Social Security Seminar - August 2009

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    Notes on slide 1

    It is important to the success of your retirement plan that you appreciate the probability of a married couple having at least one person living to age 92 or 97. Longevity is a real risk that can create other risks throughout your retirement. When we look at the statistics around Social Security benefits however, it indicates that many times we aren’t acting in a manner consistent with our desire to ensure we have enough money to live throughout our entire retirement.

    Why do so many people collect benefits when they hit age 62? Probably because they can. Even though so many of our client’s are concerned with longevity, they are willing to except reduced benefits for life to avoid not getting their fair share of benefit because they may die early. And to make things worse, women, who typically have longer life expectancies, more often collect reduced benefits. The largest increase in age segment is the over age 85. Again, validating that longevity is a reality. In 2006 there were over 43,000 people over the age of 100 collecting Social Security Retirement Benefits. Out of that number it is important to note, that almost 37,000 were women. Why is that significant? (go to next slide)

    It’s significant because 2/3 of all the woman collecting benefits today are collecting benefits all or in part based on their husband’s work history. So often when we think about delaying benefits, we refer to the break even age. The age at which the individual has to live to for it to be financially better for them to defer to FRA or age 70 vs. collecting at age 62. The major problem with that break even point is that it doesn’t take into consideration survivor benefits, which are directly tied to your benefits, that may continue to pay to their surviving spouse on the back end.

    Most workers pay into the program with each paycheck and will qualify for Social Security benefits at retirement. Workers pays a 6.2% tax up to the Social Security wage base ($106,800 in 2009) toward Social Security. This amount is matched by the worker’s employer. To be fully insured, a worker needs 40 credits. A maximum of 4 credits can be earned per year. For 2009, one credit is earned for every $1,090 of wages.

    Let’s start at FRA. This is the age that the SSA feels you should retire. Whether or not you actually do is irrelevent. It is at this age you are entitled to your full retirement benefit or Primary Insurance Amount (PIA). The reason this is an important number to know, is because it is from this amount any reductions will be applied, increases given, or spousal benefits based on. FRA is going up. It was 65, and it now going up to age 67 depending on the year you were born. Year born Full Retirement Age 1937 or earlier = 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 = 66 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 or later = 67

    If your client elects to take benefits early, their benefit will be permanently reduced. The payment is not adjusted when they reach FRA. Generally, your client’s will look to you to do one of two things. If they collect early, they will look to you to over the long run, make them better off despite their reduction. Or if they defer, they will need your help to bridge the income gap between age 62 and when they start collecting. What else should your clients consider before they go ahead and agree to a permanently reduced benefit? Percentage of monthly reduction and total reductions are approx due to rounding. Actual reductions are 5/9 of 1% per month or .555 for the first 3 years and 5/12 of 1% (.416) for subsequent months.

    Among other things, you need to consider your current health, family history of longevity, are you married, what’s the age difference between you and your spouse. Keep in mind, the greater the age difference, the greater the potential for a survivor benefit to be paid for a longer period of time on the back and, and therefore the greater the impact of collecting early. One extremely important consideration that could directly influence you not to collect early, is whether or not you are actually retiring.

    This rule comes into play when working while receiving social security benefits. For the years prior to full retirement age, if you earn more than the threshold amount ($14,160 in 2009), you lose $1 of benefits for every $2 earned over the threshold. For the year in which you reach full retirement age, a different rule applies. The threshold is $37,680 in 2009. And the rule is that you lose $1 in benefits for every $3 in earnings over the threshold. Also, the threshold applies only to the portion of the year (the months) prior to the month in which you reach full retirement age. So, if you reach full retirement age in August, you can earn up to $37,680 in January through July, without any reduction in benefits. Once full retirement age is reached (in August and beyond), there is no threshold so you can earn any amount after that with no reduction in benefits.

