Social Security Basics to Maximizing Strategies

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Presentation Outline

•Why have Social Security, and what is it?•Basic eligibility and benefit calculations.•Who is eligible for payments and when?•Different Retiree Age Options•Special rules and effects of work.•Claiming/Maximizing Strategies.•Survivors and Disabled•Taxation of Benefits•Medicare Enrollment Basics•Resources and Examples

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Learning Objectives

•Explain basic eligibility and how payments are calculated.

• Identify who might be eligible on your client’s Social Security record and when?

•Help your clients understand what happens when they take their payments at a particular age, and more importantly, how they can increase their lifetime payout.

•Answer questions about those maximizing strategies that are appearing in the news.

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Social Security-From Basics to Maximizing Strategies

Presenter:Jim PavletichOwner/Manager Social Security Consultants LLCChandler ArizonaSocial-Security-Consultants.com

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A Foundation for Planning Your Future

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You Need to Work to Earn Social Security Credits

•Each $1220 in earnings gives you one credit.

•You can earn a maximum of 4 credits in a year.

Example: To earn 4 credits in 2015, you must earn at least $4880. Earning 40 credits throughout your working life will qualify you for a retirement benefit.

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How Social Security Determines Your Benefit

Social Security benefits are based on earnings

•Step 1-Your wages are adjusted for inflation

•Step 2-Find the average of your highest 35 years of work

•Step 3-Result is the “Average Indexed Monthly Earnings (AIME).”

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Benefit Computation (2015 Example)

If your average monthly earnings are = $5000Then your benefits would be = $2076

Average monthly earnings = $5000

90% of the first $826 = $743.40

32% of the next $4160 = $1331.20

15% of the remainder $14 = $2.10 $5000 $2076

Max/Average benefits under current calculation are $2685/$1243

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What if Not Insured or Less Than 35 Years Work?

•How close to 40 credits is the applicant?If close, then their additional work might get them Medicare eligible or pay their Medicare Part B premiums.

•Filling zero years with creditable work is always preferable to “no earnings” years.

•Does the increase in earnings affect the 90% or 32% or 15% range?

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The Windfall Elimination Provision

The provision states “If you receive a government pension based on work not covered by USA Social Security, your Social Security benefits may be reduced.”

This includes pensions paid by foreign governments including a specific Canadian Pension based on work.

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Windfall Elimination Provision (WEP)-2015

Normal Computation WEP Computation

90% of the first $826 40% of the first $82632% of the next $4160 32% of the next $416015% of the Remainder 15% of the Remainder

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WEP Benefit Computation (2015-Example)If your average monthly earnings are = $5000Then your benefits would be = $1663

Average monthly earnings = $5000

40% of the first $826 = $330.40

32% of the next $4160 = $1331.20

15% of the remainder $14 = $2.10

$5000 $1663

The maximum WEP reduction is $413.00

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Exception to the Windfall Elimination Provision

Total Years of Coverage % of First Factor Reduction

30 or More 9029 85 28

80 2775 26

70 2565 24

60 23 5522 50

21 4520 40

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The Government Pension Offset Provision(GPO)

The provision states “If you receive a government pension based on work not covered by USA Social Security, your Social Security spouse’s or widower’s benefits may be reduced.”

This includes pensions paid by foreign governments including a specific Canadian Pension based on work.

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The Government Pension Offset Provision(GPO)

Spouse’s Benefits Only

2/3 of the amount of Government Pension will be used to reduce the Social Security spouse’s benefit.

Example:$900 of Government pension 2/3 = $600Social Security spouse’s benefit = $500No cash benefit payable by Social Security

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WEP Elimination Provision (MORE)

Please note carefully that while the worker is alive anyone on the account is affected by the Windfall Elimination Provision. This includes spouses and children.

At the workers death the survivors are not affected by this provision and may receive an unaffected SSA widows or widowers benefit and a payment from the non-covered pension

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The Social Security Statement

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Your Age When You Retire Affects Your Payments

If You Are A Worker And Retire:

•At your full retirement age, you get your full benefit.

•At age 62, you get less money (permanently).

•You get even more money if you wait past your full retirement age. These can earn “Delayed Retirement Credits”

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Who Else Besides the Retiree Can Get Benefits?

Your Spouse•At age 62

•At any age if caring for the child under 16 or disabled

•Divorced spouses may qualify

Your Child•Not married under 18(under 19 if still in High School)

•Not married and disabled before age22

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Full Retirement Age Year of Birth Full Retirement Age

1937 65

1938 65 & 2 months1939 65 & 4 months1940 65 & 6 months1941 65 & 8 months1942 65 & 10 months

1943-1954 661955 66 & 2 months1956 66 & 4 months1957 66 & 6 months

1958 66 & 8 months

1959 66 & 10 months 1960 & later 67

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Early Retirement Benefits

Earliest Age is 62

Worker (100% at full retirement age)5/9 of 1% (20% reduction for the 1st 36 mos.)5/12 of 1% (10% reduction for the next 24 mos.)

Spouse (50% at full retirement age)25/36 of 1% (25% reduction for 1st 36 mos.)5/12 of 1% (10% reduction for the next 24 mos.)

***the reduction is permanent***

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What is the “Deemed Filing Rule?”

This is a built in collateral penalty for taking payments before full retirement age (FRA).

This rule requires the person taking reduced retirement type benefits to file for any and all payments on any record for which they might be entitled*. It eliminates the possibility of restricting to only a single benefit (spouses) and taking a higher retirement on their own record.

