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| 1EO200 283522 9/13
Not FDIC
Insured
May Lose
Value
No Bank
Guarantee
| 2EO200 283522 9/13
Topics for today
• Understanding key risks in retirement
• Social Security – the fundamentals
• Five things you need to know
| 3EO200 283522 9/13
65 70 75 80 85 90 95 100+
Longevity: Plan on spending
25 to 30 years in retirement
Source: National Center for Health Statistics, U.S. Life Tables, 2005. Most recent data available.
Age
Your lifespan probability after reaching age 65
Living to age 83
Probability: 56%
Living to age 89
Probability: 31%
Living to age 94
Probability: 14%
| 4EO200 283522 9/13
2% 4% 6%
Inflation: Even low levels make
a difference over time
• 30 years
• $50,000 income
Amount needed to maintain purchasing power:
$90,568
$162,169
$287,174
Inflation rate
| 5EO200 283522 9/13
Markets: When you retire can
make a big difference
• Assumptions
– $1 million nest egg
– 5% withdrawn annually and increased each year to keep up with inflation
– Invested in a portfolio of 60% stocks, 30% bonds, and 10% cash
– Results over a 10-year time frame
Sequence of returns risk refers to the adverse effect that negative
investment returns in the early stages of retirement can have on a nest egg
Retire in 1980 Retire in 1990 Retire in 2000
$1M
$1,731,989 $1,861,592
$472,238
| 6EO200 283522 9/13
Historical portfolio success based on different tax rates
(assumes a portfolio with 60% stocks, 30% bonds, 10% cash with 5% withdrawn
annually and adjusted for inflation)
Taxes: Paying too much can
erode your nest egg
20 years 30 years 40 years
No taxes
25% tax rate
These illustrations are based on a rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance
of any Putnam fund or product, which will fluctuate. These illustrations use the historical returns from 1926 to 2012 of 60% stocks (as represented by an
S&P 500 composite), 30% bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and 10% cash
(U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate
performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock
performance. You cannot invest directly in an index.
75% 15%
96% 55%75%
80%–100% probability60%–79% probability0–59% probability
40%
| 7EO200 283522 9/13
Income: Importance of
guaranteed sources
Example
• Balanced portfolio – 60%
stocks, 30% bonds, 10%
cash
• 5% withdrawn annually
• Guaranteed income based
on current immediate
annuity rates
75%
94%
Probability of portfolio
survival over 30 years
No guaranteed
income
25%
guaranteed
income
This example is based on rolling historical time period analysis and does not account for the effect of taxes, nor does it represent the performance of
any Putnam fund or product, which will fluctuate. Assumes historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500
composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by
U.S. 30-day T-bills) to determine how long a portfolio would have lasted given a 5% withdrawal rates. A one-year rolling average is used to calculate
performance of the 20-year bonds. Guaranteed income is based on a single premium, immediate annuity for a 65-year-old male assuming single life
expectancy at current (July 2013) annuity rates. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of
common stock performance. You cannot invest directly in an index.
| 8EO200 283522 9/13
Social Security can help
address these risks
Longevity Lifetime income for worker and spouse
Inflation Regular cost-of-living adjustments
Markets Benefits not impacted by markets
Taxes
Preferential tax treatment vs. other income
sources such as IRA income
Income Guaranteed income stream
| 9EO200 283522 9/13
The fundamentals of
Social Security
Eligibility At least 40 quarters of work
Individual
contributions
Social Security payroll tax of 6.2% on first
$113,700 of earnings
Benefits
Calculated based on average monthly earnings
indexed for inflation
Retirement age
Reduction in benefits before full retirement age
(currently 66), increase in benefits if delay (up to
age 70)
Early retirement Available at age 62 with 25% decrease in benefits
Spousal benefits
Spousal benefit (50% of covered spouse benefit)
and survivor benefit (100% of covered spouse’s
benefit)
| 10EO200 283522 9/13
Five things you need to
know about Social Security
| 11EO200 283522 9/13
1) It might pay to delay
• The reality – most retirees claim benefits too early
– Roughly 75% elect before reaching full retirement age*
– People often underestimate life expectancy
– Benefit level is significantly lower
– Earnings test may apply if still working†
– May be more likely to have benefits taxed
– In most cases, you can’t change your mind after benefits begin
• You receive an 8% “raise” for every year you delay
taking benefits
* U.S. Government Accountability Office, June 2011
† For 2013, if you are under the full retirement age, $1 in benefits is withheld for every $2 of earnings in excess of $15,120.