    If someone starts collecting their benefit prior to FRA and they find themselves returning to work and having their benefit withheld, they can consider a Withdrawal of Application. This essentially allows a client a do-over. They need to repay the SSA everything they had received to date, along with any family benefits paid on their work history, and then they can subsequently apply as if it were their first time applying.

    The SSA will guarantee your client an annual increase to their benefit for every year they defer collecting beyond FRA up until age 70. It will be an annual increase of either 7-8% depending on the year they were born. This is in addition to the COLA. So if you had a client who had deferred collecting benefits because they were still working, but has now reached FRA, they need to consider if they should start collecting or take the guaranteed increase. They do not have to defer until age 70, they can defer as many months/years as they would like. Once the client hits age 70, they want to start collecting whether they need the money or not, because they have maxed out their benefit.

    Now let’s look at whose benefit can be collected, when can it be collected, and is there opportunity to “step” up a benefit during retirement. Let’s consider this scenario. We have a husband and a wife. The wife has worked at least 10 years and is entitled to retirement benefits based on her own work history. The husband has also worked at least 10 years and is entitled to his own benefit. Because they earned that benefit, there will not be any family caps imposed. However, because the wife is the lower earner in this scenario, she has choices, she has options available. Not only is she entitled to her own benefit, but she may be entitled to a spousal benefit as long as they have been married for one year. As a spouse she is entitled to 50% of her husband’s Primary Insurance amount or $1129. In this example though, because she is entitled to her own benefit, the spousal benefit will equal the difference between her own benefit and the $1129. She will receive a combination of benefits, consisting of $552 of her own benefit, and $577 as a spousal benefit, bringing her up to a total benefit of $1129. There are a couple of things that are important to note here. The wife will not be entitled to a spousal benefit until her husband files, keeping in mind, that filing doesn’t necessarily mean collecting. The husband at FRA would have the ability to file for benefits, which will allow his wife to begin collecting spousal benefits, while suspending collecting his own to allow for deferred retirement credits. Additionally, if the husband files early, it will not impact his wife's spousal benefit,. The same is true if he files later, there would be no impact her benefit. She would, in either case, still be entitled to $1129. If SHE files early, however, her spousal benefit would be reduced, similarly to how her own benefit is reduced when collected early. It will be reduced dependant on her FRA, and her PIA. The last important note is that if she defers collecting a spousal benefit she will NOT receive delayed retirement credits like she does on her own benefit. So if there is a situation where spousal benefits apply, you would never want to defer beyond FRA because at that point you have maxed out your benefit. Now, the spousal benefit is paid while both are living. If her husband were to pass away before her, at that point she would be entitled to a survivor benefit. Important to note, is that it matters whether or not he filed early or deferred. The survivor benefit is not ½ of his PIA but equal to his actual benefit received. (There is a cap on the reduction if he filed early to 18.5% of his PIA, not the full 25% he received if collected at 62) So if he filed early, her survivor benefit would be negatively effected, and if he filed later she would benefit from a higher survivor benefit. She can collect survivor benefits as young as age 60, she does not have to wait until age 62. If she collects at 60, there will be a 28.5% reduction. If a surviving spouse collects at age 60, but has her own work history, because she is not entitled to her own benefit at that time, she would have the option later on to apply for her own benefit if at any point it is higher than her reduced survivor benefit. If she remarries after collecting a survivor benefit, she will not lose it. If however her new husband has a spousal benefit higher than the survivor benefit, she can apply to collect those after one year of marriage.

    Now let’s look at an example of the impact of collecting your benefits at age 62, vs. FRA, vs. age 70. Assume in this scenario, the two are the same age and the husband dies at age 75, wife at age 82. What would the outcome be if the couple decided to collect at 62, vs. FRA, vs. age 70. If both collected at 62, the wife would receive her own monthly benefit of $416 until her husband died at age 75. She would receive an additional $406 as a spousal benefit also until he died at 75. The husband would receive his $1614 during his lifetime, and when he died his wife would start to receive $1862 in lieu of her other benefits. At the end of the day, they receive $565,653 back from SS.

