Understanding

Social SecurityThis workshop is for financial educational purposes and

not meant to give specific individual financial advice.

Social Security provides you with a regular retirement income

Delivers an amount you don’t have to guess about

Offers you the comfort of a

“retirement paycheck” to replace your “working paycheck” and is

payable for your lifetime

Steady

Income

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$277,000

$635,000

$1.1 million

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

10 years 20 years 30 years

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Chart assumes $2,000 monthly payments

Income

for Life

SOURCE | “The Long-Range Economic Assumptions for the 2018 Trustees Report, Office of the Chief Actuary, Social Security Administration,

June 5, 2018, https://www.ssa.gov/OACT/TR/2018/II_C_assump.html; assumes 2.6% annual cost-of-living adjustment.

$2,000month

$2,585month

$3,342month

$4,320month

Chart assumes annual cost-of-living adjustments of 2.6%

InflationAdjustments

10 years 20 years 30 yearsStart

Hypothetical example for illustrative purposes only; does not predict actual cost-of-living adjustments.

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Spousal and Survivor

Spousal Benefits

A spouse who didn’t work and earn any

Social Security on his or her own can receive

up to 50% of their working spouse’s benefit

Survivor Benefits

After one spouse dies, the survivor can

receive the greater of their spouse’s

or their own benefit, and dependent

children may also be entitled to benefits

Benefits

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SOURCE | Social Security Administration, 2018, “Retirement Planner: Benefits for Your Spouse,”

https://www.ssa.gov/planners/retire/yourspouse.html#&a0=0, https://www.ssa.gov/planners/survivors/onyourown5.html#&a0=1

Poll Question # 1

You can collect two full checks at the same time — a spousal benefit and a benefit based on your own

work record.

A)True

B)False

Start Date

You become eligible for Social Security benefits by working

in a Social Security-covered job for a minimum of 10 years

The typical threshold is that you must have 40 credits to be

eligible – you accumulate 4 credits a year by earning a minimum

dollar amount at your job

In general, once you have 40 credits, you are insured

under Social Security

Remember your benefit amount is not based on credits,

but on your earnings history

SOURCE | “Social Security: How You Earn Credits,” Social Security Administration, 2018, https://www.ssa.gov/pubs/EN-05-10072.pdf.

“Benefits Planner: Social Security Credits, https://www.ssa.gov/planners/credits.htm, Social Security Administration, Quarter of Coverage,

https://www.ssa.gov/oact/cola/QC.html

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Eligibility

Eligibility

Funding for Benefits

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Social Security benefits are funded by payroll taxes of 6.2%

paid each year by employees and employers

Taxes are paid on earnings up to the taxable wage base

for 2020 of $137,700

81 cents of every Social Security tax dollar goes to a trust

fund that pays benefits to current retirees and their survivors

and families – the other 19 cents pays benefits to those

with disabilities

SOURCE | Social Security Administration, “2018 OASDI Trustees Report,”

https://www.ssa.gov/OACT/TR/2018/II_B_cyoper.html#94983; “Contribution and Benefit Base,”

https://www.ssa.gov/OACT/COLA/cbb.html; “Research, Statistics & Policy Analysis,”

https://www.socialsecurity.gov/policy/docs/quickfacts/prog_highlights/

SOURCE | Social Security Administration, 2018, https://www.socialsecurity.gov/OACT/COLA/Benefits.html#aime

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Insurance Amount

Benefit formula first takes your 35 highest years of earnings

and fills in any missing years with $0

It adjusts or “indexes” those earnings for inflation, and then

divides by 35 to get an average

It divides again by 12 to calculate your Average Indexed

Monthly Earnings (AIME)

Then a 3-part formula is applied to your AIME to

determine your Primary Insurance Amount (PIA)

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Full Retirement Age

Those born on January 1 should use the full retirement age for the previous year.