| 12EO200 283522 9/13
Age 62 Age 66 Age 70
Monthly benefits increase as
you delay Social Security
$1,394
$1,983
$2,660
Source: 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.
| 13EO200 283522 9/13
Age 62 Age 70
What is the cost of replacing
lifetime income?
$1,394
$2,660
Difference of
$1,266 a month
Replacing $1,266 a month
in lifetime income at age
70 would require a lump-
sum investment of
$190,921 into an
immediate annuity!*
* Source: Immediateannuities.com; annuity quote based prevailing interest rates in August 2013 for a 70-year-old male living in MA
| 14EO200 283522 9/13
2) Plan for your surviving
spouse
• Historically, higher earning spouses have taken
Social Security early, exposing the surviving spouse
to longevity risk
• Think in terms of joint life expectancy
– If possible, maximize highest earner’s benefit to provide
higher lifetime benefit for surviving spouse
| 15EO200 283522 9/13
3) Consider dual strategies for
spouses
• Unique strategies available for spouses to maximize
benefits
– Restricted application (“Claim now, claim more later”)
– File and suspend
• These utilize a combination of spousal and delayed
benefits
| 16EO200 283522 9/13
Unique spousal options
Restricted application File and suspend
Who should
consider?
Working couples with similar
incomes
Couples with a bigger disparity in
income
How does it
work?
Older spouse waits until 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 benefit before other
spouse can claim spousal benefit.
Higher earning spouse files for
benefits at retirement age and
then immediately suspends
benefit until age 70. This allows
the lower-earning spouse to claim
spousal retirement benefits (based
on other spouse’s higher earnings
record).
What’s the
benefit?
Higher earner receives spousal
benefit while allowing own benefit
to maximize, maximum survivor
benefit is preserved
Lower-earning spouse receives a
higher benefit, higher earner
receives highest lifetime benefit,
maximum survivor benefit is
preserved
| 17EO200 283522 9/13
Restricted application example
Assumptions
• Husband and wife are same age with similar earnings history
• Husband’s Social Security benefit at full retirement age (FRA) is $2,500 while the wife’s benefit is $2,000
• Husband passes away at age 80
Wife files for own
benefit of
$2,000/month*
Husband restricts
application to spousal
benefit only
($1,000/month)
Husband switches
over to own benefit
of $3,300/month
(vs. $2,500 @ FRA)
At husband’s death,
wife receives survivor
benefit of $3,300 for
rest of life
Income = $3,000 Income = $5,300 Income = $3,300
* Alternatively, the wife could have filed for reduced benefit at age 62 to improve household cash flow. However, benefits may reduced due to
earnings test if still working.
7066 80
| 18EO200 283522 9/13
File and suspend example
Assumptions
• Husband and wife are same age with disparate earnings history
• Husband’s Social Security benefit at full retirement age (FRA) is $2,500 while the wife’s benefit is $500
• Husband passes away at age 80
Husband files
for benefits and
immediately
suspends
Wife receives
spousal benefit
($1,125/month)
Husband begins
benefits at
maximum level
($3,300/month)
At husband’s
death, wife
receives survivor
benefit of $3,300
for rest of life
Income = $1,125 Income = $4,425 Income = $3,300
Wife claims
reduced benefit
on own earnings
record
($375/month)*
Income = $375
* Alternatively, the wife could have waited until FRA at age 66 to claim full retirement benefits of $500/month
7062 8066
| 19EO200 283522 9/13
File and suspend can payoff for
couples who may live longer
Assumptions:
• Couple age 66 (one spouse earning
$50K, the other $100K)
• Compare scenario of both electing
benefits at age 66 (FRA) vs. file and
suspend strategy (higher earner files
and suspends at age 66, and spouse
claims spousal benefits; at age 70
both file for maximum benefits
based on their own earnings
records)
If couple
lives to
age 80
File and suspend
option results in
$18,690 total
excess benefits
If couple
lives to
age 85
File and suspend
option results in
$104,556 total
excess benefits
Source: AARP Social Security calculator. In FRA scenario, the monthly benefit (not adjusted for inflation) for the couple is $4,474. For the file and
suspend option, the lower-earning spouse receives spousal benefits of $1,286 for four years until age 70, and then the couple receives total retirement
benefits of $5,905 per month.
