2012 social-security-seminar-may-22-2012

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Learn more about Social Security Benefits from the experts. Additional review:
Retirement benefit qualifications
Steps to recover maximum benefits
Strategies for single people, married couples, survivors and divorced individuals
Medicare issues

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2012 social-security-seminar-may-22-2012

  1. 1. Social Security SeminarSocial Security Seminar Walter H. Deyhle, CPA, CFP Partner & Director, Tax Department May 22, 2012
  2. 2. Social Security Seminar Social Security Questions Social Security Questions• How much will I get? ? ?• When can I get it?• Are there strategies I can use to  ? ? ? maximize my benefits? ? ? 2
  3. 3. Social Security SeminarQualifying for Retirement BenefitsQualifying for Retirement Benefits • 40 quarters • In 2012, you are awarded one  quarter for every $1,130 in  t f $1 130 i earnings. 3
  4. 4. Social Security SeminarQualifying for Retirement Benefits (cont.)• Average Indexed Monthly Earning (AIME) • Based on highest 35 years indexed Social  Security (SS) income 4
  5. 5. Social Security Seminar Qualifying for Retirement Benefits (cont.) Q lif i f i fi• Primary Insurance Amount (PIA) Example: $5,000 AIME• (90% of the first $761 of AIME) +  $ 761 X .9 = $685   (32% of the next $3,825 of AIME)  $3,825 X .32 = $ 1,224 + (15% of additional AIME) $411 X .15 = $ 62• B d i t $761 d $4 586 Bend points ‐ $761 and $4,586 $ 1,971 $ 1 971 5
  6. 6. Social Security SeminarThree Steps to Receiving Your Maximum Benefits h f1. Get 40 quarters.1 G t 40 t2. Replace low years with  higher years. higher years3. Review SS benefit  statement annually. statement annually 6
  7. 7. Social Security Seminar When Can I Claim Retirement Benefits? Year of  Full  Per Month Reduction If Age 62  Per Month  Age 70  Birth Retirement Benefits Begin Prior to Benefits Delay Benefits  Age (FRA) Age (FRA) Full Retirement Age Full Retirement Age as a % of  as a % of Retirement  Retirement as % of  as % of PIA Credits PIA1943 ‐ 1954 66 5/9% for 36 mos. + 5/12%/mo. 75% 2/3% 132% 1955 66 and 2 mos and 2 mos 5/9% for 36 mos. + 5/12%/mo. 5/9% for 36 mos + 5/12%/mo 74 1/6% 74 1/6% 2/3% 130 2/3% 130 2/3% 1956 66 and 4 mos 5/9% for 36 mos. + 5/12%/mo. 73 1/3% 2/3% 129 1/3% 1957 66 and 6 mos 5/9% for 36 mos. + 5/12%/mo. 72 1/2% 2/3% 128% 1958 66 and 8 mos 5/9% for 36 mos. + 5/12%/mo. 71 2/3% 2/3% 126 2/3% 1959 66 and 10 mos 5/9% for 36 mos. + 5/12%/mo. 70 5/6% 2/3% 125 1/3% 1960 ‐ on 67 5/9% for 36 mos. + 5/12%/mo. 70% 2/3% 124% 7
  8. 8. Social Security Seminar Monthly Benefit Amounts Differ Based on the Age You  Decide to Start Receiving Benefits (This example assumes a benefit of $1,000 at full retirement age of 66)$1,400  $1,320 $1 320 $1,160 $1,240$1,200  $1,080$1,000  $933 $1,000 $866 $800  $800 $750 $800 Monthly  $600  Benefit  $400  Amount $200  $200 $0  62 63 64 65 66 67 68 69 70 Age You Choose to Start Receiving Benefits Age You Choose to Start Receiving Benefits 8
  9. 9. Social Security Seminar Cumulative Lifetime Benefits through Ages 70 to 100 if Social Security  Benefits Begin at Age 62 through 70 B fit B i t A 62 th h 70Ages 70 75 80 85 90 95 10062 $ $144,000 , $ $234,000 , $ $324,000 , $ $414,000 , $ $504,000 , $ $594,000 , $ $684,000 ,63 $134,400 $230,400 $326,400 $422,400 $518,400 $614,400 $710,40064 $124,800 $228,801 $332,801 $436,802 $540,802 $644,802 $748,80365 $112,000 $112 000 $223,999 $223 999 $335,999 $335 999 $447,998 $447 998 $559,998 $559 998 $671,998 $671 998 $783,997 $783 99766 $96,000 $216,000 $336,000 $456,000 $576,000 $696,000 $816,00067 $77,760 $207,360 $336,960 $466,560 $596,160 $725,760 $855,36068 $55,680 $194,880 $334,080 $473,280 $612,480 $751,680 $890,88069 $29,760 $178,560 $327,360 $476,160 $624,960 $773,760 $922,56070 0 $158,400 $158 400 $316,800 $316 800 $475,200 $475 200 $633,600 $633 600 $792,000 $792 000 $950,400 $950 400 9
