Social Security Basics to Maximizing Strategies
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Presentation Outline
• Why have Social Security, and what is it?
• Basic eligibility and benefit calculations.
• Who is eligible for payments and when?
• Different Retiree Age Options
• Special rules and effects of work.
• Claiming/Maximizing Strategies.
• Survivors and Disabled
• Taxation of Benefits
• Medicare Enrollment Basics
• Resources and Examples
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Learning Objectives
• Explain basic eligibility and how payments are
calculated.
• Identify who might be eligible on your client’s Social
Security record and when?
• Help your clients understand what happens when
they take their payments at a particular age, and
more importantly, how they can increase their
lifetime payout.
• Answer questions about those maximizing strategies
that are appearing in the news.
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Social Security-From Basics
to Maximizing Strategies
Presenter:
Jim Pavletich
Owner/Manager Social Security Consultants LLC
Chandler Arizona
Social-Security-Consultants.com
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A Foundation for Planning Your Future
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You Need to Work to Earn Social Security Credits
•Each $1220 in earnings gives you one credit.
•You can earn a maximum of 4 credits in a
year.
Example: To earn 4 credits in 2015, you must
earn at least $4880. Earning 40 credits
throughout your working life will qualify you
for a retirement benefit.
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How Social Security Determines Your Benefit
Social Security benefits are based on earnings
• Step 1-Your wages are adjusted for inflation
• Step 2-Find the average of your highest 35 years of
work
• Step 3-Result is the “Average Indexed Monthly
Earnings (AIME).”
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Benefit Computation (2015 Example)
If your average monthly earnings are
Then your benefits would be
= $5000
= $2076
Average monthly earnings
= $5000
90% of the first
$826
= $743.40
32% of the next
$4160
= $1331.20
15% of the remainder
$14
$5000
= $2.10
$2076
Max/Average benefits under current calculation are $2685/$1243
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What if Not Insured or Less Than 35 Years Work?
•How close to 40 credits is the applicant?
If close, then their additional work might get
them Medicare eligible or pay their Medicare
Part B premiums.
•Filling zero years with creditable work is
always preferable to “no earnings” years.
•Does the increase in earnings affect the 90%
or 32% or 15% range?
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The Windfall Elimination Provision
The provision states “If you receive a
government pension based on work not
covered by USA Social Security, your Social
Security benefits may be reduced.”
This includes pensions paid by foreign
governments including a specific Canadian
Pension based on work.
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Windfall Elimination Provision (WEP)-2015
Normal Computation
WEP Computation
90% of the first $826
32% of the next $4160
15% of the Remainder
40% of the first $826
32% of the next $4160
15% of the Remainder
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WEP Benefit Computation (2015-Example)
If your average monthly earnings are
Then your benefits would be
= $5000
= $1663
Average monthly earnings
= $5000
40% of the first
$826
= $330.40
32% of the next
$4160
= $1331.20
15% of the remainder
$14
$5000
= $2.10
$1663
The maximum WEP reduction is $413.00
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Exception to the Windfall Elimination Provision
Total Years of Coverage
30 or More
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28
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26
25
24
23
22
21
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% of First Factor Reduction
90
85
80
75
70
65
60
55
50
45
40
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The Government Pension Offset Provision(GPO)
The provision states “If you receive a
government pension based on work not
covered by USA Social Security, your Social
Security spouse’s or widower’s benefits may be
reduced.”
This includes pensions paid by foreign
governments including a specific Canadian
Pension based on work.
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The Government Pension Offset Provision(GPO)
Spouse’s Benefits Only
2/3 of the amount of Government Pension will be used to
reduce the Social Security spouse’s benefit.
Example:
$900 of Government pension
2/3 = $600
Social Security spouse’s benefit
= $500
No cash benefit payable by Social Security
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WEP Elimination Provision (MORE)
Please note carefully that while the worker is alive
anyone on the account is affected by the Windfall
Elimination Provision. This includes spouses and
children.
At the workers death the survivors are not affected
by this provision and may receive an unaffected SSA
widows or widowers benefit and a payment from the
non-covered pension
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The Social Security Statement
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Your Age When You Retire Affects Your Payments
If You Are A Worker And Retire:
•At your full retirement age, you get your full
benefit.
•At age 62, you get less money (permanently).
•You get even more money if you wait past your
full retirement age. These can earn “Delayed
Retirement Credits”
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Who Else Besides the Retiree Can Get Benefits?
Your Spouse
•At age 62
•At any age if caring for the child under 16 or disabled
•Divorced spouses may qualify
Your Child
•Not married under 18
(under 19 if still in High School)
•Not married and disabled before age22
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Full Retirement Age
Year of Birth
1937
1938
1939
1940
1941
1942
1943-1954
1955
1956
1957
1958
1959
1960 & later
Full Retirement Age
65
65
65
65
65
65
66
66
66
66
66
66
67
&
&
&
&
&
2 months
4 months
6 months
8 months
10 months
&
&
&
&
&
2 months
4 months
6 months
8 months
10 months
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Early Retirement Benefits
Earliest Age is 62
Worker
(100% at full retirement age)
5/9 of 1%
5/12 of 1%
(20% reduction for the 1st 36 mos.)
(10% reduction for the next 24 mos.)
Spouse
(50% at full retirement age)
25/36 of 1% (25% reduction for 1st 36 mos.)
5/12 of 1%
(10% reduction for the next 24 mos.)
***the reduction is permanent***
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What is the “Deemed Filing Rule?”
This is a built in collateral penalty for taking payments
before full retirement age (FRA).
This rule requires the person taking reduced
retirement type benefits to file for any and all
payments on any record for which they might be
entitled*. It eliminates the possibility of restricting to
only a single benefit (spouses) and taking a higher
retirement on their own record.