| 20EO200 283522 9/13
4) Special rules for divorced
and widowed individuals
• Divorced? You can receive benefits on ex-spouse’s
earning record if:
– You are unmarried
– You are age 62 or older
– Your marriage lasted 10 years or more
– 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 60
– The benefit amount is 71.5% of full benefit amount and
is based on deceased spouse’s earnings
| 21EO200 283522 9/13
5) There’s a good chance
benefits will be taxed
Income level* Taxation
Between $25,000 and
$34,000 ($32,000 and
$44,000 for couples)
Up to 50% of benefits
reported as taxable income
Over $34,000 ($44,000
for couples)
Up to 85% of benefits
reported as taxable income
* 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.
| 22EO200 283522 9/13
Closing thoughts
• Social Security is a critical component of an effective
retirement income plan
• Understanding and making the right decisions
around taking Social Security can be a big driver of
success in retirement
• Work with your financial advisor to assess your
personal situation
| 23EO200 283522 9/13
A BALANCED APPROACH
A WORLD OF INVESTING
A COMMITMENT TO EXCELLENCE
| 24EO200 283522 9/13
This information is not meant as tax or legal advice.
Please consult your legal or tax advisor before making any decisions.
Putnam Retail Management
putnam.com

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5 things you need to know about Social Security

  • 1. | 1EO200 283522 9/13 Not FDIC Insured May Lose Value No Bank Guarantee
  • 2. | 2EO200 283522 9/13 Topics for today • Understanding key risks in retirement • Social Security – the fundamentals • Five things you need to know
  • 3. | 3EO200 283522 9/13 65 70 75 80 85 90 95 100+ Longevity: Plan on spending 25 to 30 years in retirement Source: National Center for Health Statistics, U.S. Life Tables, 2005. Most recent data available. Age Your lifespan probability after reaching age 65 Living to age 83 Probability: 56% Living to age 89 Probability: 31% Living to age 94 Probability: 14%
  • 4. | 4EO200 283522 9/13 2% 4% 6% Inflation: Even low levels make a difference over time • 30 years • $50,000 income Amount needed to maintain purchasing power: $90,568 $162,169 $287,174 Inflation rate
  • 5. | 5EO200 283522 9/13 Markets: When you retire can make a big difference • Assumptions – $1 million nest egg – 5% withdrawn annually and increased each year to keep up with inflation – Invested in a portfolio of 60% stocks, 30% bonds, and 10% cash – Results over a 10-year time frame Sequence of returns risk refers to the adverse effect that negative investment returns in the early stages of retirement can have on a nest egg Retire in 1980 Retire in 1990 Retire in 2000 $1M $1,731,989 $1,861,592 $472,238
  • 6. | 6EO200 283522 9/13 Historical portfolio success based on different tax rates (assumes a portfolio with 60% stocks, 30% bonds, 10% cash with 5% withdrawn annually and adjusted for inflation) Taxes: Paying too much can erode your nest egg 20 years 30 years 40 years No taxes 25% tax rate These illustrations are based on a rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical returns from 1926 to 2012 of 60% stocks (as represented by an S&P 500 composite), 30% bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and 10% cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index. 75% 15% 96% 55%75% 80%–100% probability60%–79% probability0–59% probability 40%
  • 7. | 7EO200 283522 9/13 Income: Importance of guaranteed sources Example • Balanced portfolio – 60% stocks, 30% bonds, 10% cash • 5% withdrawn annually • Guaranteed income based on current immediate annuity rates 75% 94% Probability of portfolio survival over 30 years No guaranteed income 25% guaranteed income This example is based on rolling historical time period analysis and does not account for the effect of taxes, nor does it represent the performance of any Putnam fund or product, which will fluctuate. Assumes historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by U.S. 30-day T-bills) to determine how long a portfolio would have lasted given a 5% withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Guaranteed income is based on a single premium, immediate annuity for a 65-year-old male assuming single life expectancy at current (July 2013) annuity rates. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
  • 8. | 8EO200 283522 9/13 Social Security can help address these risks Longevity Lifetime income for worker and spouse Inflation Regular cost-of-living adjustments Markets Benefits not impacted by markets Taxes Preferential tax treatment vs. other income sources such as IRA income Income Guaranteed income stream
