make more choices and enroll in the various options.
Part D
Prescription Drug Coverage
Medigap
* And for many disabled people.

36. Understanding the Costs of Part A
Out of Pocket Costs for a Hospital Stay (2016)
2016 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* †
So let’s look at Part A. Part A really covers your hospital stays and it’s important to know that there is a cost associated with this. While, for the most part, you don’t need to worry about premiums, unless you’re not eligible for Social Security benefits, but you do need to worry about your other out-of-pocket expenses. You do have a deductibles and co-pays. For the first 60 days, you have to pay a deductible of $1,260. For days between 61 and 150 (assuming using lifetime reserve days), you have daily co-pays. And these daily co-pays can really add up. So you, again, want to make sure you structure retirement plans that can absorb these costs.
* 60 non-renewable days with $630 per day copayment.
† Assumes use of 60 lifetime reserve days.
Source: Centers for Medicare & Medicaid Services.

37. Understanding the Costs of Part B
Monthly Part B Premiums
Now let’s look at part B, the medical insurance part. For this part of Medicare, you’ll probably have a monthly premium and this premium is directly tied to the income the client has in a particular year. Therefore, you how generate income during retirement can have a direct impact on the premiums they will have to pay for Medicare part B. Are there strategies, such as loss harvesting or withdrawing from Roth accounts, which can help you keep their taxable income and their premiums lower?
You might also have clients who say, “I don’t have health issues right now and I don’t want to pay for the premium. I’m going to hold off on applying.” You need to make sure they understand that they will be assessed a premium for not enrolling during initial enrollment of 10% per year delayed. So if they delay for 3 years, they will be subject to a 30% permanent surcharge.
The Internal Revenue Service is permitting for the first time self-employed people to deduct their Medicare Part B health insurance premiums. Recently, a new statement by the IRS in February, 2011 advises individuals to follow rules on IRS Form 1040 when deducting premiums. Prior to the 2010 tax year, the IRS did not permit the deduction to seniors who paid Medicare Part B health insurance premiums, according to IRS Publication 535. IRS officials did not announce the change, which is unusual. The deduction, taken on Line 29 of the Form 1040 standard tax form, even applies to people who do not itemize deductions.
Single
≤$85K
$85K+
$107K+
$160K+
$214K+
Joint
≤$170K
$170K+
$320K+
$428K+
Separate
$129K+
Source: SSA Publication No

38. 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
So how do clients enroll in Medicare? If they collect Social Security retirement benefits, enrollment is automatic. In fact, they’ll receive a card in the mail 3 months before their birthday confirming their enrollment.
Otherwise, they’ll need to proactively reach out to Medicare 3 months before their birthday to apply and then they’ll be filled quarterly for part B premiums.
Part B has three main enrollment periods:
Initial enrollment period: 7 month period beginning the third month before the individual became eligible
General enrollment: Jan 1st thru March 31st of each year. Surcharges may apply.
Special enrollment: Anytime while covered under a current employers plan through the end of the 8th month following your separation.
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. 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
If you have a client who’s still working at age 65, they may not want to sign up for Medicare at that time, at least not for Part B. If you are covered by an employer plan or a spouse’s employment plan, Medicare is secondary.
You might still want to enroll in Part A since it might pick up a couple extra costs and it likely won’t cost you anything.
Part B, however, has those monthly premiums which may not be worth it if Part B takes a backseat to your current plan. So the individual may want to opt out of Part B and then enroll during their special enrollment period following separation from service.
Sign up for Part A
It may pick up costs not covered by employer’s plan
* Assumes an employer with 20 or more employees.

40. Understanding the Costs of Part D
5% (min. co pay $2.95 generic or $7.40 brand)
95% Medicare Benefit (Catastrophic Coverage)
100%
No Medicare Coverage in Doughnut Hole
75% Medicare Benefit (Initial Coverage)
$360 Deductible
$4,850
$4,700 out-of-pocket reached
So let’s look at the actual out-of-pocket expenses to a client.
They have their initial deductible, which in 2016 is $360
Then they don’t get any help from Medicare until they hit $4,850 which equates to over $1,100 in out-of-pocket expenses. Are your clients truly prepared to take on that drain?
$3,310
25%
$360
You Pay
Medicare Pays
Source: Centers for Medicare & Medicaid Services.

