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Social Security presentation 2014


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Social Security presentation 2014

  1. 1. By: Sean McCann
  2. 2.  Overview of Social Security  Maximization Strategies  Future Expectations for Social Security
  3. 3.  It was passed as the Social Security Act in 1935  Was created under President Franklin D. Roosevelt  Goal was to provide a “comprehensive package of protection against the hazards and vicissitudes of life.”
  4. 4.  Social Security is insurance against the event that an individual will be unable to work  Three instances in which this can occur; 1. Old Age 2. Disability 3. Death
  5. 5.  In 2014; 1. 59 million Americans will receive Social Security benefits 2. $863 billion in benefits will be paid out  165 million workers are covered by Social Security  Nine out of ten individuals age 65 and older receive Social Security benefits  Social Security benefits represent about 38% of the income of the elderly
  6. 6.  First recipient in 1940  Ida May Fuller of Ludlow VT  Total Taxes paid = $24.75  Total benefits received= $22,888
  7. 7. Work a Minimum of 10 Years Calculate the highest 35 Years of Earnings
  8. 8.  To calculate, divide the national average wage index for the current year by the national average wage index for each year prior to the current year in which the worker had earnings  Then multiply each such ratio by the worker's earnings  Then sum up all of the adjusted earnings and divide by amount of months worked  This adjustment in earnings reflects the change in general wages levels that occurred during the worker’s years of employment
  9. 9.  Primary Insurance Amount is the monthly benefit an individual would receive at full retirement age  PIA is the sum of three separate percentages of portions of the adjusted indexed monthly earnings  (a) 90 percent of the first bend point of his/her average indexed monthly earnings, plus  (b) 32 percent of his/her average indexed monthly earnings over the first bend point and through the second bend point, plus  (c) 15 percent of his/her average indexed monthly earnings over the second bend point  This formula is designed to replace a higher proportion of income for low income earners than for high income earners
  10. 10. Case AIME First Second Formula applied to AIME A $3,694 $816 $4,917 .9(816)+ .32(3694-816)= $1,655.36 B $8,335 $761 $4,586 .9(761)+ .32(4586-761)+ .15(8335-4586)= $2,471.25 •The worker in Case A retires in 2014, and that is the year in which he is first eligible for benefits, his benefits would be $1,655.30 •The worker in case B is first eligible in 2010 and thus his PIA is increased by cost-of-living adjustments (COLA) for 2010 through 2013 •These COLA’s are 0.0 percent, 3.6 percent, 1.7 percent, 1.5 percent, respectively. The resulting PIA is $2,642.60 •COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year
  11. 11.  Estimates are in present value  Not yet adjusted to Cost of living Adjustments (COLA) which accounts for inflation  Estimates may differ because; 1. Earnings may have increased or decreased 2. COLA adjustments 3. Estimated benefits are based on current law
  12. 12.  Social Securities funding comes from its beneficiaries-workers- through the Federal Insurance Contributions Act (FICA)  Wages are subject to tax only up to a certain earnings level, called the taxable maximum  Max amount is $117,000 in 2014  Workers pay 6.2% of wages in taxes  Employers also pay 6.2% of wages in taxes  Total percent of taxes mandated under FICA= 12.4%  FICA taxes make up 83% of Social Security revenue
  13. 13.  After the amendments of 1983, Social Security began running surpluses, allowing their to be funds on hand when the worker- per-beneficiary ratio declined  These surpluses accumulate over time and are held as bonds in a U.S Treasury account  The interest from these bonds is the second source of revenue for the program  Counts for about 14% of Social Securities revenue
  14. 14.  Comes from tax on higher-income beneficiaries  If working while receiving benefits there are tax implications 1. Income limit is $15,480 2. For every $2 earned above that mark, $1in benefits is withheld 3. If you have other income (such as wages, self- employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to benefits then up to 85% of your benefits may be subject to federal income taxes 4. In the year you reach your FRA, you will lose one dollar for every three dollars earned over $41,400 for the months prior to the month you reach FRA  Money lost through this process in not really lost
  15. 15.  If you:  file a federal tax return as an "individual" and your combined income* is ◦ between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. ◦ more than $34,000, up to 85 percent of your benefits may be taxable  file a joint return, and you and your spouse have a combined income* that is ◦ between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits ◦ more than $44,000, up to 85 percent of your benefits may be taxable  Combined income is: your adjusted gross income + nontaxable interest+ ½ of your social security benefits
  16. 16.  Workers who are not covered by Social Security include civilian federal employees who were hired before 1984; railroad workers (covered under a separate railroad retirement program); certain state and local government employees (covered under state-based retirement plans instead of Social Security); domestic and farm workers who do not meet minimum work requirements; students working for a university or other academic institution; and self-employed persons with very low earnings—generally under $400 per year
  17. 17.  What are your essential retirement goals?  What other sources of retirement income do you have?  Are you married?  What is your life expectancy?  What is the age difference between you and your spouse?  Will your spouse receive his or her own benefits?  Are you eligible to file on an ex-spouses record?