  • 9. | 9EO200 283522 9/13 The fundamentals of Social Security Eligibility At least 40 quarters of work Individual contributions Social Security payroll tax of 6.2% on first $113,700 of earnings Benefits Calculated based on average monthly earnings indexed for inflation Retirement age Reduction in benefits before full retirement age (currently 66), increase in benefits if delay (up to age 70) Early retirement Available at age 62 with 25% decrease in benefits Spousal benefits Spousal benefit (50% of covered spouse benefit) and survivor benefit (100% of covered spouse’s benefit)
  • 10. | 10EO200 283522 9/13 Five things you need to know about Social Security
  • 11. | 11EO200 283522 9/13 1) It might pay to delay • The reality – most retirees claim benefits too early – Roughly 75% elect before reaching full retirement age* – People often underestimate life expectancy – Benefit level is significantly lower – Earnings test may apply if still working† – May be more likely to have benefits taxed – In most cases, you can’t change your mind after benefits begin • You receive an 8% “raise” for every year you delay taking benefits * U.S. Government Accountability Office, June 2011 † For 2013, if you are under the full retirement age, $1 in benefits is withheld for every $2 of earnings in excess of $15,120.
  • 12. | 12EO200 283522 9/13 Age 62 Age 66 Age 70 Monthly benefits increase as you delay Social Security $1,394 $1,983 $2,660 Source: 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.
  • 13. | 13EO200 283522 9/13 Age 62 Age 70 What is the cost of replacing lifetime income? $1,394 $2,660 Difference of $1,266 a month Replacing $1,266 a month in lifetime income at age 70 would require a lump- sum investment of $190,921 into an immediate annuity!* * Source: Immediateannuities.com; annuity quote based prevailing interest rates in August 2013 for a 70-year-old male living in MA
  • 14. | 14EO200 283522 9/13 2) Plan for your surviving spouse • Historically, higher earning spouses have taken Social Security early, exposing the surviving spouse to longevity risk • Think in terms of joint life expectancy – If possible, maximize highest earner’s benefit to provide higher lifetime benefit for surviving spouse
  • 15. | 15EO200 283522 9/13 3) Consider dual strategies for spouses • Unique strategies available for spouses to maximize benefits – Restricted application (“Claim now, claim more later”) – File and suspend • These utilize a combination of spousal and delayed benefits
  • 16. | 16EO200 283522 9/13 Unique spousal options Restricted application File and suspend Who should consider? Working couples with similar incomes Couples with a bigger disparity in income How does it work? Older spouse waits until 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 benefit before other spouse can claim spousal benefit. Higher earning spouse files for benefits at retirement age and then immediately suspends benefit until age 70. This allows the lower-earning spouse to claim spousal retirement benefits (based on other spouse’s higher earnings record). What’s the benefit? Higher earner receives spousal benefit while allowing own benefit to maximize, maximum survivor benefit is preserved Lower-earning spouse receives a higher benefit, higher earner receives highest lifetime benefit, maximum survivor benefit is preserved
  • 17. | 17EO200 283522 9/13 Restricted application example Assumptions • Husband and wife are same age with similar earnings history • Husband’s Social Security benefit at full retirement age (FRA) is $2,500 while the wife’s benefit is $2,000 • Husband passes away at age 80 Wife files for own benefit of $2,000/month* Husband restricts application to spousal benefit only ($1,000/month) Husband switches over to own benefit of $3,300/month (vs. $2,500 @ FRA) At husband’s death, wife receives survivor benefit of $3,300 for rest of life Income = $3,000 Income = $5,300 Income = $3,300 * Alternatively, the wife could have filed for reduced benefit at age 62 to improve household cash flow. However, benefits may reduced due to earnings test if still working. 7066 80
  • 18. | 18EO200 283522 9/13 File and suspend example Assumptions • Husband and wife are same age with disparate earnings history • Husband’s Social Security benefit at full retirement age (FRA) is $2,500 while the wife’s benefit is $500 • Husband passes away at age 80 Husband files for benefits and immediately suspends Wife receives spousal benefit ($1,125/month) Husband begins benefits at maximum level ($3,300/month) At husband’s death, wife receives survivor benefit of $3,300 for rest of life Income = $1,125 Income = $4,425 Income = $3,300 Wife claims reduced benefit on own earnings record ($375/month)* Income = $375 * Alternatively, the wife could have waited until FRA at age 66 to claim full retirement benefits of $500/month 7062 8066