  10. 10. Social Security SeminarThe Payoff from Different Retirement DatesThe Payoff from Different Retirement Dates 1. Determine your full retirement age. 1 Determine your full retirement age 2. Determine your full retirement benefit at that  retirement age by going to www.ssa.gov/estimator. • For example, say your full retirement benefit at 66 is  For example say your full retirement benefit at 66 is $1,500 per month. 3. Determine your benefit at 62 by going to  www.ssa.gov/estimator. • In this example, if you claim benefits at 62, your  monthly payment is $1,125. 10
  11. 11. Social Security SeminarThe Payoff from Different Retirement Dates (cont.)The Payoff from Different Retirement Dates (cont ) 4. Figure out how much you would take home in the 48  g y months between age 62 and your full retirement age (66)  if you started collecting at 62. • I thi In this example, you’re taking home $1,125 per month  l ’ t ki h $1 125 th and you’re doing that for 48 months so $1,125 x 48 =  $54,000. 11
  12. 12. Social Security SeminarThe Payoff from Different Retirement Dates (cont.)The Payoff from Different Retirement Dates (cont ) 5. Now figure out how many months you would have to  survive beyond age 66 in order to break even. survive beyond age 66 in order to break even • In this example, the difference in monthly payment taken at  age 62 ($1,125 per month) and 66 ($1,500 per month) is  $375.  $375 • Divide the amount from Step 4 ($54,000 in this example) by  the difference in monthly payments ($375 in this example)  and you get the number of months you’d have to survive  beyond age 66 in order to break even (in this case, 144  months or 12 years).  • In this example if you live past age 78 you come out ahead  by starting your benefits at the full retirement age of 66. by starting your benefits at the full retirement age of 66 12
  13. 13. Social Security Seminar Strategy for a Single Person Strategy for a Single PersonBorn between 1943 and 1954, here are some general guidelines: • If you’re comparing retirement at 62 with full  retirement at 66, your break even age is typically  retirement at 66, your break‐even age is typically around 77 or 78. • If you die earlier, you could end up with more money  by claiming early retirement benefits.  by claiming early retirement benefits • If you live longer, you could be better off taking your  benefits at 66. 13
  14. 14. Social Security Seminar Strategy for a Single Person  t Strategy for a Single Person ((cont.)) • If you’re comparing full retirement at 66 with  delayed retirement at 70, your break‐even age is  d l d b k typically around 82.  • If you die before 82 or so, you could end up with  more money by beginning benefits at 66.  • If you live past 82, you could be better off delaying  your retirement benefits until you turn 70. These numbers are only estimates and do not include cost‐of‐living  ghikes, which could make the break‐even age come earlier. 14
  15. 15. Social Security Seminar Strategy Lessons S1. If a single person lives to age 80, there is no 1 If i l li t 80 th i difference in taking benefits between 62  and 70. and 702. Life expectancy < 75, take at 623. Life expectancy > 83, take at 703 Life expectancy > 83 take at 704. Longevity risk 15
  16. 16. Social Security Seminar Qualifying for Retirement Benefits• Possible reductions to benefits 1. Windfall Elimination provision 2. Working while receiving benefits 16