*except survivors
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Delayed Retirement Credits
Year of Birth
1927-28
1929-30
1931-32
1933-34
1935-36
1937-38
1919-40
1941-42
1943 and later
Yearly Rate of
Increase (%)
4.0
4.5
5.0
5.5
6.0
6.6
7.0
7.5
8.0
(1943 and later equals 2/3 of a % more per month)
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When are DRC’s Available?”
Delayed Retirement Credits are credited and posted to
the record after the close of the year in which they are
earned.
This means that credits earned in the year an
applicant turns 70 are not posted/credited until after
the close of the calendar year and are then paid
retroactively to the year they were earned. This
assures no credits are posted prematurely and
erroneously.
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What is and ARF?”
ARF is short for adjustment of the reduction factor
This is a one time “look back” at full retirement age
over a beneficiary’s record to correct the number of
months that recipient actually received a reduced
benefit.
Even though the applicant took his/her benefits 48
months early did he/she get paid all of those 48
months? If not then the reduction is adjusted from
FRA ongoing.
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When is an AERO?”
AERO is short for Automatic Earnings Recomputation
Operation
This is an annual review of every beneficiary’s
earnings history to update any recently posted
earnings that may replace any of the highest 35 years
that go into the payment computation.
New earnings from W-2’s and SE returns are added to
the workers history and might raise the Primary
Insurance Amount.
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You Can Work And Still Receive Benefits (2015)
If You Are
Full Retirement
Age and Above
You Can
Make Up To
No Limit
If You Make More
Some Benefits Are
Withheld
None Withheld
66-FRA
$41880 ($3490/mo)
$1 for every $3
Ages 62-65
$15720 ($1310/mo)
$1 for every $2
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The “No Can Do Over”
Take benefits before Full Retirement Age
•At 62 (for example).
•Put that money (monthly payments in a bank or
other investment.
At Full Retirement Age or Older (Even 70)
•Withdraw the claim back to the original
filing/eligibility.
•Pay back all payments “cash on the barrel head”
and refile with a current application date keeping
all the interim interest/dividends.
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This is the Simple and Confusing Part of
Maximizing Strategies
File and Suspend Benefits
•The person filing must be full retirement age.
•This allows their spouse to receive from their account
while the worker earns Delayed Retirement Credits.
File and Restrict Benefits
•The person filing mist be full retirement age.
•This allows the filer to draw from their spouse while
they accumulate delayed retirement credits on their
own account. Later they can remove the restriction
and file on their own enhanced account.
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Want a Little Insurance on That File and
Suspend Decision?
Always file and suspend at full retirement age.
•The person filing must be full retirement age.
•This allows the spouse to receive from the filer
and the filer to earn their own delayed retirement
credits.
Suppose You Get Bad News?
•Did this make the original decision wrong?
•You can choose to unsuspend benefits
retroactively (all the way back to original filing if
you choose)
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What is the Downside on That File and
Suspend/File and Restrict Decision?
With either option the applicant decides
•Only one member of a couple can restrict.
•The only one who can unsuspend/reinstate
payments is the live applicant.
Medicare premiums must still be paid.
•Since the choice is to restrict/suspend payments
a separate statement and arrangements are
needed to pay monthly Part B premiums.
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What Makes a Good Candidate For Maximizing
Strategies?
Is this an individual or couples case?
•There are some limited individual strategies.
•The best candidates are couples of similar age and
benefit amounts.
Do they have longevity?
Can they delay filing?
•Till at least full retirement age or longer?
(In other words, can they work longer or do they have
assets to support themselves till a later filing date?
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Who Can Get Survivors Benefits?
Widow or Widower
•Reduced benefits at age 60.
•If disabled as early as age 50.
•At any age if caring for child under 16 or disabled.
•Divorced widows/widowers may qualify.
Child of the Worker
•Not married under 18 (under 19 if still in high school)
•Not married and disabled before age 22
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Disability Benefits
Must have a medically verifiable condition preventing
any substantial gainful work in the US economy for at
least 12 months or is expected to end in death. The
determination also considers age, education and work
experience.
This benefit requires a certain total amount of work
based on the workers age and also a certain amount of
recent covered employment.
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Taxes On Benefits
Individual
$25000-$34000
50% of Social Security Benefits Are Taxed
Over $34000
85% of Benefits Are Taxed
Married Filing a Joint Tax Return
$32000-$44000
50% of Benefits Are Taxed
Over $44000
85% of Benefits Are Taxed
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Who Can Get Medicare?
Age 65 and older
Receiving SS Disability Benefits at least 24 months
Permanent Kidney Failure
Amyotrophic Lateral Sclerosis (ALS)
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When Do I Sign Up For Medicare?
Medicare Enrollment Periods
•Initial–At age 65 (Most file at this time)
•Special-If still working
•General- January thru March
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Income Related Medicare Adjustment Amount
This Applies to Part B and Part D Premiums
Affects Medicare Beneficiaries with Modified Adjusted
Gross Income over $85000 ($170000 for a couple filing a
joint return). MAGI means Adjusted Gross Income And
Tax Exempt interest added together.
Each year’s premiums based on the tax year minus two.
2015 premiums are based on 2013 tax year (filed by
4/15/2014)
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How Can Someone Obtain Services And
Information?
Drop on by the Office
Visit SSA’s Website www.socialsecurity.gov
Call them at 1-800-772-1213
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Begin
Here
Then
Go
Here
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Questions?
Use SSA’s Frequently Asked Questions
(FAQ’s) at socialsecurity.gov
Or Use
Social Security Consultants
www.social-security-consultants.com
602-449-9069
Thank You
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