    Had they both deferred until FRA, even though they received benefits for a shorter period of time, because they received higher amounts, they actually received $595,848 back.

    Had they deferred until age 70, they would have only received $555,804. This is a risk a lot of clients are not willing to take. When longevity is not present, deferring to age 70 may not always be in your best interest. That is why we would suggest considering other strategies that provide the greatest amount of benefit and flexibility regardless of the duration of retirement.

    What if the lower earner, in this case the wife, started collecting at 62, but her husband deferred. Since her husband has not filed, the only benefit she would receive would be her own. Then when she reaches FRA, her husband would file, he would file just to allow her to grab the spousal benefit. So she begins collecting a reduced benefit of $416 at 62, and then at age 66 she begins receiving an additional $577 as a spousal benefit. Because she is FRA when she begins the spousal benefit, that portion is not reduced. Her husband filed and suspended his own benefit and begins to collect $3042 at age 70. At the end of the day they collect $613,620 from SS. Even with the husband only collecting benefits for 5 years, because of the impact of survivor benefits that continue to pay, they were still better off having him collect at 70 with her collecting at 62 and stepping up at FRA.

    Now we add longevity to the equation. The husband lives to 85, the wife to 92. Again, the step-up approach still provided the greatest amount of benefit. Will this always be the case? No. It all depends on the numbers. The higher the lower earner’s numbers are, when longevity is present, the more advantageous it becomes to have both defer to 70.

    Here is an option to consider when dealing with a couple where the spousal benefits are lower than their own. This strategy does not work if benefits begin prior to FRA, because the SSA will automatically compare the two benefits and pay the higher of the two. It is only when you file at FRA that you have an option to choose which benefit you want.

    Another consideration is when you have a client who is a widow and entitled to survivor benefits and has a decent benefit of their own. They could file for survivor benefits at 60 and received a reduced benefit. Then when they hit their FRA or later, they can file for their own, unreduced or increased benefit. This will only work if the spouse files at age 60 or 61. Once they hit 62, they are entitled to their own benefit and again, the SSA will automatically compare theirs to the survivor and pay the higher.

    you are divorced (even if you have remarried), your ex-spouse may qualify for benefits on your record if you are 62 or older. In some situations, he or she may get benefits even if you're not receiving them yet. (If your spouse will also receive a pension based on work not covered by Social Security, such as government or foreign work, his or her Social Security benefit on your record may be affected. To qualify on your record, your ex-spouse must: have been married to you for at least 10 years; be at least 62 years old; be unmarried; and not be eligible for an equal or higher benefit on his or her own Social Security record, or on someone else's Social Security record. If your former spouse continues to work while receiving benefits, the same earnings limits apply to him or her as apply to you. The amount of benefits your divorced spouse gets has no effect on the amount of benefits you or your current spouse may receive.

    The Provisional Income limits have not been indexed for inflation and are not scheduled to index.

    Review points on slide.

    (Read slide.)

    Some employees, usually civil service employees, do not pay into the Social Security Retirement System, but rather a civil retirement system. Since their years of employment would not be recognized by SS as a result of this, they would be entitled to receive spousal and survivor benefits. Social Security will offset those benefits however as a result of your Civil pension. They would reduce any spousal or survivor benefits by 2/3 of your civil pension. So you would receive your full civil pension and any additional spousal benefits if they exceeded 2/3 of your pension. For instance, in the above scenario, the wife would receive $1,500 from her pension, and an additional $129 as a spousal benefit. If her husband passed away, she would continue to receive her pension and a survivor benefit reduced by $1000.