  17. 17. Social Security SeminarEarnings Test – Annual Earnings Limit i l i i i • If you get benefits but also earn money and you are  If you get benefits but also earn money and you are collecting SS but haven’t reached full retirement age,  the SSA will reduce your benefit by $1 for every $2 you  earn in excess of $14,640 (2012). i f $14 640 (2012) • In the year in which you reach full retirement age, the  SSA will reduce your benefit by $1 for every $3 you  SSA will reduce your benefit by $1 for every $3 you earn in excess of $38,880 (2012). • Typically goes up every year 17
  18. 18. Social Security SeminarSpousal Benefits and Survivor BenefitsSpousal Benefits and Survivor Benefits• Spousal benefits are benefits one spouse  S lb fit b fit receives based on the other spouse’s  earnings record when he/she is alive. earnings record when he/she is alive• Survivors benefits are benefits one spouse   receives based on the other spouse s  receives based on the other spouse’s earnings record after the spouse has died. 18
  19. 19. Social Security Seminar Dual Entitlement• A spouse is entitled to the larger of benefits  based on their own earning record or, if  eligible, spousal benefits, which is up to  li ibl lb fi hi h i 50% of the other spouse’s PIA. 19
  20. 20. Social Security Seminar Spousal Benefit Rules S l fi l• In order for a spouse to receive spousal  I d f t i l benefits, the other spouse must have “filed  for benefits based on his/her earnings  for benefits based on his/her earnings record.”  20
  21. 21. Social Security Seminar Spousal Benefit Rules  t Spousal Benefit Rules ((cont.))• If a spouse applies for benefits before attaining Full  Retirement Age (FRA) and he/she is eligible for  Retirement Age (FRA) and he/she is eligible for spousal benefits, then he/she is deemed to be  applying for both his/her own benefits and spousal  benefits. • This spouse will receive the larger of the two – his/her own benefits or spousal benefits (if eligible) – but not both. • Thus before attaining FRA a spouse cannot apply for  spousal benefits only and later switch to his/her own  benefits or vice versa. 21
  22. 22. Social Security Seminar Spousal Benefit Rules  t Spousal Benefit Rules ((cont.))• If a wife has attained FRA (and her husband  If a wife has attained FRA (and her husband has filed), then she can make a restricted  application for spousal benefits only and  receive 50% of his PIA. Meanwhile, benefits  based on her record would continue to  accrue delayed retirement credits. d l d ti t dit 22
  23. 23. Social Security Seminar Spousal Benefit Rules (cont.) S l fi l• Spousal benefits are reduced if the spouse  S lb fit d d if th claiming them has not attained FRA. 23
  24. 24. Social Security Seminar Survivor Benefits Survivor Benefits• The FRA for survivor s benefits can be  The FRA for survivor’s benefits can be different from the FRA for benefits based on  her* earnings record or spousal benefits.* Presenting as if the husband dies but rules are  g parallel 24
  25. 25. Social Security Seminar Dual Entitlement l il• She is entitled to the larger benefits based on  Sh i titl d t th l b fit b d her earning record or survivor’s benefits  based on his records. based on his records 25
  26. 26. Social Security Seminar Survivor Benefit Rules Survivor Benefit Rules• She can receive full survivors benefits when  Sh i f ll i b fit h she attains FRA for widows or reduced  benefits as early as age 60. benefits as early as age 60 26
  27. 27. Social Security Seminar Survivor Benefits Rules  t Survivor Benefits Rules ((cont.))• If she begins after attaining her FRA for  If she begins after attaining her FRA for widows then she is entitled to the larger of  1. 82% of his PIA or 2. Deceased spouse’s monthly benefit where the  latter would include any delayed retirement  credits. 27
