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Social Security: Five things you need to know

Optimizing Social Security benefits.. Topics for today. Quick facts on Social Security. Key risks in retirement. Understanding Social Security. Fundamentals. Five things you need to know. Quick facts.

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Social Security: Five things you need to know

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Social Security:

Five things you need to know

Optimizing Social Security benefits.Slide2

Topics for todayQuick facts on Social SecurityKey risks in retirementUnderstanding Social SecurityFundamentalsFive things you need to knowSlide3

Quick factsOver 60 million Americans receive Social Security benefits totaling almost $1 trillion in benefits annuallyThe average monthly retirement benefit is $1,503 For 61% of elderly beneficiaries, Social Security provides the majority of their cash incomeSocial Security trust fund is projected to be exhausted in 2035, at which time benefits would be reduced by roughly 25%Sources: Social Security factsheet, 2020; Social Security Trustees Report, 2019. Slide4

Social Security can help address these key risks in retirementLongevityInflation


Lifetime income for worker and spouse

Regular cost-of-living adjustments

Benefits not






Preferential tax treatment vs. other income sources such as IRA income

Guaranteed income streamSlide5

The fundamentals of Social Security* For 2020, earnings of $1,410 constitute one quarter of coverage. No matter how high your earnings may be, you can not earn more than 4 quarters of coverage in one year.Eligibility

At least 40 quarters of work*

Individual contributions

Social Security payroll tax of 6.2% on first $137,700

of earnings


Calculated based on average monthly earnings indexed for inflation — top 35 earning years taken into consideration



Spousal benefit (50% of covered spouse benefit) and survivor benefit (100% of covered spouse’

s benefit)Slide6

What’s your full retirement age (FRA)?Source: Social Security Administration.Year of birthFull retirement age




66 and 2 months


66 and 4 months


66 and 6 months


66 and 8 months


66 and 10 months

1960 and



Earnings limitation no longer applies†If you claimed early, you can voluntarily suspend at FRA to recoup benefitsExample: If you claimed at 62, voluntarily suspended at FRA (age 66), and began benefits again at age 70, you would receive 99% of what you would have received if you claimed at FRA originallyWhen you claim affects your benefits* During year reaching full retirement, the earnings limit is $48,600. One dollar in benefits will be withheld for every $3 in earnings (i.e., wages) above the limit. Wages from a spouse are not considered. † After you reach full retirement age, the SSA will recalculate benefit amount to give credit for any months in which benefits were withheld because of the earnings limitation.




Age 62 for worker and spousal (60 for survivors)

Benefits reduced for claiming early (by 25% if claiming at age 62 if FRA is age 66)

Subject to earnings limitation — $1 of benefits withheld for every $2 above earnings limit of $18,240*

Earnings limitation applies to own, spousal, and survivor benefits

8% “raise” for each year you delay benefits — only applies to your worker benefits, not spousal or survivor benefits

No benefit for waiting past age 70Slide8

Calculating spousal benefitsSpouses are eligible to receive the higher of own benefit based on earnings record or 50% of primary insurance amount (PIA) of working spouse (PIA is the benefit amount received at FRA)Worker must file for benefits before spousal benefit is availableMust be married for at least one year to receive spousal benefitsSpousal benefit based on when the spouse claims Social Security, not the workerExample:Husband’s benefit at FRA is $2,400 Husband files early at age 62 so benefit is reduced by 25% to $1,800Wife files for spousal benefit at her FRA based on husband’s earning record — spousal benefit will be 50% of his PIA (50% of $2,400 = $1,200), not 50% of what the husband receivesSlide9

Five things you need to know about Social SecuritySlide10

1. It might pay to delayThe reality — many retirees claim benefits too earlyPeople often underestimate life expectancyBenefit level is significantly lowerEarnings test may apply if still working†May be more likely to have benefits taxedIn most cases, you can’t change your mind after benefits beginYou receive an 8% “raise” for every year you delay taking benefits* Source: Social Security Administration, 2018.† For 2020, if you are under the full retirement age, $1 in benefits is withheld for every $2 of earnings in excess of $18,240.


Roughly 65% elect before reaching full retirement age, including 40% who claim

at age 62*Slide11

When do retirees claim Social Security?Social Security Administration, 2018. Excludes those claiming disability.


