SOLVING THE SOCIAL
SECURITY PUZZLE
WHAT YOU NEED TO KNOW BEFORE YOU CLAIM
Dave Minick, CPA
Minick Financial
minickfinancial@gmail.com
http://www.moneyworkingforyou.net
DISCLAIMER
The views presented today are provided by Social Security
Solutions, Inc. The information was taken from sources believed
to be reliable but cannot be guaranteed. They do not
necessarily represent the views of the Social Security
Administration. The information presented today does not
constitute financial, legal or tax advice and should be used for
informational purposes only. Since individual circumstances
vary, you should consult your legal, tax, or financial advisors for
specific information.
Neither Minick Financial nor Social Security Solutions, Inc. is
affiliated in any way with the Social Security Administration.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
2
SOCIAL SECURITY IS NOT SIMPLE
Full
Retirement
Age
Delayed
Retirement
Credits
Primary
Insurance
Amount
Restricted
Application
File and
Suspend
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
Marital
Status
Earnings
Test and
Taxes
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A STRATEGY FOR SOCIAL SECURITY?
There are many options a married
couple can use in claiming Social
Security retirement benefits.
Making the best choices for your
circumstances can make a significant
difference in the amount of
cumulative lifetime benefits you
receive.
While you may be able to learn about
Social Security and make a good
decision, our firm can help you make
the best decision for your situation.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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COMMON QUESTIONS
• Will Social Security be there for me when I’m
ready to claim?
• Will Social Security be enough to live on in
retirement?
• How much will I receive?
• How can I maximize my benefits?
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WILL SOCIAL SECURITY BE
THERE FOR ME?
IN SHORT, YES!
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WILL SOCIAL SECURITY BE THERE?
• Social Security has been running surpluses for the past 25 years.
• It is likely to continue to run surpluses until 2021.
• Reserves are expected to grow to $3.1 trillion by the end of
2020. Then reserves will gradually be drawn down to pay
benefits. By 2033, reserves are expected to be depleted.
• After 2036, funds (FICA and taxes on benefits) will cover 75% of
scheduled benefits if nothing is done.
• The past two changes to SS benefits provided for a 7 and 17
year advanced warning respectively.
• History indicates that benefits for those at least age 60 and
older will not be altered.
Source: National Academy of Social Insurance, SSA, Congressional Budget Office, 2012
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WILL SOCIAL SECURITY BE
ENOUGH TO LIVE ON?
PROBABLY NOT
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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RETIREMENT SPENDING
FOR THE AVERAGE RETIREE*
Shelter/Utilities
$14,650
Transportation
$6,918
Clothing
$1,221
Healthcare
$4,883
Food
$6,104
Source: U.S. Consumer Expenditure Survey, U.S. Bureau of Labor Statistics, 2009
* Retirees aged 65 to 74 with a reported spending average of $40,685
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW MUCH WILL MY
BENEFIT BE?
IT DEPENDS…
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW MUCH WILL I RECEIVE?
• Your benefits are determined by a combination of
factors:
•
•
•
•
How much you earned over your working lifetime
The age at which you apply for benefits
Your marital status
How well you use the rules to maximize your benefits
If you start to
collect at:
62
66
70
Your monthly
retirement benefit
is:
Your minimum
At least 1/3 more
At least 3/4 more
$1000
$1333
$1760
Source: Social Security Administration, 2013
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW MUCH ARE BENEFITS WORTH?
• At age 66, Joe claims his $1,800/month retirement
benefit
• At age 66, Mary claims her $1,100/month benefit
• If both live for 20 more years, the couple would
collect
$696,000 in benefits*
*(1,800 + 1,100) x 12 months x 20 years=$696,000
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW BENEFITS ARE CALCULATED
• Formula includes your highest 35 years of earnings (years with no
earnings are averaged in as zero)
• Earnings are indexed for inflation and averaged
• Your benefits are based on your Primary Insurance Amount
• Benefit is increased in some years by cost-of-living adjustments
(COLAs)
www.SSA.gov/mystatement
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
Source: Social Security Administration, 2013
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IMPACT OF FILING EARLY
• If you file before full retirement age, you will receive a
percentage of your full retirement benefit.
• If you were born between 1943 and 1954:
Apply at age
Benefit will be % of PIA
Example if PIA is $2,230
62
75.0%
$1,672
63
80.0%
$1,784
64
86.7%
$1,933
65
93.3%
$2,080
Think Backward:
From age 66 to 63, reduction is 5/9% of PIA
Age 66
Age 65
Age 64
From age 63 to 62,
it’s 5/12%
Age 63
Age 62
Source: Social Security Administration, 2013
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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DELAYED RETIREMENT CREDITS
• For every month beyond your full retirement age that you
wait to claim, you will get 2/3% more!
• Called Delayed Retirement Credits
If you were born between 1943 and 1954:
Apply at age
Benefit will be % of PIA
Example if PIA is $2,230
66
100%
$2,230
67
108%
$2,408
68
116%
$2,363
69
124%
$2,765
70
132%
$2,943
Source: Social Security Administration, 2013
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW CAN I MAXIMIZE
BENEFITS?