  28. 28. Social Security Seminar Survivor Benefits Rules  t Survivor Benefits Rules ((cont.))• If she begins her survivor s benefits before  If she begins her survivor’s benefits before attaining her FRA, her survivor’s benefits will  be reduced.  • If she begins benefits at 60, she will receive  71.5% of his full benefits. • If she begins benefits at FRA for widows, she  will receive 100% of his full benefits. 28
  29. 29. Social Security Seminar Rules for Divorced Spouses Rules for Divorced Spouses• Marriage must have lasted 10 years. Marriage must have lasted 10 years.• You are currently unmarried.• You are 62 or older. You are 62 or older• Your ex is entitled to benefits.• If you want to receive survivor benefits, you  If you want to receive survivor benefits you must wait until age 60 to remarry.  29
  30. 30. Social Security Seminar Couple Strategies Couple StrategiesName Age PIA FRAs Life  ExpectancyMike 62 $2,000 66 80Frances 58 $1,600 66 95Let’s assume the first month that benefits would be paid is that benefits would be paid isJanuary so there are 12 monthly payments in the first year. 30
  31. 31. Social Security Seminar Frances/  Year Strategy 1 Strategy 2 Difference Mike’s Ages ( S2 ‐ S1) 58/62 1 $1,500 ‐ $1,500 59/63 2 $1,500 ‐ $1,500 60/64 3 $1,500 ‐ $1,500 61/65 4 $1,500 ‐ $1,500 62/66 5 $1,200 + $1,500  $1 200 + $1 500 $1,200 + $800  $1 200 + $800 ‐ $700 63/67 6 $1,200 + $1,500  $1,200 + $800  ‐ $700 64/68 7 $1,200 + $1,500  $1,200 + $800 ‐ $700 65/69 8 $1,200 + $1,500  $ $ $1,200 + $800  $ $ ‐$ $700 66/70 9 $1,200 + $1,500  $1,200 + $2640  $1,140 67/71 10 $1,200 + $1,500  $1,200 + $2640 $1,140 31
  32. 32. Social Security Seminar Frances/  Year Strategy 1 Strategy 2 DifferenceMike’s Ages … … …. … … 75/79 18 $1,200 + $1,500  $1,200 + $2,640  $1,140 76/ 19 $1,650 $2,640 $990 77/ 20 $1,650 $2,640 $990 78/ 21 $1,650 $1 650 $2,640 $2 640 $990 … … …. … … 94/ 37 $1,650 $2,640 $990Cum Lifetime Benefits Strategy 1 Strategy 2 Difference $901,800 $1,158,720 $257,040 32
  33. 33. Social Security SeminarLesson Learned from Mike and Frances Lesson Learned from Mike and Frances• The relevant life expectancy for the decision of  when the spouse with the HIGHER PIA should  begin benefits based on his earnings is the  lifetime of the second spouse to die. lifetime of the second spouse to die• While the relevant life expectancy for the  p decision as to when the spouse with the  LOWER PIA should begin benefits based on her  record is the lifetime of the first spouse to die. 33
  34. 34. Social Security SeminarLesson Learned from Mike and Frances Lesson Learned from Mike and Frances• If at least one spouse lives well beyond the age If at least one spouse lives well beyond the age  that the higher earner turns 80, the couple’s  cumulative lifetime benefits will usually be  y highest if he delays benefits based on his  record until age 70. 34
  35. 35. Social Security Seminar Claim Now and More Later• Lower‐earning spouse claims benefits as soon  as possible.  Higher‐earning spouse claims a  spousal benefit when they reach FRA and  switch to benefits based on earnings record at  age 70. age 70• Both must have their own earned records. 35
  36. 36. Social Security Seminar Claim and Suspend• Higher‐earning spouse claims and suspends  when reaching full retirement age.• Lower‐earning spouse claims spousal benefit. • It works best with one breadwinner families  where the breadwinner is 3‐5 years older. 36
  37. 37. Social Security Seminar Survivor Strategies Survivor Strategies• P i b kb Paying back benefits fit 37
  38. 38. Social Security SeminarTaxation of Social Security Benefits Single MAGI Married MAGI No tax No tax <$25K $25K <$32K $32K Tax on 50% of benefits $25K‐$34K $32K‐$44K Tax on 85% of benefits >$34K >$44K 38
  39. 39. Social Security Seminar Next Steps• Visit SS website. • www.ssa.gov• Recover your benefit statement.• Take appropriate actions based on statement.• As you approach age 62 formulate benefit  strategy. 39
