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3. What Everyone Should Know About Retiring [PRESENTER NAME] [PRESENTER TITLE] 0189638

4. A Little History Created over 75 years ago, Social Security was originally designed to help senior citizens avoid poverty during the Great Depression. It was created as a self-financing program that would collect payroll taxes from workers which would immediately be paid out in benefits to retirees. Millions of Americans depend on Social Security as their primary source of retirement income.

5. Lifetime Income : Provides what every retiree wants: an income that never runs out. Predictable, Steady Income : After qualifying, the income you receive is set and does not change. Inflation-adjusted Income : Every year, Social Security benefits are increased for inflation purposes. These cost-of-living (COLAs) are a big help to seniors. Survivor Benefits : Even after a spouse dies, their benefits are paid to surviving spouses and dependents. Major Benefits of Social Security

6. How Are Benefits Calculated?  When you turn 62, your exact amount is calculated. Annual earnings are indexed to account for wage inflation.  After every year’s earnings are indexed, the government tallies your highest 35 years of earnings. If you worked less than 35 years, any missing years are counted as zeroes. Every year of earnings are totaled and divided by 35 which gives you your “indexed monthly earnings”; also known as AIME.

7. Calculating Benefits Cont’d Every year, the maximum wages subject to Social Security Tax has increased. The government takes your inflation-adjusted indexed monthly number (AIME) and applies a 3-part formula to arrive at your primary insurance amount or PIA calculation. This PIA is your guaranteed monthly benefit. There are tools available online to determine PIA at the government’s Social Security web site.

8. Receiving Benefits  Full retirement age for people born between 1943 and 1954 is 66 – the age you can begin receiving your full, unreduced primary insurance amount (PIA)  Early eligibility begins at 62 but reduces benefits  Timing is one of the most crucial aspects of Social Security planning  “The bread winner will delay” is an important concept that means the longer the primary earner (individual or married) delays, the larger the monthly income will be but it depends on every client’s situation.

9. Social Security Eligibility  You become eligible for Social Security by working in a Social Security-covered job for at least 10 years  To be more precise, you need 40 credits  You can earn up to 4 credits per year by earning a certain minimum dollar amount  If you earn 4 credits every year for 10 years, you accumulate the 40 credits needed

10. Receiving Benefits Cont’d  Benefits can increase approximately 8% “guaranteed” for each year you wait.  Timing depends on each client, each situation and the client’s retirement plans. If one is not working and has limited funds, they may have to take Social Security. Everyone’s situation is different.  First, it is important to understand the impact of what Social Security terms Full Retirement Age (FRA).

11. Full Retirement Age  FRA is based on your birth year, and can gradually move from age 65 to 67.

12. Applying Early for Benefits  If you apply when you first become eligible at 62, your benefit will equal 75% of your PIA.  So if “Boomer Bill” has a calculated PIA of $2,466 for example, and applies in 2012 when he turns 62, his monthly benefit would be 75% of his PIA or approximately $1,850.*  This is the amount he would receive for the rest of his life, only increased by COLAs annually. *To understand how to calculate PIA, visit www.ssa.gov

13. The Power of Timing: Applying After FRA  At age 66, you obtain your full retirement age. Now you can start receiving your full, unreduced PIA.  However, if you delay the onset of benefits past age 66, you will earn what are called delayed actuarial credits.  Delayed credits are the first step to increasing your income in order to maximize retirement planning.  For each year you delay the start of your benefits, your benefit will increase by 8% per year up to age 70.  So if Boomer Bill waits until age 70 to apply, his $2,466 PIA will increase by 32% to $3,255 (excluding COLAs)

14. Delayed Credits and Spousal Benefits  This is the key area for retirement planning  Leveraging the delayed credit system allows you to optimize spousal benefits through two key “switch strategies”  By using these two strategies, pre-retirees can maximize benefits and then redirect these additional funds into a tax-deferred annuity as one valuable option.

15. Maximum earnings (wages) between age 62 and normal Social Security Retirement age before Social Security benefits are reduced $1 for every additional $2 earned: $15,120 Working While Receiving Early SS Benefits

16. Social Security Taxation  Depending on your earnings, you are responsible for paying income taxes on a portion of your benefits.  The IRS adds half of an individual's Social Security benefits plus all other income (such as pensions, CD/bond interest or capital gains) to calculate the income taxes owed  In fact, up to 85% of your benefits could be taxed…

17. Social Security Taxation

18. These All Count! Interest and Capital Gains from these types of investments all add to your income, which triggers the taxation of your Social Security. Certificates of Deposit Mutual Funds Bonds (Even Tax Free Muni’s) Stocks Rental Income

19. Avoid the Social Security Tax Trap  It’s important to know that deferred annuity & life insurance interest is not included in the year it is earned. It is only included in the year it is withdrawn.  By repositioning your assets into annuities & life insurance you can defer the interest earnings until you choose to withdraw them, you could save thousands and thousands of dollars in taxes.  You’ll be able to defer income taxes on your interest earnings and reduce or eliminate income taxes on your Social Security benefits – a double win.