Monthly benefits increase as you delay Social SecuritySource: Social Security Quick Calculator benefit estimate based on an individual age 62 with $75,000 in current earnings. Does not include increases in benefit levels due to regular cost of living adjustments.$1,394



2. Plan for your surviving spouse Historically, higher-earning spouses have taken Social Security early, exposing the surviving spouse to longevity riskThink in terms of joint life expectancyIf possible, maximize highest earner’s benefit to provide higher lifetime benefit for surviving spouseSlide14

Important changes to Social SecurityThe Bipartisan Budget Act of 2015 phased out two claiming strategies for married couplesFile and suspend

Must have reached

full retirement age (66)

by April 30, 2016

, and filed and suspended

Restricted application

Those who reach

age 62 in 2015

can still

restrict application to spousal benefits only

once reaching full retirement age (66)Slide15

Understanding the “restricted application” strategyWho should consider?Working couples with similar incomesHow does it work?Older spouse waits until full retirement age and restricts claim to spousal benefit only, then at age 70 claims higher benefit based on own earnings record. Other spouse must file for own retirement benefit to trigger the spousal benefit. What’s the benefit?Higher earner receives spousal benefit while allowing own benefit to reach maximum amount. Highest survivor benefit is preserved.Slide16

3. Special rules for divorced and widowed individualsDivorced? You can receive benefits on ex-spouse’s earning record if:You are unmarried and age 62 or olderYour marriage lasted 10 years or more (and divorced for 2 years)Your ex-spouse is eligible for Social Security benefits (even if ex-spouse hasn’t filed for benefits yet)Widows may receive benefits as early as age 60The benefit amount is 71.5% of full benefit amount if taken at age 60 and is based on deceased spouse’s earningsCan choose to receive survivor benefits while letting your own benefit accrue delayed retirement credits up to age 70Must be married for at least 9 months to qualify for benefits** An exception may apply to the 9-month rule if the deceased spouse died accidentally or while on active duty in the military. For a full list of exceptions consult Federal

Regulations §404.335. Slide17

More detail on survivors* Qualifying child is one younger than age 18 or between age 18 and 19, but in elementary or secondary school as full-time students. Generally, a family maximum is calculated from a formula that is between 150% and 188% of the worker’s basic Social Security benefit or primary insurance amount.Relationship to you

Survivor benefit

(percentage of your expected full retirement benefit)

Your widow(


), who has reached FRA


Your widow(


), who is at least 60 years old, but hasn’t yet reached FRA


Your widow(


), who is caring for your child under 16 or disabled


Your qualifying child*


4. There’s a good chance benefits will be taxed* IRS Notice 703. Income calculation for taxation of Social Security benefits equals your adjusted gross income (AGI), one half of Social Security benefits, and tax-exempt municipal bond interest. Income from Roth accounts does not negatively impact taxation of Social Security benefits.Income level*Taxation


$25,000 and

$34,000 ($32,000 and

$44,000 for


Up to 50% of benefits

reported as taxable income

Over $34,000


for couples)


to 85%

of benefits reported as taxable income


5. Pension income may reduce benefits

Windfall Elimination

Provision (WEP)

Government Pension

Offset (GPO)

Who’s affected?

Workers eligible for Social Security who are also receiving

a pension from a job where Social Security benefits were

not withheld

Workers applying for spousal

or survivor benefits who are receiving a pension from a job where Social Security benefits were not withheld

What is the reduction?

Based on a calculation from the Social Security Administration, Social Security benefits can be reduced but not totally eliminated.

Benefits are reduced by two thirds of the amount of the pension income. Social Security benefits may be totally eliminated. Slide20

Examples of how the WEP and GPO can reduce benefits * Based on a hypothetical example utilizing the WEP calculator on SSA.gov where benefit recipient worked for 15 years in Social Security–covered employment.As a result of the GPO, Martha’sspousal benefit is $400/monthAs a result of the WEP, Andy’smonthly Social Security benefit is reduced by $434 a month for a net benefit of $1,066 a month*


John’s monthly Social Security benefit = $2,000

Martha’s spousal benefit = $1,000


monthly pension = $900

GPO calculation:

Spousal benefit ($1,000) minus two thirds of her

pension benefit ($600)


Andy’s monthly Social Security benefit = $1,500

Andy’s monthly pension = $1,000

Windfall Elimination Provision (WEP)

Government Pension Offset (GPO)Slide21

Closing thoughtsSocial Security is a critical component of an effective retirement income planUnderstanding and making the right decisions around taking Social Security can be a big driver of success in retirementWork with your financial advisor to assess your personal situation✓✓✓Slide22

For informational purposes. Not an investment recommendation.This information is not meant as tax or legal advice.Please consult your legal or tax advisor before making any decisions.Slide23