SOURCE | Social Security Administration, 2018, “Retirement Planner: Benefits By Year of Birth,”

https://www.socialsecurity.gov/planners/retire/agereduction.html

BIRTH YEAR FULL RETIREMENT AGE

1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 and later 67

BIRTH YEAR FULL RETIREMENT AGE

1937 and prior 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943-54 66

Start Date

Anyone can start receiving benefits as early as age 62

But if you start before your full retirement age,

your benefit will be reduced as much as 30+%

And that reduction will continue for life … your

benefit won’t go up once you reach full retirement age

SOURCE | Social Security Administration, 2018, “Retirement Planner: Benefits

By Year of Birth,” https://www.socialsecurity.gov/planners/retire/agereduction.htm.l

Assumes an individual born between 1943 and 1954 with a full retirement age of 66.

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Delaying Benefits

If you delay the onset of Social Security benefits past

full retirement age, you earn delayed credits

Delayed credits increase your benefit by 8% per year

You can earn delayed credits up to age 70; after that

no further credits can be earned

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SOURCE | Social Security Administration, 2018, “Retirement Planner: Delayed Retirement Credits,”

https://socialsecurity.gov/planners/retire/delayret.html

Start Date

POLL Question

You planned to wait until age 70 to claim Social Security to earn 8% more a year in delayed-retirement credits to boost your benefit. But at age 68, you've decided you must take your benefits now. You'll lose the extra credits you earn?

A) True

B) False

Start DateFor example, if you were born between 1943 and 1954,

your benefit would be increased more for each year you

delay the start of benefits after full retirement age

Let’s again assume a $2,000 PIA at full retirement age:

START AGE % APPLIED TO PIA INCREASED LIFETIME BENEFIT

66 100% $2,000

67 108% $2,160

68 116% $2,320

69 124% $2,480

70 132% $2,640

Delayed Retirement Credits

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SOURCE | Social Security Administration, 2018, “Retirement Planner: Delayed Retirement Credits,”

https://socialsecurity.gov/planners/retire/delayret.html

Spousal Benefits

Your spouse is entitled to receive up to 50% of your benefit

Your spouse would still claim their own benefit if it were higher than their spousal benefit

$2,000per month

$400per month

Ted’s personal benefit

Ted’s spousal benefit (50% of Sarah’s benefit)

$800per month

$1,000per month

Sarah’s personal benefit

Sarah’s spousal benefit (50% of Ted’s benefit)

SOURCE | Social Security Administration, 2018, www.socialsecurity.gov/OACT/quickcalc/spouse.html.

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SOURCE | Social Security Administration, 2018, www.socialsecurity.gov/OACT/quickcalc/spouse.html,

https://www.ssa.gov/planners/retire/yourspouse.html#&a0=0, https://faq.ssa.gov/link/portal/34011/34019/Article/3754/What-is-

the-eligibility-for-Social-Security-spouse-s-benefits-and-my-own-retirement-benefits

Rules for Spousal Benefits

Spouse receives higher of own benefit or spousal benefit

Primary worker must have applied for benefits before

spouse can claim spousal benefits

Same age rules apply when receiving spousal benefits –

spouse must be at least 62 for reduced benefits or full

retirement age for full benefits

No opportunity for delayed retirement credits

on a spousal benefit

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Spousal Benefits

For a wife to claim a

spousal benefit, the

husband must take his

benefit.

A) True

B) False

POLL

Question

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Divorced Spouses

DIVORCED SPOUSES CAN ALSO CLAIM

SPOUSAL BENEFITS AS LONG AS:

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The marriage lasted 10 years or more

Person receiving divorced spouse benefits

remains unmarried

Spousal Benefits

SOURCE | Social Security Administration, 2018, “Retirement Planner: If You Are Divorced,”

https://www.socialsecurity.gov/planners/retire/divspouse.html

At death, survivor can switch and receive the benefit for

the spouse who has passed, if it’s higher than their own

Survivor must be at least age 60 for reduced benefits

(50 if disabled)