    If the client did a withdrawal of benefit and repaid their SSB it would be reflected in Box 4. Repayments as a result of a withdrawal of benefit would generally create a negative Net Benefit. The amount of the negative net benefit that was previously taxed my be able to be deducted as an itemized deduction on schedule A for that tax year. If you have a net negative benefit and you had paid tax in previous years, you may be entitled to an itemized deduction on your tax return

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    Social Security Seminar - August 2009 - Presentation Transcript

    1. Transforming Social Security into a Winning Retirement Strategy Social Security Basics Beginning Benefits Additional Beneficiaries Benefits of Social Security
    2. Source: Annuity 2000 Mortality Table, Society of Actuaries. Figures assume you are in good health. Life Expectancy Upon Retirement at 65 A healthy 65 Year Old Female has a 50% chance of living until 88 or 23 more years Life Expectancy Considerations 50% chance of living to 25% Chance of Living to 50% chance of living to 25% Chance of Living to at Least One Person has a 50% Chance of Living to at Least One Person has a 25% Chance of Living to Age Social Security Basics
      • 73% of those collecting Social Security Retirement benefits are receiving reduced amounts
        • 76% of all women
        • 71% of all men
      • 14% increase over the past 5 years in those over age 85 collecting benefits
        • 4.7 Million
      • In 2006
        • 1,157,303 recipients age 90 or older
        • 242,960 recipients age 95 or older
        • 43,110 recipients 100 or older
          • 36,973 women
          • 6,137 men
      Source: Social Security Administration’s Annual Statistical Supplement, 2007 Social Security Basics
    4. Whose Benefits are Women Collecting? Retired Worker Benefits Only 40% Wife’s/Widow’s Benefit Only 30% Both 30% Source: Social Security Administration’s Annual Statistical Supplement, 2006 Additional Beneficiaries
      • To be fully insured, a worker needs 40 credits. A maximum of 4 credits can be earned per year
      • It takes approximately 10 years of working to become fully insured.
      • 3 months before your birthday, you should receive a Social Security Statement estimating what your Retirement benefits will be.
      • You should verify the Earnings Record to ensure its accuracy since your benefit is based on that.
      Social Security Administration; SSA.gov Social Security Eligibility
      • Once you are fully insured, you can elect to receive:
        • Reduced benefits as early as the first full month you attain age 62
        • Full benefits at full retirement age –or-
        • Increased benefits, if benefits are delayed beyond full retirement age to as late as age 70
      Social Security Administration; SSA.gov Beginning Benefits
    7. Full Retirement Age is the age you are entitled to your full Primary Insurance Amount (PIA) The Full Retirement Age is increasing to age 67. Depending on your year of birth, your full retirement age can be anywhere between age 65 and 67 Full Retirement Age Social Security Administration; SSA.gov 67 1960 and later 66 + 2 months for every year after 1954 until 1960 1955–1959 66 1943–1954 65 + 2 months for every year after 1937 until 1943 1938–1942 65 1937 or earlier Full Retirement Age Year Born
    8. What is the cost if you elect to collect Benefits at age 62? If you collect benefits anytime prior to your Full Retirement Age, your Primary Insurance Amount will be permanently reduced. Social Security Administration; SSA.gov Early Retirement Benefits 30% 67 25% 66 20% 65 Monthly Benefit Reduction at age 62 Full Retirement Age
      • Before commencing benefits you should coordinate your decision with your overall retirement strategy that among other things considers the following:
        • Do you need the supplemental income?
        • Are you actually retiring?
        • What’s the expectation of working even part-time before Full Retirement Age?
