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

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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 older workers to leave the workplace and make way for younger ones, not as a retirement plan.
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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).
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Social Security
Social Security earnings subject to the payroll tax will be $127,200 in 2017, a 7.3% increase over About 12 million workers will pay higher taxes as a result of this change.
Benefits increase yearly, if justified by the cost of living. There was a .3% increase in the cost of living(CPI-W) during the first 3 quarters of 2016, so benefits will increase by that amount in Jan The average monthly increase will be $5.
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Social Security
The maximum possible benefit a retiree can claim in 2017, at full retirement age (FRA), is $2,687.
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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.
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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.
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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 earlier %
& 2 months
& 4 months
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Social Security
If you were You can’t collect How much you
born in… full benefit until lose at age 62
& 6 months %
& 8 months
& 10 months
& 2 months
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Social Security
If you were You can’t collect How much you
born in… full benefit until lose at age 62
& 4 months %
& 6 months
& 8 months
& 10 months
1960 or later
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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.
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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.
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Social Security
3. A survivor benefit, which provides a surviving spouse with a benefit after a worker’s death.
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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.
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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.
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Social Security
The latest, best guesses for U.S. lifespans come from a study released in October, 2016 by the Society of Actuaries: The average 65-year-old American man should die a few months short of his 86th birthday, while the average 65-year-old woman gets an additional two years, barely missing age 88.
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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.
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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.
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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.
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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.
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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.
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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.
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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 This credit continues from your full retirement age, until you reach age 70.
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Social Security
Spousal Benefits
Benefits for a spouse may be 50% of your benefits as a retired worker, if the following conditions are true.
The retired worker is at their FRA, and is collecting benefits or was able to ‘file & suspend’.
The spouse is at their FRA.
If the filing spouse has a work record, they will be paid their benefit first, unless their DOB is before 01/02/1954, and they filed a restricted application.
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Social Security
This is an important point for married couples. When filing for spousal benefits, if the previous three 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 benefit falls short of your benefit.
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Social Security
Spousal Example # 1
You retired at age 66 & your spouse is 62.
You, at your FRA of 66, are eligible for a benefit of $2,174 per month.
Your spouse files for a spousal benefit at age 62, not her FRA of 66. Since they did not have a work record and claimed early, they are eligible for a reduced spousal benefit of $815 per month (37.5% of your $2,174 benefit).
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Social Security
Spousal Example # 2
You & your spouse both retired at age 66.
You, at your FRA of 66, are eligible for a benefit of $2,174 per month.
Your spouse files for a spousal benefit. Since they were born before 01/02/1954 and filed a “restricted application”, they are eligible for a spousal benefit of $1,087 per month (50% of your $2,174 benefit). They will file later for their own worker benefit (assuming it will be larger).
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Social Security
Spousal Example # 3
You & your spouse both retired at age 66.
You, at your FRA of 66, are eligible for a benefit of $2,174 per month.
Your spouse files for a spousal benefit. Since they were born after 01/02/1954 , they are “deemed” to have filed for their own benefit first, which is $1,200 a month. Because their monthly benefit is greater than 50% of your $2,174 benefit ($1,087), they only get the larger benefit($1,200).
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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.
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Social Security
Recent change to ‘File & Suspend’ strategy
Individuals, who were at least 66 or turned 66 before May 1, 2016, had to apply by April 30, 2016 to be ‘grandfathered’ under the old ‘file & suspend’ system.
Going forward beginning May 1, 2016 everyone who files for their worker Social Security benefit, after age 62, will fall under the “deemed filing” rule, which means you have deemed to have taken your own benefit.
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Social Security
Recent change to ‘Restricted Applications’
Previously, those who are between their FRA and age 70 could file a restricted application to claim spousal benefits, but defer their own benefit until age 70. Once they hit 70, they could change from receiving spousal benefits to their own, larger benefit. Now the “deemed” filing rule applies.
Individuals who were born before 01/02/1954 are grandfathered under the ‘old’ rules.
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Social Security
Benefits for Divorced Spouses
You are eligible for dependent benefits, if both you and your former spouse are age 62 or older.
Your marriage lasted 10 years and you are not currently married.
You have been divorced 2 years.*
*This 2 year waiting period doesn’t apply if your former spouse was already collecting retirement benefits before the divorce.
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Social Security
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.
The ‘new’ rules required that the filing spouse must have been born before January 2, 1954, or they will have “deemed” to have filed for their own worker benefit first, and only be paid if the spousal benefit is larger.
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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 2017 that limit is $16,920.
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 2017 that limit is $44,880.
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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 full retirement age, Social Security adjusts your future benefits to compensate for any benefits lost due to the earnings test.
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Social Security
Taxes on Social Security are determined from the following reported items:
50% of Social Security Income
Investment Income (Interest, Dividend & Capital Gains)
Wages (Earning or self-employment income)
Pension or annuity income
IRA/401(k)/403(b) withdrawals
Rental property income
Tax Exempt Interest Income (Not municipal bonds)
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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, or $44,000 for a couple filing jointly, you may owe income taxes on up to 85% of your Social Security benefits.
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Social Security
Will I Receive My Social Security Benefits?
The first of the million baby boomers (born from 1946 – 1964) turned 62 in 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.
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Social Security
If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2034, which means they would be able to pay 75% of earned benefits.
In order for Social Security to survive, changes will have to be made, but what and when are yet to be determined.
Stay tuned….
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Social Security
Summary
If at all possible, delay taking Social Security worker benefits until your FRA.
If your spouse has a weak Social Security work record, and is going to depend on your survivor benefit for a large part of their standard of living, you should consider not taking your worker benefit until age 70.
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Social Security
Resources - Books
Social Security, Medicare & Government Pensions – NOLO Publishing
The Social Security Fix-It Book – Center for Retirement Research (Boston College)
crr.bc.edu
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Social Security
Resources - Website
Social Security Web Site
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Social Security
Local Social Security/Medicare Offices
Mon, Tue, Thu, Fri 9:00 AM – 4:00 PM
Wed 9:00 AM - Noon
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44. Social Security Thank You! Questions?
Please Complete the Feedback Form!
Bob Schulz
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