  • 19. | 19EO200 283522 9/13 File and suspend can payoff for couples who may live longer Assumptions: • Couple age 66 (one spouse earning $50K, the other $100K) • Compare scenario of both electing benefits at age 66 (FRA) vs. file and suspend strategy (higher earner files and suspends at age 66, and spouse claims spousal benefits; at age 70 both file for maximum benefits based on their own earnings records) If couple lives to age 80 File and suspend option results in $18,690 total excess benefits If couple lives to age 85 File and suspend option results in $104,556 total excess benefits Source: AARP Social Security calculator. In FRA scenario, the monthly benefit (not adjusted for inflation) for the couple is $4,474. For the file and suspend option, the lower-earning spouse receives spousal benefits of $1,286 for four years until age 70, and then the couple receives total retirement benefits of $5,905 per month.
  • 20. | 20EO200 283522 9/13 4) Special rules for divorced and widowed individuals • Divorced? You can receive benefits on ex-spouse’s earning record if: – You are unmarried – You are age 62 or older – Your marriage lasted 10 years or more – 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 60 – The benefit amount is 71.5% of full benefit amount and is based on deceased spouse’s earnings
  • 21. | 21EO200 283522 9/13 5) There’s a good chance benefits will be taxed Income level* Taxation Between $25,000 and $34,000 ($32,000 and $44,000 for couples) Up to 50% of benefits reported as taxable income Over $34,000 ($44,000 for couples) Up to 85% of benefits reported as taxable income * 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.
  • 22. | 22EO200 283522 9/13 Closing thoughts • Social Security is a critical component of an effective retirement income plan • Understanding and making the right decisions around taking Social Security can be a big driver of success in retirement • Work with your financial advisor to assess your personal situation
  • 23. | 23EO200 283522 9/13 A BALANCED APPROACH A WORLD OF INVESTING A COMMITMENT TO EXCELLENCE
  • 24. | 24EO200 283522 9/13 This information is not meant as tax or legal advice. Please consult your legal or tax advisor before making any decisions. Putnam Retail Management putnam.com

Editor's Notes

  1. We’ve highlighted five key risks in retirement. How can Social Security help to address these risks?Longevity: Social Security provides an income stream a retiree or spouse cannot outliveInflation: Benefits are typically adjusted on an annual basis to account for cost of living increasesMarkets: Benefits are not affectedby volatility in marketsTaxes: For retirees at lower income levels, Social Security benefits may be tax-free. Even for the highest income households, 15% of benefits will be tax-free (meaning that a maximum of 85% of benefits are taxable)Income: Social Security provides a regular guaranteed stream of income — this is especially important for retirees who do not have pensions
  2. Let’s review some of the fundamentals of Social Security (SSA.gov is a great resource):Eligibility: When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work).Individual contributions: Through the Social Security payroll tax (currently 6.2%), workers fund Social Security. Note that employers also pay the same amount into the Social Security system. Payroll contributions end once an employee reaches the maximum compensation subject to Social Security taxes ($113,700 for 2013).Benefits: Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings (AIME) during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount” (PIA).Retirement age: Full retirement age (FRA) is the age at which a person may first become entitled to full or unreduced retirement benefits. FRA is 66 for individuals born between 1943 and 1954. The FRA gradually increases and is age 67 for those born in 1960 and later. Early retirement: Retirees can claim retirement benefits as early as age 62. However, the benefit amount is reduced the earlier you begin benefits before FRA (25% reduction if taken at age 62)Spousal benefits: Even if he or she has never worked under Social Security, your spouse may be able to get benefits if he or she is at least 62 years of age and you are receiving or eligible for retirement benefits. A spouse receives one-half of the retired worker’s full benefit unless the spouse begins collecting benefits before full retirement age. If the spouse begins collecting benefits before full retirement age, the amount of the spouse’s benefit is reduced by a percentage based on the number of months before he/she reaches full retirement age. Additionally, there are survivor benefits as well. Your widow or widower can receive reduced benefits as early as age 60, full benefits at full retirement age or older, or benefits as early as age 50 if he or she is disabled AND their disability started before or within seven years of your death.
