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Brian Peterson Regional Director
Principal Funds Distributor, Inc.
What Clients May Not Know About Social Security –and What it Could Cost Them
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.2
Role of Social Security
Planning basics
Client concerns
Election strategies
Agenda
The content of this presentation is based upon reliable source material and is believed to be correct as of the time of creation; however is subject to change
at any time without warning. Investors should consider consulting with their tax professionals prior to making decisions due to their unique circumstances.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.33
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.
Role of Social Security
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.4
An opportunity for you and your clients
Social
Security
Planning
Retirement
Income
Planning
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.5
Retirement income
• 80% - 100% of pre-retirement income
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.6
Replacement of income
Source: Board of Trustees 2012.
Low earnings are 45 percent of the average wage: high earnings are 160 percent of the average wage.
Retirement age at 65.
Social Security benefits compared to past earnings
Low, Average, High, and Maximum Earner
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.7
The knowledge gap
Many pre-retirees don’t understand:
• How Social Security works
• How Social Security decisions impact their financial planning
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Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.
Planning Basics
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.9
Social Security credits
• Need at least 40 credits
• Earn a maximum of 4 credits per year
• Retirement benefit = average of
highest 35 earnings years
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.10
Full Retirement Age (FRA)
Year of BirthNormal (or Full)Retirement Age
Percent Reduction if elected at 62
1937 or earlier 65 20.00%
1938 65 and 2 months 20.83%
1939 65 and 4 months 21.67%
1940 65 and 6 months 22.50%
1941 65 and 8 months 23.33%
1942 65 and 10 months 24.17%
1943 – 1954 66 25.00%
1955 66 and 2 months 25.83%
1956 66 and 4 months 26.67%
1957 66 and 6 months 27.50%
1958 66 and 8 months 28.33%
1959 66 and 10 months 29.17%
1960 and later 67 30.00%
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.11
Delayed retirement – increased benefits
Year of BirthNormal (or Full)
Retirement AgeYearly Increase Rate
1939 65 and 4 months 7%
1940 65 and 6 months 7%
1941 65 and 8 months 7.5%
1942 65 and 10 months 7.5%
1943-or later 66+ 8%
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.12
Early vs. late retirement
Monthly benefits amounts differ based on the age you decide to start receiving benefits
This example assumes a benefit of $1,000 at a Full Retirement Age of 66
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.13
Cumulative benefits
Age 62
Age 66
Age 70
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.14
Estimated benefits
Source: Social Security Administration.
For illustration purposes only. Actual benefits may differ.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.1515
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.
Client Concerns
Impact of working
Taxation of benefits
Longevity concerns
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.16
Working & Social Security
Age 2012 Limits Considerations
Under Full Retirement Age $15,120For every $2 over the limit, $1 is
withheld from benefits.
In the year Full Retirement
Age is reached$40,080
For every $3 over the limit, $1 is
withheld from benefits until the
month in which full retirement
age is reached.
At Full Retirement Age
or older
No limits
on earnings None
Source: Social Security Administration.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.17
Taxes and Social Security
Provisional
income
Adjusted
Gross
Income
Tax-
exempt
interest
50% of
Social
Security
benefits
+ + =
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.18
Taxes & Social Security
Single Filing Married Filing Jointly
Provisional
IncomeTaxed Benefits
Provisional
IncomeTaxed Benefits
Under
$25,0000%
Under
$32,0000%
$25,000 –
$34,000Up to 50%
$32,000 –
$44,000Up to 50%
Over
$34,000Up to 85%
Over
$44,000Up to 85%
Note: State and local taxes may differ.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.19
Longevity increases risk of outliving assets
*Longevity rates calculated from A2000 mortality table.
Assuming the hypothetical investor had saved $500,000 in a qualified 401(k) account, invests in
a lifecycle mix of assets, experiences an inflation rate of 3%, and withdrawals at a rate is 5%.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.2020
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.
Election Strategies
Spousal benefits
Claim and Suspend
Claim Now, Claim More Later
Do-over
Survivor benefits
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.21
Spousal benefits
• Based on spouse’s work record
• Spouse must have applied for benefits
• ½ of spouse’s Full Retirement Age benefit
• Claiming before Full Retirement Age
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.22
Divorced spousal benefits
• Married at least 10 years
• Not remarried
• Divorced spouse is not required to file
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.23
Social Security benefits
Couple Scenario:
• Full Retirement Age: 66
62 66 70
Ann $675 $900 $1,188
Sam $1,553 $2,071 $2,733
Social Security benefits if started at age:
Ann’s
Spousal$724 $1,035 $1,035
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.24
Claim and Suspend
• Must be at least Full Retirement Age
• Claim benefits, then suspend
• Allows one spouse to receive spousal benefits
• Other spouse continues to earn delayed retirement credits
• Receive a higher benefit upon re-applying
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.25
Claim and Suspend
Sam(Age 66)
Ann(Individual)
(Age 62)
Suspended
$2,071
$675
$724
Spousal1/2 = $1,035Monthly
increase
of $49
Ann(Spousal)
(Age 62)
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.26
Claim Now, Claim More Later
• Full Retirement Age
• Other spouse must claim benefit
• Individual claims only spousal benefit
• Allows individual benefit to earn
delayed credits
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.27
Total monthly income
$1,125
Total monthly income
$3,4081
Eligible for
$2,071
Spousal
benefits
Claim Now, Claim More Later
Expected
Full Retirement Age
SS benefit
$900
$450
Sam(Age 66)
Ann(Age 62)
$675
Spousal
benefits
Sam(Age 70)
Ann(Age 66)
$2,7462
$662monthly gain
$2,733
Individual
Benefit
1 Sam delayed credits to age 70 receiving $2,733 and Ann elected her personal benefit early receiving $675.
2 Sam elects personal benefit $2,071 and Ann receives her personal benefit of $675.
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.28
Do-Over
Repay only benefits received
Withdrawal decision within 12 months
One withdrawal per lifetime
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.29
Survivor benefit
• “Greater of” benefit
• Do not receive both benefits
Age 62 Age 66 Age 70
$1,562 $2,071 $2,733
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.30
Position yourself as a trained professional
Utilize checklists and client materials
Each client’s situation is unique
Help clients make good decisions —
and avoid costly mistakes
The Social Security opportunity
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.31
Social Security website at socialsecurity.gov
Principal Funds Social Security website at retirementleadership.com
Principal Funds Advanced Retirement Team at 800-787-1621 option 4
Resources
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.3232
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.
Questions?
Global Investment Management I Asset Allocation Expertise I Retirement Leadership
For Financial Professional Use Only.33
Disclosures
The content of this presentation is based upon reliable source material and is believed to be correct as of the time of creation;
however is subject to change at any time without warning. Investors should consider consulting with their tax professionals
prior to making decisions due to their unique circumstances.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication,
it is intended to provide general information about the subject matter covered and is provided with the understanding that
The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid
penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters
pertaining to legal, tax, or accounting obligations and requirements.
Investors should carefully consider a fund’s investment objectives, risks, charges, and expenses prior to investing. A prospectus, or summary prospectus if available, containing this
and other information can be obtained by contacting a financial professional, visiting principalfunds.com, or calling 800-222-5852. Read the prospectus carefully before investing.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc., member of the Principal Financial Group®. Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation
and its affiliates, and Principal Funds, Inc. are collectively referred to as Principal Funds.
MM4787-07 | 12/2012 | t12121001sx
©2012 Principal Financial Services, Inc.