Couple must have been married for at least 9 months

before survivor benefits will be paid, except in case

of accident

Ex-spouse survivor benefits are also available

if marriage lasted more than 10 years

SOURCE | Social Security Administration, 2018, “Survivors Planner: If You Are The Worker's Widow Or Widower,”

https://www.ssa.gov/planners/survivors/ifyou2.html ; “Social Security Handbook,”

https://www.socialsecurity.gov/OP_Home/handbook/handbook.04/handbook-0404.html

Survivor Benefits

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An Example

Emma’s husband Frank was

receiving a $2,000 monthly

benefit, and Emma’s benefit

was $1,200

After Frank passed away,

Emma’s benefit was

automatically replaced with

Frank’s higher $2,000 benefit

Frank

$2,000

Emma

$1,200

Emma

$2,000

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Survivor Benefits

Earnings Test

If you receive benefits before full retirement age

and continue working, some of your benefits may

be withheld

Maximum amount you can earn before benefits are

withheld is called the earnings test, and the

amount is adjusted each year for inflation

Up until the year you turn full retirement age, for

every $2 you earn over the earnings test, Uncle

Sam will withhold $1

At full retirement age, your benefit is increased to

account for the months when benefits were withheld

From 62 to FRAGive up $1 for every $2

earned over $18,240

In the year you turn FRAGive up $1 for every $3

earned over $48,600

After your FRANo benefits withheld

2020 Earnings Limits

SOURCE | Social Security Administration, 2018, “Exempt Amounts Under the Earnings Test,” https://www.ssa.gov/OACT/COLA/rtea.html

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If you receive a pension from a former employer,

your Social Security benefits are not affected as long

as you contributed to Social Security while at that job

Other income, like distributions from your IRAs and

401(k) plans, does not affect Social Security

But if you’re receiving a pension from a job where

you didn’t contribute to Social Security (i.e., a civil

service job), your benefits may be reduced under

the Windfall Elimination Provision or the

Government Pension Offset

Pension Income

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SOURCE | Social Security Administration, 2018, “Government Pension Offset,” https://www.ssa.gov/OACT/COLA/rtea.html;

“Windfall Elimination Provision,” https://www.ssa.gov/pubs/EN-05-10045.pdf

Taxation

Your Social Security benefits may be taxable,

depending on how much other income you earn

Combined income is defined as your adjusted gross income plus

nontaxable interest plus 1/2 of your Social Security benefits

This is not tax advice. Consult your tax advisor.

Single or head of household

• 50% taxable if you have $25,000 combined income

• 85% taxable if you have $34,000 combined income

Married, filing jointly

• 50% taxable if you have $32,000 combined income

• 85% taxable if you have $44,000 combined income

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SOURCE | Social Security Administration, 2018, “Benefits Planner: Income Taxes and Your Social Security Benefits,” https://www.ssa.gov/planners/taxes.html

Cost-of-living adjustments (COLAs) are announced

each year in October for the following January

COLA is based on increase in the Consumer Price

Index (CPI) from the third quarter of one year to the next

If there’s negative inflation (deflation), your Social

Security benefit will not decrease

Inflation Adjustments

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SOURCE | Social Security Administration, 2018, “Cost-of-Living Adjustment (COLA),”

https://www.ssa.gov/OACT/COLA/colasummary.html, https://www.ssa.gov/OACT/COLA/colaseries.html

If you delay claiming your Social Security benefit, you will miss out on cost-of-living adjustments until the year you claim.

A) True

B) False

Is an annual cost-of-living adjustment (COLA) guaranteed?

A) True

B) False

POLL QUESTIONS # 4

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If you have the option, you may

want to look at ways to increase

your earnings record and,

therefore, your Social Security

benefit amount

If you work longer, you may be able to

increase your AIME by filling in any missing

zeros in your 35-year earnings history or raising

average earnings

And always check your statement of Social Security benefits, to ensure there are no discrepancies in your work record that might reduce your benefit

ImproveYour Earnings

Record

Tracking Your Benefit

Review your Social

Security statement

Go to ssa.gov and set up

your Social Security account

All you need is a valid email

address, a valid mailing

address and your Social

Security number

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Applying for benefits at the optimal

time can make a big difference

But what is the “optimal time”?