20. EarlStanDel Meet The Triplets

21. Monthly Benefit Amounts Differ Based on the Age You Decided to Start Receiving Benefits This example assumes a benefit of $1,000 at a full retirement age of 66. EarlStan Del

22. The Social Security Gamble

23. Believes taking out SS benefits early will be most lucrative. Plans to bank each check and let it accumulate. Thinks his money will outgrow either of his brothers’ Earl

24. Reduced byTo Earl’s Social Security Payments

25. $750/month $9,000 in annual savings $36,000 over four years Early Earl

26. Waiting until age 66 to start taking SS. He would receive $1,000 instead of $750. Looking to outpace the amount Earl would receive Standard Stan

27. How many years would this $36,000 be able to provide the extra $250/month? 3% interest rate Must tap savings to supplement income $250/month from savings. Earl

28. Delaying receiving SS until age 70, - EIGHT years later than Earl. He would receive $1,320/month. Would be $570 more than Earl and $320 more than Stan. Delayed Del

29. Who Wins? EarlStanDel

30. Waited until age 70 $1,320/month $570 more than Earl Would have to live until age 84 to receive more benefits. Del better live a long time! Del

31. It’s a virtual Tie! Who Wins? EarlStan

32. AGEDEATH PROBABILITY NUMBER OF LIVES LIFE EXPECTAN CY DEATH PROBABILIT Y NUMBER OF LIVES LIFE EXPECTANC Y 620.01328983,21719.40.00832289,89522.31 660.01815478,35116.48.01170286,53719.10 MALEFEMALE Earl would win by dying before age 81.4 Stan would win by living beyond age 82.4 Social Security Period Life Table

33. What if interest rates rise? Length of life makes a difference! You Need To Plan! Important Factors

34. Interest on your principal(simple interest) Triple Compounding Interest Interest on your interest(compounding interest) Interest on deferred taxes(triple compounding) HOW IMPORTANT IS TAX DEFERRAL?

35. $1 $2 $4 $8 $16 $32 $1,048,000.00 How much do we have after the 20th double? THE MAGIC DOUBLING DOLLAR

36. How much money would we have if each time we doubled the dollar we withheld 25% for taxes? I.E. – C.D., Mutual Funds, Stocks THE MAGIC TAXABLE DOUBLING DOLLAR Just over $74,000

37. THE STOCK MARKET Mutual Funds StocksBondsCommodities

38. THE STOCK MARKET CASINO Trillions Lost in Retirement Accounts

39. THE STOCK MARKET Fact or Fiction? “Over a long period of time, the stock market will always go up.”

40. 1970 - 2000 Between 1970 – 2000, this has been generally true – the stock market has gone up 1970197519801985199020001995 * Source: Google Finance The Stock Market

41. 1970 - 2000 Between 1970 – 2000, this has been generally true – the stock market has gone up THE STOCK MARKET * Source: Google Finance 2001 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

42. THE STOCK MARKET Pros Cons High potential returns Dividends Long-term capital gains tax may be lower than income tax level High potential losses Research integrity Taxable dividends Corporate fraud Many fees Commissions Management Maintenance

43. WHAT ABOUT BONDS? Even Municipal Bonds? When interest rates go up, bond values go down! Bond Values Interest Rates

44. BONDS Pros Cons More Conservative Tax-Free Muni-Bonds Guaranteed Interest Historical Data Still some risk (do you want to buy a bond issued by L.A. County?) Interest may affect tax on social security income Time Commitments

45. WHAT ABOUT THE BANK? CDs SavingsCheckingMoney Market

46. BANKS Pros Cons Liquidity FDIC insured Local branches Taxable interest Low rates Bank instabilities

47. COMMODITIES Gold SilverOilCurrencies

48. COMMODITIES Pros Cons Diversification Inflation Hedge Tangibles Non Correlation to the stock market Risk Knowledge Base Accessibility Liquidity

49. Immediate Annuities (your pensions) This is your grandfather’s annuity. This is the oldest form of annuity. Matter of fact annuities date back all the way to 1720 and the Presbyterian Church. The purpose was to provide a secure retirement to aging ministers and their families, and was later expanded to assist widows and orphans. Deferred Fixed Annuities (5-year 3% fixed) Then in the early 1970’s the first fixed annuities started being offered. The problem is, a fixed annuity earnings, doesn’t waiver with inflation and this created a problem! Types of Annuities

50. Variable Annuities Variable annuities came to be more attractive after regulatory agencies got on board in the 1970s and 1980s, and because of increased fear of inflation (possibly tied to the high inflation during parts of these decades).

51. Fixed Index Annuities

52. ANNUITIES Pros Cons NO RISK to PRINCIPAL Tax Deferred Growth 10% Penalty Free Withdrawals High Potential Returns Dollar for Dollar Reserves Time Commitment Surrender Charges (for early withdrawal) Do not receive all index gains No dividends

53. Seniors can REDUCE or ELIMINATE double taxation on social security income. SOCIAL SECURITY TAX

54. $400,000 in CDs The Smith Family CD Plan + 5% interest = $20,000/year - 25% fed & state tax = $15,000/year - 85% taxable SS income = $10,750 46.25% Marginal Tax Bracket

55. The Smith Family Split Annuity $400,000 10 year period Fixed Indexed AnnuityImmediate Annuity $250,000 Growth $500,000 Estimated 7% Return $150,000 Income $1,500/month (Only 14% of this income is taxable) In a 15% tax bracket your net monthly income is $1,468.50 $180,000 Income v v v v v v v

56. Annual Income: Taxable Income: After Tax Income: 5% CD vs. Split Annuity $20,000 $10,750 $18,000 $2,520 $17,622 25%15% Bracket CD Split Annuity

57. $6,872 more net income than the CD Split Annuity vs. CD This Split Annuity reduced their tax bracket from 25% to 15% Increase $400,000 to $500,000 The Smith family no longer pays taxes on any of their social security income. https://www.planfacts.com/CamDressander/SSE

58. Thank you for your time! Please complete your program evaluation. We are happy to answer any questions you may have now or in the future! Dan Hopwood (309) 696-8905