41. Choosing the Right Part D Plan
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
So what should your clients think about when choosing a prescription drug plan? This is an important decision because they do have lots of choices. They really need to decide what’s most important to them.
Is cost most important? If so, they should really focus on premiums, deductibles and co-pays. Plans that offer lower premiums are likely to have higher deductibles and co-pays and vice versa. Some clients may use a lot of high cost drugs and may be better off paying a higher premium so that they can enjoy lower deductibles and co-pays. On the other hand, clients who don’t plan to use many prescriptions may be better off with lower premiums and higher deductibles and co-pays.
Or is coverage most important? Not all plans cover all types of prescriptions. So if they have specific drugs they need, they should verify that those drugs are covered. Also, they should check if the plan provides coverage in the doughnut hole, especially if they think their prescription costs will be that high.
Or is convenience the most important? If they want to make sure a certain pharmacy is covered or want the ability to order through the mail, they’ll need to check with the different plans.
The answers to all of these questions will be different for different clients. They will need to prioritize what’s most important and to look for a plan that hits their highest priorities first.
Source: Centers for Medicare & Medicaid Services.

42. Do You Need a Medigap Policy?
Costs in excess of Medicare-approved charges
Plan A
Plan B
Deductibles
Plan C
Plan D
Extended Hospitalization
Plan F
Most self-administered prescription drugs
Since there are so many out of pocket expenses associated with Medicare, many clients consider enrolling in Medigap which is Medicare supplemental insurance. And there are really six key gaps they need to consider.
Deductibles for Parts A & B
Cost of extended hospitalization under Part A
Coinsurance on doctors’ services and outpatient care under Part B (20%)
Costs in excess of Medicare-approved charges
Most self-administered prescription drugs
Nursing home costs
So what is Medigap?
Insurance issued by private insurance companies that provides reimbursement for out-of-pocket medical costs such as deductibles and coinsurance
Regulated by state insurance authorities within guidelines set by the federal government
10 standard Medigap plans offering different levels of supplemental coverage (Plans A-D, F, G, K-N)1
Plan G
Plan K
Plan L
Plan M
Nursing home costs
Coinsurance
Plan N
Source: Centers for Medicare & Medicaid Services.

43. Getting the Most From Medigap
Most Popular Plans (by percent of total Medigap spending)
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
Plan F Covers
And it is very important with Medigap for your clients to shop around. Again, since these plans are issued by private insurance companies, the cost can vary widely. Your clients need to decide what’s really best for them. You want to encourage them to look at the premiums compared to the coverage and see, which one, at the end of the day, will make the most sense for them.
Shop around!
Medigap Plan F for a 65-year-old woman could cost:
$869
$5,295
$4,426
Sources: Weiss Ratings (as of October 2011); Medicare.gov.

44. 3. Construct an implementation timetable
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.
5/16 USR-8001

47. 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
Some employees, usually civil service employees, do not pay into the Social Security Retirement System, but rather a civil retirement system. Since their years of employment would not be recognized by SS as a result of this, they would be entitled to receive spousal and survivor benefits. Social Security will offset those benefits however as a result of your Civil pension. They would reduce any spousal or survivor benefits by 2/3 of your civil pension. So you would receive your full civil pension and any additional spousal benefits if they exceeded 2/3 of your pension. For instance, in the above scenario, the wife would receive $1,500 from her pension, and an additional $100 as a spousal benefits. If her husband passed away, she would continue to receive her pension and a survivor benefits reduced by $1,000.
$100
$1,200

48. 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
WEP is phased out for individuals who have substantial earnings covered by Social Security between 20–30 years
PIA = 90% % %
of the first $856* of AIME
of the next $4,301* of AIME
of AIME over $5,157*
WEP
PIA = 90% % %
PIA = 40% % %
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 (

49. 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

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51. Additional Beneficiaries
You or
Your Retirement Age Spouse,
Collecting Benefits
In addition to you and your retirement age spouse, your unmarried child can collect benefits when you collect benefits. A younger spouse, who has not yet attained retirement age, could collect benefits at this point if he or she is caring for your child under age 16.
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 (

52. 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
Spouse Only Benefit- $300
Jordan
$2,904
What if the lower earner, in this case Alex, started collecting at 62, but Jordan deferred. Since Jordan has not filed, the only benefits she would receive would be her own. Than when she reaches FRA, Jordan would file and suspend to allow Alex to collect spousal benefits. So Alex begins collecting a reduced benefits of $450 at 62, and then at age 66 she begins receiving an additional $500 as a spousal benefits. Because she is FRA when she begins the spousal benefits, that portion is not reduced. Jordan collects his own benefits of $2,904 at age 70. At the end of the day they collect $683,568 from SSA.
Born in Restricted Application Permitted
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

53. 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
Spouse Only Benefit- $300
$2,904
Now we add longevity to the equation. Jordan lives to 85 and Alex to 92. The strategy approach still provides the greatest amount of benefits. Will this always be the case? No. It all depends on the numbers. The higher the lower earner’s numbers are, when longevity is present, the more advantageous it becomes to have both defer to 70.
Born in Restricted Application permitted
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

54. 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 (

55. 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% Ex
$770
Spousal Benefit Turned Off
$770
Collects Spousal
Benefit Reduced 30%
Benefit remains
The same
Source: Social Security Administration (