1. Copyright © 2007, The American College. All rights reserved. Used with permission. Planning for Retirement Needs Social Security – Chapter 19

2. Copyright © 2007, The American College. All rights reserved. Used with permission. 2/3 of elderly – Social Security Major Source of Income 1/3 of elderly – Social Security Only Source of Income Breadth of Coverage

3. Copyright © 2007, The American College. All rights reserved. Used with permission. Funding FICA (6.2% x TWB) + (1.45% x all income) SECA (12.4% x TWB) + (2.9% x all income)

4. Copyright © 2007, The American College. All rights reserved. Used with permission. Four Trust Funds Old Age and Survivors Disability Medicare Part A Medicare Part B

5. Copyright © 2007, The American College. All rights reserved. Used with permission. Quarter of Coverage 4 per year (even if work one day) if over the income threshold (4 x $1,000 in 2007) 40 quarters needed to be fully insured

6. Copyright © 2007, The American College. All rights reserved. Used with permission. When are Retirement Benefits Paid? Age 62 is the earliest age (a percent reduction applies) Age 65 and 8 months – 1941 Age 65 and 10 months – 1942 Age 66 (1943 – 1954) Age 67 if born after 1960

7. Copyright © 2007, The American College. All rights reserved. Used with permission. Who gets Retirement Benefits? Workers with fully insured status Nonworking spouses 62 or older Unmarried divorced spouse if marriage lasted 10 years

8. Copyright © 2007, The American College. All rights reserved. Used with permission. AIME Step 1:List Earnings Step 2:Index Earnings Step 3:Determine the number of years to be included in the calculation (35) Step4:Exclude lowest indexed years (if client has 40) Step 5:Add years / divide by number of ` months in these years

9. Copyright © 2007, The American College. All rights reserved. Used with permission. PIA “The amount a worker will receive if he or she retires at full retirement age” –90% x initial amount –32% x next level –15% x top level

10. Copyright © 2007, The American College. All rights reserved. Used with permission. Early Retirement 5/9 x 1% for the first 36 months 5/12 x 1% for the next 24 months

11. Copyright © 2007, The American College. All rights reserved. Used with permission. Example If client’s normal retirement age is 66 and he retires at 62 then the benefit is 75% (reduced 25%) of the PIA 5/9 x 36 = 20% 5/12 x 12 = 5% = 25%

12. Copyright © 2007, The American College. All rights reserved. Used with permission. Delayed Retirement For those born in 1943 or later there is an 8% increase There is no increase after age 70

13. Copyright © 2007, The American College. All rights reserved. Used with permission. Earnings Test Benefits are reduced $2 for every $1 over the threshold Special rule for year of retirement if post 65 full retirement age

14. Copyright © 2007, The American College. All rights reserved. Used with permission. Benefits Statement Automatically mailed to clients over 25 Contains estimate in current dollars Check to see if lifetime earnings are correct

15. Copyright © 2007, The American College. All rights reserved. Used with permission. Applying for Benefits Apply 3 months in advance Benefits can be paid up to 6 months retroactively

16. Copyright © 2007, The American College. All rights reserved. Used with permission. Taxation of Social Security Benefits Step One = Calculate Provisional Income AGI + tax exempt interest + ½ of Social Security Benefit Provisional Income

17. Copyright © 2007, The American College. All rights reserved. Used with permission. Taxation of Social Security Benefits Step Two: Determine the applicable base Single:$25,000 $34,000 MFJ:$32,000 $44,000

18. Copyright © 2007, The American College. All rights reserved. Used with permission. Taxation of Social Security Benefits Possible Amount Taxed Single Under $25,000 0% $25,000 – $34,00050% Over $34,00085% Married filing jointly Under $32,000 0% $32,000 – $44,00050% Over $44,00085%

19. Copyright © 2007, The American College. All rights reserved. Used with permission. When to Start Benefits Threshold Issues Age at retirement Need Likelihood of returning to work Longevity

20. Copyright © 2007, The American College. All rights reserved. Used with permission. When to Start Benefits Breakeven Analysis “Does the present value of the additional benefits received before full retirement age exceed the present value of the higher benefits forgone after full retirement age?”