  40. 40. Social Security Seminar Social Security Administration (SSA) S i lS it Ad i i t ti (SSA)• Runs the basic Social Security  y protection for retirement,  survivors and disability• Runs SSI for the poor R SSI f th• Handles application for Medicare  and deduction in benefits that  and deduction in benefits that pay Medicare premiums (doesn’t  run the actual program) 40
  41. 41. Social Security Seminar Applying for Social Security Benefits l i f S i lS i fi• Time your application for benefits. y pp • Three months prior to you wanting to receive them• Know where to go. • In person, by phone, online• Find out what’s required to apply. Fi d t h t’ i dt l • Originals or official copies (no notarized photocopies) • Recent earning, marital history, military background, if you qualify for  federal pension and possible eligibility of any family members for SS  benefits (based on your own work record) b f (b d k d) • Social Security number, birth certificate, Form W‐2 earnings statement,  military discharge papers, proof of U.S. citizenship • Discover how and when your payment will arrive. 41
  42. 42. Social Security Seminar Navigating the System i i h S• Keep good records of correspondence Keep good records of correspondence.• Have someone by your side.• Keep SSA in the loop Keep SSA in the loop. • Death, divorce, birth/adoption, name change, earning  more money, non‐SS payments for disabilities (worker’s  compensation), citizenship status changes, criminal  conviction, Railroad Retirement benefits, work outside  the US and younger than full retirement age the US and younger than full retirement age 42
  43. 43. Social Security Seminar Medicare di• Automatically enrolled in Medicare when you turn 65 if you have  y y y been collecting SS • If not, apply for Medicare (3‐4 months prior)• Eligible at any age after 24 months of approved Social Security  Disability Insurance or certain diseases (ALS, end‐stage renal  Di bili I i di (ALS d l [kidney] disease) • If not, apply for Medicare (3‐4 months prior)• Made up of four parts Made up of four parts • A and B make up the “traditional” or “original” Medicare program • Each has its own fee structure 43
  44. 44. Social Security Seminar Medicare (cont.) diA. Hospital insuranceA Hospital insurance • Some expenses – may cover temporary rehabilitation  or skilled care –B i h i l Basic hospital services, including semi‐private room,  i i l di i i regular nursing care, hospital meals and other hospital  services (medications, lab tests, medical supplies, etc.) • Face a deductible ($1 156) for each “benefit period” Face a deductible ($1,156) for each  benefit period – Begins on the day you’re admitted to the hospital and ends  when you’ve been out of the hospital for 60 days in a row 44
  45. 45. Social Security Seminar Medicare (cont.) diB. Medical insurance • Covers 80% of the cost of most services • Doctor visits, outpatient care, certain tests conducted  outside hospitals and some done inside the hospital such as  surgery • Monthly premium (higher‐income seniors charged  more) • Set at $99.90 in 2012 and annual deductible ($140 in 2012) Set at $99 90 in 2012 and annual deductible ($140 in 2012) • Typically pay 20% of the cost of approved services • Annual wellness visits, preventive screenings, oxygen  equipment, outpatient mental‐health services, etc. 45
  46. 46. Social Security Seminar Medicare (cont.) diC. Medicare Advantage Medicare Advantage • Run by private insurance companies and you must  accept their rules • Must offer all the benefits of traditional Medicare (A and B)  Must offer all the benefits of traditional Medicare (A and B) but may charge lower copays and offer some additional  services (hearing, vision, dental) • Must pay Part B in addition to what Medicare Advantage  p y g plan charges you • Company has the right to drop out of plan or change cost and  coverage every calendar year 46
