The document provides an overview of strategies for maximizing Social Security benefits. It discusses filing strategies such as claiming early benefits at age 62 or late benefits at age 70, filing and suspending strategies where one spouse files and suspends to allow the other to claim spousal benefits, and both spouses claiming their own benefits later. The future of Social Security is uncertain as the trust funds are projected to be depleted by 2037, requiring Congressional action to modify benefits and revenues.

1. By: Sean McCann

2.  Overview of Social Security
 Maximization Strategies
 Future Expectations for Social Security

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.  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.  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.  First recipient in 1940
 Ida May Fuller of
Ludlow VT
 Total Taxes paid =
$24.75
 Total benefits
received= $22,888

8. Work a
Minimum of
10
Years
Calculate
the highest
35
Years of
Earnings

9.  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

10.  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

11. 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

12.  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

15.  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

16.  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

17.  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

18.  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

19.  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

20.  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?

21.  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

22.  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

23.  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

24.  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

25. 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:

27. •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

28.  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

29.  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

30. 1.This strategy results in
a 32% increase in
monthly benefits
2.Also results in a 15%
increase in her lifetime
benefits

31.  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

32.  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

33.  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

34.  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

35.  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