        • How is your health?
        • Do you have a history/expectation of longevity?
        • Are you married?
        • Is there a big age difference between you and your spouse?
        • Does your spouse have a history/expectation of longevity?
        • Whose benefit will your spouse collect?
      Considerations
    10. If you earn wages while collecting benefits prior to Full Retirement Age, part of your benefit may be withheld. Only wages are considered. Spouse’s wages are not considered Working During Retirement Social Security Administration; SSA.gov, Earnings Test $37,680/year
      • Year individual reaches full retirement age
        • $1 of benefits withheld for every $3 in earnings above the limit for months prior to attaining full retirement age
      Unlimited
      • Month individual reached full retirement age and beyond
        • Reduction no longer applies
      $14,160/year
      • Under full retirement age
        • $1 of benefits withheld for every $2 in earnings above the limit
      2009 Limit
    11. Withdrawal of Application
      • Complete withdrawal of benefit form
        • Indicate reason for withdrawal request
      • Wait for SSA approval
      • Repay all benefits, including spousal benefits, paid to date.
      • Reapply when ready to begin collecting benefits
      Social Security Administration; SSA.gov
    12. If you delay collecting benefits beyond your Full Retirement Age, you will receive an increase in your Primary Insurance Amount, Delaying Benefits Delayed Retirement Credits until age 70 This DRC is in addition to the Cost of Living Adjustment. 2008 COLA: 5.8% Social Security Administration; SSA.gov 8.0% 1943 or later 7.5% 1941–1942 7.0% 1939–1940 Yearly Increase Year of Birth
    13. Spousal & Survivor Benefits
        • Your spouse is eligible to receive the higher of whatever benefit he/she may have earned on his/her own record, or half of your Primary Insurance Amount (PIA)
        • Spouse cannot collect on your record until you file for benefits. (You can file and elect to suspend benefits)
        • A surviving spouse will receive 100% of your benefit at full retirement age. However, reduced benefits can begin as early as age 60
      Wife’s Earning History Husband’s Earning History Collecting Benefits Social Security Administration; SSA.gov; *Benefit amounts based on a Social Security Satement issued by SSA $729 70 $552 66 $416 62 Monthly Benefit Age $400 $577 $406 Adjusted Spousal Benefit $1129 Spousal Benefit $3,042 $3,042 70 $2,257 $2,257 66 $1,862 $1,614 62 Survivor Benefit Monthly Benefit Age
    14. Wife’s Earning History Husband’s Earning History Strategies for Collecting Benefits *Benefit amounts based on a Social Security Statement issued by SSA, Total Benefits paid calculated by Blackrock, based on the stated assumptions and benefit amounts. Assumes both are the same age and husband lives through age 75, and wife through age 82, and does not incorporate cost of living adjustments $565,653 $156,410 $271,152 $68,203 $69,888 Both Begin at 62 Total Benefit Received Survivor Benefit Husband’s Benefit Spousal Benefit Wife’s Benefit $729 70 $552 66 $416 62 Monthly Benefit Age $3,042 $2,257 $1,614 Monthly Benefit $2257 $577 $1129 66 $400 $406 Adjusted Spousal Benefit $3042 70 $1,862 62 Survivor Benefit Spousal Benefit Age
    15. Wife’s Earning History Husband’s Earning History Strategies for Collecting Benefits Assumes both are the same age and husband lives through age 75, and wife through age 82, and does not incorporate cost of living adjustments *Benefit amounts based on a Social Security Statement issued by SSA, Total Benefits paid calculated by Blackrock, based on the stated assumptions and benefit amounts. $565,653 $156,410 $271,152 $68,203 $69,888 Both Begin at 62 Both Begin at FRA $595,848 Total Benefit Received $189,588 Survivor Benefit $270,840 Husband’s Benefit $69,180 Spousal Benefit $66,240 Wife’s Benefit $729 70 $552 66 $416 62 Monthly Benefit Age $3,042 $2,257 $1,614 Monthly Benefit $2,257 $577 $1,129 66 $400 $406 Adjusted Spousal Benefit $,3042 70 $1,862 62 Survivor Benefit Spousal Benefit Age