  18. 18.  One way you can collect benefits is on your spouse’s record the requirements are; 1. Higher earner has filed 2. Spousal benefit has to be higher then your own 3. Spouse is full retirement age, if you take them early it is considered deemed filing 4. Maximum spousal benefits are 50%, reduced if take early
  19. 19.  There are four requirements that must all apply in order to file for social security on an ex- spouses record; 1. Had been married to ex-spouse at least ten years 2. Had been divorced to ex-spouse for more then 2 years 3. You and your ex-spouse must both be at least 62 years of age 4. Generally cannot be re-married or eligible for equal or higher benefits  Your benefit as a divorced spouse is equal to 50% of your ex-spouses primary insurance amount
  20. 20.  As a surviving spouse you are entitled to benefits  Benefits can be taken as early as 60, but they will be reduced (28.5%)  Eligible to collect 100% of your higher earning deceased spouses benefits, if survivor is of full retirement age
  21. 21.  Your widow or widower can receive benefits at any age if she or he takes care of your child who is receiving Social Security benefits and younger than age 16 or disabled  Your unmarried children who are younger than age 18 (or up to age 19 if they are attending elementary or secondary school full time) also can receive benefits  Your children can get benefits at any age if they were disabled before age 22 and remain disabled  Your dependent parents can receive benefits if they are age 62 or older
  22. 22. Pros : 1. Receive payments early 2. Beneficial if you have low life expectancy Cons: 1. Smallest monthly check 2. Smallest survivor benefits 3. Potential reduction penalty for employment Pros: 1. Higher monthly Check 2. Higher survivor benefits 3. No penalty for employment Cons: 1. No interim benefits Pros: 1. Highest monthly check 2. Highest survivor benefits 3. No penalty for employment Cons: 1. Receive benefits later Taking Social Security at age 62: Taking Social Security full retirement age (66): Taking Social Security at age 70:
  23. 23. •62 (early) vs. 66 (FRA): Break-even age is between 77 and 78 •62 (early) vs. 70 (late): Break-even age is between 80 and 81 •66 (FRA) vs. 70 (late): Break-even age is between 83 and 84
  24. 24.  For single women with average life expectancy beneficial to claim Social Security as late as possible up until age 70  For single male with average life expectancy beneficial to claim Social Security at age 68
  25. 25.  Higher Earner: Collects individual benefits from full retirement age (66) onward  Lower earner: Starting at full retirement age(66) collect spousal benefits until age 70  At age 70, the lower earner switches to his or her own benefits if they are larger then the spousal benefits
  26. 26. 1.This strategy results in a 32% increase in monthly benefits 2.Also results in a 15% increase in her lifetime benefits
  27. 27.  Higher earner: Files for social security at full retirement age then immediately suspends benefits for a later date  Lower earner: Files for spousal benefits at full retirement age  Higher Earner: At age 70 the higher earned spouse claims their own benefits with 132% increased monthly benefits  This strategy is best utilized when there is a large gap in couples income
  28. 28.  This chart below shows the benefits of the file and suspend strategy  Suspending benefits allows for an increase in benefits by 8% each year until you reach age 70, while the other spouse is able to receive spousal benefits Age 66 Age 70 $2,257 $3,042 $1,129 $1,129 Primary's Benefit Spousal Benefit
  29. 29.  Higher Earner: Files for Social Security at full retirement age then immediately suspends benefits for a later date  Lower Earner: Files for Spousal Benefits at full retirement age  Both Spouses: Claim own benefits at age 70 with 132% increased monthly benefits  Best strategy for two high-earners
  30. 30.  2010 was the first year that disbursements exceeded income, excluding interest on trust- fund assets  2021 will be the first year that disbursements are projected to exceed income, including interest on trust-fund assets  In about 2037 the trust-fund assets are projected to be exhausted  65-plus demographic is growing quickly; 13.7% of population in 2012, 16.8% of population in 2020, 20.3% of population in 2030
  31. 31.  Benefits are expected to be fully payable until 2037, when the trust fund reserves will become exhausted  Continuing taxes will be able to pay 76% of scheduled benefits  Congress must make changes to scheduled benefits and revenue sources for the program  Congress Predicts that an immediate reduction in benefits of about 13 percent, or an immediate increase in the combined payroll tax rate from 12.4% to 14.4% or some combination would be sufficient to allow full payment of the scheduled benefits for the next 75 years  Congress could also increase the Full Retirement Age