Optimal

Time to Start

Benefits

When should I start my benefits?

How long you work and when you claim have more

impact on your retirement income than how much

you’ve saved or how you’ve invested.

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SOURCE | Advisys Social Security Breakeven Calculator with 2.6% inflation assumption, November 5, 2018. Graphic from Forefield Social Security Breakeven Calculator with no inflation assumption, November 5, 2018.

Breakeven AgeAssumes top wage earner turning

62 this year with monthly benefits of:

• $1,500 if starting at 62

• $2,216 if starting at 66

• $3,242 if starting at 70

Comparing 62 to 66, the

breakeven age is 77

Comparing 62 to 70, the

breakeven age is 79

Comparing 66 to 70, the

breakeven age is 81

Check Your

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When you’re deciding between two retirement ages, if you

believe you’re likely to live longer than the breakeven

age, it might make sense to delay Social Security

Life Expectancy

Family medical

history

Health status Lifestyle

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Coordinate Benefits

With Your Spouse

The rules for spousal and survivor benefits

can help raise the benefits of the lower-

earning spouse – most often the wife

That means claiming later

is generally an attractive

option for married men

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Since wives often make less and live longer than their husbands,

as widows they generally move up to their husband’s higher benefit Coordinate

Benefits

With Your

Spouse

If he claims at 66 rather than 62

By more than

20%

If he claims at 70 rather than 62

By more than

60%

That means a husband can often increase the monthly survivor

benefit for his wife simply by claiming later:

SOURCE | “Social Security Claiming Guide,” Center for Financial Literacy at Boston College, 2009, http://crr.bc.edu/wp-content/uploads/joomla/claiming_guide/SS_Claiming_Guide_ebook_070611.pdf

Bob and Betty, Both Age 66

At 66, Bob and Betty have a combined payment of $3,000 – at end of retirement*, they will have received a total of $840,000**

At 70, their combined payment is now $3,640 – at end of retirement*, they will have received a total of $895,680**

Betty has own PIA of $800,but begins the higher $1,000 spousal benefit at age 66 based on Bob’s benefit

With Bob waiting until 70, Betty begins receiving her own benefit of $800 at age 66. At 70, Betty will receive the higher spousal benefit of $1,000

Bob claims his full retirement age PIA of $2,000 at 66

Because Bob waited until 70 to claim his benefit, he’s earned delayed retirement credits that increase his PIA to $2,640

IF BOTH CLAIM AT 66 IF BOB WAITS UNTIL 70

*Assumes Bob lives to 85 and Betty lives to 90.**Assumes no cost-of-living adjustments (COLAs). 33

Will Social Security Be Around?

Income, costs and expenditures as a percentage of taxable payroll

In the long-term,

though, the picture

becomes more

complicated

as more

boomers retire

The fund can pay

promised benefits

until 2034 – after that,

income will only

cover 79% of benefits

unless changes

are made

LONG RANGE SOCIAL SECURITY TRUST FUND

34 SOURCE | “2018 OASDI Trustees Report,” Social Security Administration , https://www.ssa.gov/OACT/TR/2018/tr2018.pdf ; assumes intermediate assumptions.

25%

2000

Calendar year

2010 2020 2030 2040 2050 2060 2070 2080 2090

20%

15%

10%

5%

0%

Cost: Scheduled

and payable benefitsCost: Scheduled but

not fully payable benefits

Expenditures: Payable benefits = income

after trust fund depletion in 2034

No-interest Income

Payable benefits as percent

of scheduled benefits:

2017-33: 100%

2034: 79%

2092: 74%

Your Retirement

Income Sources

You need to determine what amounts to draw from all 3 sources.

Social Security payments

from the government1

Any pension or retirement

savings from your employer2

Income from your own

personal savings3

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1. Apply online at ssa.gov

2. Call by phone at 800.772.1213

3. Visit your local Social Security office

Additional resources or questions visit: www.ecu.com/wellness or

email jamesh@ecu.com or brettn@ecu.com

Lastly - How to Apply for Social Security

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