    16. Wife’s Earning History Husband’s Earning History Strategies for Collecting Benefits Assumes both are the same age and husband lives through age 75, and wife through age 82, and does not incorporate cost of living adjustments *Benefit amounts based on a Social Security Statement issued by SSA, Total Benefits paid calculated by Blackrock, based on the stated assumptions and benefit amounts. $565,653 $156,410 $271,152 $68,203 $69,888 Both Begin at 62 Both Age 70 Both Begin at FRA $555,804 $595,848 Total Benefit Received $255,528 $189,588 Survivor Benefit $219,024 $270,840 Husband’s Benefit $28,764 $69,180 Spousal Benefit $52,488 $66,240 Wife’s Benefit $729 70 $552 66 $416 62 Monthly Benefit Age $3,042 $2,257 $1,614 Monthly Benefit $2,257 $577 $1,129 66 $400 $406 Adjusted Spousal Benefit $,3042 70 $1,862 62 Survivor Benefit Spousal Benefit Age
    17. Wife’s Earning History Husband’s Earning History Strategies for Collecting Benefits Assumes both are the same age and husband lives through age 75, and wife through age 82, and does not incorporate cost of living adjustments *Benefit amounts based on a Social Security Statement issued by SSA, Total Benefits paid calculated by Blackrock, based on the stated assumptions and benefit amounts. $565,653 $156,410 $271,152 $68,203 $69,888 Both Begin at 62 Wife Age 62, Husband Age 70 Both Age 70 Both Begin at FRA $613,620 $555,804 $595,848 Total Benefit Received $255,528 $255,528 $189,588 Survivor Benefit $219,024 $219,024 $270,840 Husband’s Benefit $69,180 $28,764 $69,180 Spousal Benefit $69,888 $52,488 $66,240 Wife’s Benefit $729 70 $552 66 $416 62 Monthly Benefit Age $3,042 $2,257 $1,614 Monthly Benefit $2,257 $577 $1,129 66 $400 $406 Adjusted Spousal Benefit $,3042 70 $1,862 62 Survivor Benefit Spousal Benefit Age
    18. Wife’s Earning History Husband’s Earning History Strategies for Collecting Benefits Assumes both are the same age and husband lives through age 85, and wife through age 92, and does not incorporate cost of living adjustments *Benefit amounts based on a Social Security Statement issued by SSA, Total Benefits paid calculated by Blackrock, based on the stated assumptions and benefit amounts. $857,970 $156,410 $464,832 $116,920 $119,808 Both Begin at 62 Wife Age 62, Husband Age 70 Both Age 70 Both Begin at FRA $1,097,760 $1,056,264 $1,002,108 Total Benefit Received $255,528 $255,528 $189,588 Survivor Benefit $584,064 $584,064 $541,680 Husband’s Benefit $138,360 $76,704 $138,360 Spousal Benefit $119,808 $139,968 $132,480 Wife’s Benefit $729 70 $552 66 $416 62 Monthly Benefit Age $3,042 $2,257 $1,614 Monthly Benefit $2,257 $577 $1,129 66 $400 $406 Adjusted Spousal Benefit $,3042 70 $1,862 62 Survivor Benefit Spousal Benefit Age
      • Two High Wage Earners
      Alternative Strategies Wife’s Earning History Husband’s Earning History If the wife waits until FRA to collect benefits, she can file for spousal benefits only and allow her own to continue to grow. She would receive $1,139. Than at age 70, she would apply to start collecting her own benefit in lieu of spousal, and receive $1,786. Social Security Administration; SSA.gov; *Benefit amounts based on a Social Security Satement issued by SSA $1,786 70 $1,353 66 $1,065 62 Monthly Benefit Age $1,139 Spousal Benefit $0 $0 $0 Adjusted Spousal Benefit $3,048 $3,048 70 $2,277 $2,277 66 $1,879 $1,682 62 Survivor Benefit Monthly Benefit Age
      • High Wage Earner Unmarried with Deceased Spouse
      Alternative Strategies Wife’s Earning History Wife could file and collect a survivor benefit at age 60. It would be reduced by 28.5%. She would continue to allow her own benefit to grow, and file at age 70 to start collecting her own benefit of $3,048. Deceased Husband’s Social Security Administration; SSA.gov; *Benefit amounts based on a Social Security Satement issued by SSA $2,481 Benefit Amount $3,048 $2,277 $1,682 $0 Own Monthly Benefit $2,481 66 70 62 $1,774 60 Survivor Benefit Age