  3. Here’s another way of looking at this. Say you began Social Security benefits at age 62 (in this case $1,394 a month based on someone who earned $75,000 ). If you waited until age 70 to begin benefits, the amount would have been $2,660 … a difference of over $1200 a month! At age 70, what would it cost someone to generate that extra $1200 a month in guaranteed lifetime income? Let’s compare that to going out in the marketplace and purchasing a simple single premium fixed annuity (by the way, NOT indexed for inflation as Social Security is). The lump-sum investment at age 70 would be over $190,000.
  4. Another mistake many retirees make is not considering a spouse, especially a spouse who has no or much lower lifetime earnings, when claiming Social Security benefits. Even if you are in poor health, beginning benefits early can subject your surviving spouse to a much lower survivor benefit for life. Couples nearing retirement should consider joint life expectancy when making the decision around when to begin Social Security. Note: see “Why Do Married Men Claim Social Security Benefits So Early?” from Boston College’s Center for Retirement Research, October 2007.
  5. Because of the presence of the spousal benefit option, married couples have more choices on how they claim Social Security in retirement. There are some unique strategies that combine spousal benefits with a delay in benefits. In certain cases, this can mean a significant increase in lifetime AND survivor benefits. We’ll examine two of the most prevalent strategies – restricted application and file and suspend.
  6. Here’s some detail on both of these claiming strategies for couples. Restricted application: If you are currently married, once you reach full retirement age, you can elect to apply only for a spouse benefit and delay taking your own benefit until age 70 at the latest. Thus, you can claim a spousal benefit now (at the full retirement age), and then claim a larger retirement benefit later. In order to claim the spouse benefit, your spouse must have filed for his/her own retirement benefit.File and suspend: File for your retirement benefits at the full retirement age so your spouse or dependent children can collect their benefits based on your earnings record. Then, immediately suspend your own benefits and delay claiming them until they are worth more at an older age. Your benefits will increase by an additional 8 percent for each year you delay collecting beyond your normal retirement age, up until you turn age 70.
  7. Here’s an example illustrating the restricted application, or “claim now, claim more later,” strategy.
  8. Here’s an example illustrating the file and suspend strategy.
  9. We’ve spent some considerable time talking about strategies for couples, let’s shift to individuals – specifically divorced and widowed individuals. In the case of divorce, special rules apply. If certain requirements are met, a divorced individual can claim benefits based on ex-spouse’s earning record regardless if that ex-spouse has filed for benefits yet (this is different than for married couples). If an individual has been married to multiple ex-spouses (for at least 10 years each), he/she has the choice of which ex-spouse to base Social Security benefits on. Unlike others, widows (including ex-spouses) can claim Social Security survivor benefits as early as age 60 (with a reduction).
  10. For retirees with moderate or higher income, there’s a good chance that at least some portion of their Social Security benefits will be included as taxable income. There are two different income thresholds for determining taxation of benefits. The income calculation (known as “combined income”) includes: Adjusted gross income (AGI) + nontaxable interest (i.e., municipal bonds) + one half of Social Security benefits ---------------------------------------------- = Combined income