WI T H A G O O D C L A I M I N G S T R A T E G Y
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WHAT IS A CLAIMING STRATEGY?
Analyzing the rules of Social Security
and creating a plan to claim benefits
for a particular outcome specific to a
situation.
This may involve combining and/or
postponing certain benefits at a
particular time to maximize cumulative
benefits.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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AUXILIARY BENEFITS
Benefits paid to others based on a worker’s
record:
• Spousal benefits: paid to the spouse of the worker
• Survivor benefits: paid to the surviving spouse of the
worker
• Children’s benefits: paid to minor children under 18
• Child-in-care benefits: paid to the parent of children
under 16
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WHEN SHOULD I START BENEFITS?
Depends on a lot of factors:
•
•
•
•
•
•
Marital status
Age
Health outlook
Likely longevity
Total assets available
Liquid assets
• Need for income
• Desired standard of
living
• Planning to continue
work
• Survivor needs
You need a STRATEGY that considers all of these factors!
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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CRITERIA TO CONSIDER IN
SELECTING START DATES
Criterion 1: Which starting date for singles or dates for
couples will maximize expected cumulative lifetime
benefits?
Criterion 2: Which starting date for singles or starting
dates for couples will minimize longevity risk, that is,
the risk of outliving their retirement savings?
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WHAT IS A SPOUSAL BENEFIT AND
WHEN ARE YOU ENTITLED TO IT?
• The spousal benefit is based on 50% of the other
spouse’s Primary Insurance Amount (PIA)
• As the spouse of an insured worker, you are eligible
to receive spouse's insurance benefits if you meet
the conditions below:
•
•
•
•
Your spouse has filed for retirement benefits.
You are not receiving a benefit based on a primary
insurance amount which equals or exceeds one-half your
spouse’ primary insurance amount.
You have filed an application for spousal benefits.
You are over 62.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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WHO GETS A SPOUSAL BENEFIT?
His PIA* $1200, her PIA* $400
His PIA
1200
His PIA
1200
Times 50%
X .50
Times 50%
X .50
Spousal base
=600
Spousal base
=600
Minus her PIA*
-400
Minus her PIA*
-700
Spousal benefit
200
Spousal benefit
His PIA* $1200, her PIA* $700
0
*Primary Insurance Amount, or full retirement benefit.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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CLAIMING RULES BEFORE AND
AFTER FULL RETIREMENT AGE
• Before full retirement age a claim for either a spousal or
retirement benefit will be deemed a claim for both.
In other words, before your full retirement age, you cannot choose
which benefit to collect – you automatically get the highest.
• At and after full retirement age you can choose to file for
both benefits or restrict the application for either spousal
or retirement benefit.
Remember this: at your full retirement age, you can choose which
benefit to collect.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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COMMON CLAIMING STRATEGIES
AT FRA
• File and suspend
• One earner can file for benefits and immediately suspend
payment
• Makes the spouse eligible to collect a spousal benefit
• Generally the higher earner files and suspends
• Sometimes the optimal strategy involves the lower earner
filing and suspending
• Allows own benefits to accrue delayed retirement credits
• File a restricted application for only spousal benefits
• Also called “restricting the scope of the application”
• Means that one can collect only spousal benefits while own
benefits accrue delayed retirement credits
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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LESS COMMON STRATEGY AT FRA
• Voluntarily suspend
• Started benefits early, realizes it was a mistake
• At FRA, can Voluntarily Suspend benefits
• Will earn Delayed Retirement Credits for each month no
benefit is claimed
Example: PIA of $2,000
Began at 62 = $1,500 (75% of $2,000)
Suspend at 66
Resume at 70 = $1,980 (48 months of DRCs)
Entitled to benefits in suspension at any time
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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REMEMBER JOE AND MARY?
Joe: PIA of $1,800
Mary: PIA of $1,100
If each begins own benefit at 66, lifetime cumulative = $696,000
Here’s a better option:
• At age 66, Joe files and suspends his benefit
• At age 66, Mary is eligible for her own benefit of $1,100/mo. or a
spousal benefit of $900/mo.
• She can claim only the spousal now ($900) and at age 70 switch to
her own benefit which has grown 32% from $1,100 to $1,452.
• Joe claims his own benefit at age 70 when it has grown to $2,376.
• The lifetime cumulative payout is $778,176 -- $82,176 more!
This is general and hypothetical. It is not a guarantee of specific results. Individual circumstances vary.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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SUMMARY
• When you claim matters!
• The rules are complicated and voluminous.
• There are many combinations of options that can
help you maximize your benefits.
• Your decision is irrevocable beyond 12 months after
you begin benefits.
• You should seek expert tax, legal and/or financial
advice.
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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HOW MINICK FINANCIAL FIRM CAN
HELP YOU!!!
Full Social Security Analysis
• Personalized report
• Recommended claiming
strategy to maximize
benefits
• Compare other strategies
• Specific claiming
instructions
• Colorful graphs
• Educational information
about benefits
Copyright Social Security Solutions. All rights reserved. Revised 9.16.13.
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