    21. What if You have Younger Children? Who can collect benefits when you retire? Additional Beneficiaries Social Security Administration; SSA.gov;
      • Under 18, or up to 19 if in high school, or any age if disabled before 22
      • Age 62 or over
      • Any age, if caring for your child who is under 16 or disabled before 22
      • Age 62 or older
      Your Unmarried Child Your Spouse You
    22. Divorced Spouse Additional Beneficiaries
      • A divorced spouse can apply for benefits on a worker’s record if:
        • Had been married to worker for at least 10 years
        • Has been divorced for at least 2 years*
        • Is at least age 62
        • Is unmarried –and-
        • Not eligible for an equal or higher benefit on his or her own record, or on someone else’s record
        • The ex-spouse has to be at least age 62, but not required to have filed.
        • *2 years does not apply if the individual was eligible for spousal benefits at the time of divorce.
      Social Security Administration; SSA.gov;
    23. Taxation of Social Security Benefits
        • Formula: ½ Social Security Benefits plus modified adjusted gross income (mAGI). This is often called ‘Provisional Income’
        • If this amount exceeds the base amount, benefits become taxable
      Benefits of Social Security Social Security Administration; SSA.gov; Above $44,000 = up to 85% taxable Above $34,000 = up to 85% taxable $32,000 - $44,000 = up to 50% taxable $25,000 - $34,000 = up to 50% taxable Base amount $32,000 Base amount $25,000 Married Filing Joint Single or Head of Household
    24. Modified Adjusted Gross Income
      • Modified adjusted gross income (mAGI) includes reportable income increased by certain tax-exempt amounts, such as:
        • Tax-exempt interest
        • Qualified US savings bonds interest that may otherwise be excluded (Form 8815)
        • Adoption benefits
        • Foreign earned income or housing
        • Allowable IRA deduction
      Benefits of Social Security Social Security Administration; SSA.gov;
    25. Summary With careful planning, a strategy can be developed to improve potential lifetime benefits of Social Security by structuring the benefits to begin at optimal times based on your financial plan Benefits of Social Security
    26. Additional Resources Social Security Administration www.ssa.gov Internal Revenue Service www.irs.gov 2008 Guide to Social Security Benefits of Social Security
    27. Wife’s Pension Husband’s Earning History Government Pension Offset If you are covered by a pension under the civil retirement system rather than Social Security, your spousal and/or survivor benefits will be reduced through a Government Pension Offset. Spousal benefits and Survivor benefits will be reduced by 2/3 of the amount of your pension. Social Security Administration; SSA.gov; $1,500 Monthly Pension $3,042 $2,257 $1,614 Monthly Benefit $1,257 $129 $1,129 66 Adjusted Spousal Benefit $2,042 70 $862 62 Adjusted Survivor Benefit Spousal Benefit Age $1,000 Gov’t Pension Offset
    28. Windfall Elimination Program (WEP)
      • If you are covered by a pension under the civil retirement system and also qualify for Social Security Retirement Benefits, your PIA will be reduced through the Windfall Elimination Program.
      • PIA formula:
        • 90% of the first $744* of AIME, plus
        • 32% of the next $3,739* of AIME, plus
        • 15% of AIME in excess of $4,483*
      • If WEP applies, reduce the 90% factor to 40%
      • WEP is phased out for individuals who have substantial earnings covered by Social Security between 20-30 years,
      *changed annually by changes in the national indexing average wage. Social Security Administration; SSA.gov;
    29. SSA-1099 John Jones 123-45-6789 $10,000 ($77,472) $87,472 IRS Publication 915

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