  47. 47. Social Security Seminar Medicare (cont.) diD. Prescription‐drug coverage p g g • Handled by private plans that have been approved by Medicare  and varies widely • Must offer all the benefits of traditional Medicare (A and B) but may  charge lower copays and offer some additional services (hearing, vision,  dental) • Premiums range from $35 to $50 per month and deductible of  up to $320 in 2012 (some have none) • Deductable ‐ $320 • Coverage ‐ Up to $2,930 • Doughnut hole ‐ 50% discount on brand name and 14% discount on  generics until $4,700 • Catastrophic protection – pays 5% until end of the year 47
  48. 48. Social Security Seminar Medicare (cont.) di• What parts to enroll in: What parts to enroll in: • Everyone should sign up for Part A even if you have  other coverage. • Sign up for Part B if you have no health insurance  and if it makes sense. • Keep track of enrollment periods. K k f ll i d • Avoid late fees. 48
  49. 49. Social Security Seminar The Windfall Elimination Provision:  Th Wi df ll Eli i ti P i iIf You Qualify for a Pension as well as Social Security • For an employee who earned a pension from an  employer that wasn’t part of the Social Security  system • SSA will use a different formula to compute your  benefit and your benefit will be reduced. benefit and your benefit will be reduced • Complex and various exceptions 49
  50. 50. Social Security SeminarThe Windfall Elimination Provision (cont.)• May apply if you turn 62 or became disabled after  1985 and you first qualified for a pension based on  work in which you did not pay SS taxes after 1985 work in which you did not pay SS taxes after 1985• Does not apply to federal workers hired after  December 31, 1983• Capped at 50 percent of your uncovered pension 50
  51. 51. Social Security SeminarThe Government Pension Offset Provision • Your social security may be reduced (significantly). • Two‐thirds of the amount of your government pension • Example: You have a government pension of $900 per  Example: You have a government pension of $900 per month and you’re eligible for a Social Security widow’s  benefit of $1,200 per month. SS may reduce your  widow’s benefit to $600.  51
  52. 52. Social Security SeminarThe Government Pension Offset Provision (cont.)Th G t P i Off t P i i Several factors can preserve your full Social Security  Several factors can preserve your full Social Security benefit such as the following: • Your government pension is not based on earnings. • Your government pension is based on a job in which  you paid Social Security taxes and you filed for Social  Security benefits before April 1, 2004 or you paid SS  Security benefits before April 1 2004 or you paid SS taxes on your earnings during the last five years of  government work. 52
  53. 53. Social Security SeminarThe Government Pension Offset Provision (cont.)Th G t P i Off t P i i • You’re a federal employee who switched from civil  service retirement to the Federal Employees  Retirement System (FERS) after December 31, 1987  and you filed for Social Security spousal or  and you filed for Social Security spousal or widow/widower benefits before April 2004; your job  ended before July 1, 2004, or you paid Social Security  taxes on five years of earnings from the government   ta es on fi e ears of earnings from the go ernment between January 1988 and when you became entitled  to benefits. 53
  54. 54. 4550 Montgomery Avenue, Suite 650N • Bethesda, MD 20814 Connect with Us Connect with Us Walter H. Deyhle, CPA, CFP Email: wdeyhle@grfcpa.com Telephone: (301) 951  Telephone: (301) 951 – 9090 Website: www.grfcpa.com

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