*except survivors

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Delayed Retirement Credits

Yearly Rate ofYear of Birth Increase (%) 1927-28 4.0 1929-30 4.5 1931-32 5.0 1933-34 5.5 1935-36 6.0 1937-38 6.6 1919-40 7.0 1941-42 7.5 1943 and later 8.0(1943 and later equals 2/3 of a % more per month)

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When are DRC’s Available?”

Delayed Retirement Credits are credited and posted to the record after the close of the year in which they are earned.

This means that credits earned in the year an applicant turns 70 are not posted/credited until after the close of the calendar year and are then paid retroactively to the year they were earned. This assures no credits are posted prematurely and erroneously.

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What is an ARF?”

ARF is short for adjustment of the reduction factor

This is a one time “look back” at full retirement age over a beneficiary’s record to correct the number of months that recipient actually received a reduced benefit. Even though the applicant took his/her benefits 48 months early did he/she get paid all of those 48 months? If not then the reduction is adjusted from FRA ongoing.

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When is an AERO?”

AERO is short for Automatic Earnings Recomputation Operation

This is an annual review of every beneficiary’s earnings history to update any recently posted earnings that may replace any of the highest 35 years that go into the payment computation. New earnings from W-2’s and SE returns are added to the workers history and might raise the Primary Insurance Amount.

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You Can Work And Still Receive Benefits (2015)If You Are You Can If You Make More

Make Up To Some Benefits Are

Withheld

Full RetirementAge and Above No Limit None Withheld

66-FRA $41880 ($3490/mo)$1 for every $3

Ages 62-65 $15720 ($1310/mo) $1 for every $2 27

The “No Can Do Over”

Take benefits before Full Retirement Age•At 62 (for example).•Put that money (monthly payments in a bank or other investment.

At Full Retirement Age or Older (Even 70)•Withdraw the claim back to the original filing/eligibility.•Pay back all payments “cash on the barrel head” and refile with a current application date keeping all the interim interest/dividends.

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This is the Simple and Confusing Part of Maximizing Strategies

File and Suspend Benefits•The person filing must be full retirement age.•This allows their spouse to receive from their account while the worker earns Delayed Retirement Credits.

File and Restrict Benefits•The person filing mist be full retirement age.•This allows the filer to draw from their spouse while they accumulate delayed retirement credits on their own account. Later they can remove the restriction and file on their own enhanced account.

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Want a Little Insurance on That File and Suspend Decision?

Always file and suspend at full retirement age.•The person filing must be full retirement age.•This allows the spouse to receive from the filer and the filer to earn their own delayed retirement credits.

Suppose You Get Bad News?•Did this make the original decision wrong?•You can choose to unsuspend benefits retroactively (all the way back to original filing if you choose) 30

What is the Downside on That File and Suspend/File and Restrict Decision?

With either option the applicant decides•Only one member of a couple can restrict.•The only one who can unsuspend/reinstate payments is the live applicant.

Medicare premiums must still be paid.•Since the choice is to restrict/suspend payments a separate statement and arrangements are needed to pay monthly Part B premiums.

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What Makes a Good Candidate For Maximizing Strategies?

Is this an individual or couples case?•There are some limited individual strategies.•The best candidates are couples of similar age and benefit amounts.

Do they have longevity?

Can they delay filing?•Till at least full retirement age or longer? (In other words, can they work longer or do they have assets to support themselves till a later filing date?

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Who Can Get Survivors Benefits?

Widow or Widower•Reduced benefits at age 60.•If disabled as early as age 50.•At any age if caring for child under 16 or disabled.•Divorced widows/widowers may qualify.

Child of the Worker•Not married under 18 (under 19 if still in high school)•Not married and disabled before age 22

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Disability Benefits

Must have a medically verifiable condition preventing any substantial gainful work in the US economy for at least 12 months or is expected to end in death. The determination also considers age, education and work experience.This benefit requires a certain total amount of work based on the workers age and also a certain amount of recent covered employment.

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Taxes On Benefits

Individual$25000-$34000

50% of Social Security Benefits Are TaxedOver $3400085% of Benefits Are Taxed

Married Filing a Joint Tax Return$32000-$4400050% of Benefits Are TaxedOver $4400085% of Benefits Are Taxed

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Who Can Get Medicare?

Age 65 and older

Receiving SS Disability Benefits at least 24 months

Permanent Kidney Failure

Amyotrophic Lateral Sclerosis (ALS)

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When Do I Sign Up For Medicare?

Medicare Enrollment Periods

•Initial–At age 65 (Most file at this time)•Special-If still working•General- January thru March

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Income Related Medicare Adjustment Amount

This Applies to Part B and Part D Premiums

Affects Medicare Beneficiaries with Modified Adjusted Gross Income over $85000 ($170000 for a couple filing a joint return). MAGI means Adjusted Gross Income And Tax Exempt interest added together.

Each year’s premiums based on the tax year minus two.

2015 premiums are based on 2013 tax year (filed by 4/15/2014)

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How Can Someone Obtain Services And Information?

Drop on by the Office

Visit SSA’s Website www.socialsecurity.gov

Call them at 1-800-772-1213

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Begin Here

Then Go Here

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Questions?

Use SSA’s Frequently Asked Questions(FAQ’s) at socialsecurity.gov

Or Use

Social Security Consultantswww.social-security-consultants.com602-449-9069

Thank You

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