Social Security: The Cornerstone of Retirement Income

This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional, or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional advisor.

Social Security: The Cornerstone of Retirement Income

Ida May Fuller First Social Security Beneficiary

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Agenda 1.

How Benefits are Calculated

2.

Maximizing Income for Married Couples

3.

Taxes and Social Security Contact Information

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How are Social Security Benefits Calculated? Eligibility

40 quarters of work

Calculation

Look at average of 35 highest earning years of work

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Age to Receive Full Social Security Benefits Year of Birth

Full Retirement Age (FRA)

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

Source: Social Security Administration. “Retirement Benefits.” SSA Publication No. 05-10035. April 2013. http://www.ssa.gov/pubs/EN-05-10035.pdf. Accessed 12/9/13

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When Can I Receive Social Security Benefits? Age

Amount

62 until Full Retirement Age

•Reduced Social Security benefits up to 30% •Permanent reduction •Exception if permanently and fully disabled

Full Retirement Age

•Receive 100% of annual benefit •66 if born between 1943 – 1959 •67 if born in 1960 or later

Full Retirement Age until 70

•Credit of 8% per year of waiting •Permanent •Maxes out at age 70

Be sure to sign up for Medicare at age 65. Page 6 | 25043-05-0114

Collecting Social Security Before and After FRA Reduction in Benefits is Permanent, Credit also Permanent

Assumes Full Retirement Age is 66 40% 32% 30%

24%

20%

16% 8%

10% FRA

0%

62

63

64

-10%

66

67

68

69

70

-13%

-20% -30%

65 -7%

-25%

-20%

Assumes a client was born between 1943 and 1960. Source: Social Security Administration. “Retirement Benefits for Your as a Spouse.” ssa.gov/retirement/1943.html. Accessed November 20, 2013.

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What Happens if I Stop Working before 62?

Can I collect benefits before 62 since I am no longer working?

Will I get the same benefits as if I had waited to retire at 62?

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Most likely no. Exceptions may apply for complete and permanent disability.

Probably not. Benefits averaged over 35 years.

Can I Work and Receive Social Security Benefits? Benefits may be Reduced if Income Exceeds Certain Thresholds

Age

Benefit Reduction

62 until year attaining FRA

Lose $1 in Social Security benefits for every $2 earned above limit

Year of attaining FRA

Lose $1 in Social Security benefits for every $3 earned above limit

After FRA

No benefit reduction

2014 Earned Income Limits $15,480 ($1,290/month first calendar year) $40,400 ($3,450/month first calendar year) No limit on earnings

You must still pay Medicare and Social Security taxes if you are working & receiving Social Security benefits. Source: Social Security Administration. “How Work Affects Your Benefits.” SSA Publication No. 05-10069. January 2013.

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Monthly Benefit Amounts Differ Based on Beginning Age Example Assumes Benefits of $1,000 at Full Retirement Age of 66 $1,400

$1,320 $1,240 $1,160

$1,200

$1,080 $1,000

$1,000

$933 $866

$800

$750

$800

$600 $400 $200 $0 62

63

64

65

66

67

68

69

70

Source: Social Security Administration. “When to Start Receiving Retirement Benefits.” SSA Publication No. 05-10147. November 2013.

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When a Client Claims Social Security Could Impact Their Lifestyle Where Could You Live in Retirement? Collect at 62

One Bedroom Apartment

Source: ashevillerent.com. accessed 12/17/2013

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Collect at 66

Older Refurbished Home

Collect at 70

New Home with Yard

Agenda 1.

How Benefits are Calculated

2.

Maximizing Income for Married Couples

3.

Taxes and Social Security Contact Information

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What about My Spouse? Spousal Benefit

Survivor Benefit

Payment Period While primary worker is still alive and applied for Social Security

Maximum Benefit Spouse of primary worker must be FRA when first claiming

Partial Benefit Spouse of primary worker must be at least 62 to receive a partial benefit

Maximum benefit is 50% of worker’s benefit at FRA

Receives 32%-49.9% of worker’s full benefit at FRA

No delayed credit after FRA

Reduction in benefit is permanent

After primary worker Surviving spouse must passes away be FRA Maximum is 100% of worker’s benefit at death

Surviving spouse is between 60 and FRA Receives 71%-99% of primary worker’s benefit

If both spouses worked, eligible for greater of personal Social Security benefit or Spousal/Survivor benefit. Sources: Social Security Administration. “http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/175/~/benefit-amount-for-a-spouse Accessed 11/12/2013 and http://www.ssa.gov/survivorplan/ifyou5.htm Accessed 12/9/2013.

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What if the Client is Divorced? Eligible for Spousal/Survivor Benefits if all the following conditions are met: • • •

Married for at least 10 years Did not remarry* Eligibility ages – 62 for spousal benefits – 60 for survivor benefits

•

If both of spouses worked, receive higher of personal benefit or the spousal/survivor benefit

*If a client remarries, they lose the spousal benefit from the first marriage unless the second spouse dies or the marriage ends in divorce. In that case, a client can claim benefits from the ex-spouse who would generate the greatest payment.

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Case Study Spousal Benefits: Husband is Primary Worker Spousal Benefit Based Off of Other Spouse’s FRA Benefit • Dan’s expected Social Security benefit: – Age 66: $1,000 per month – Age 62: $750 per month

• His wife, Laura, is four years younger and never worked. • How much would they receive if: – Both claimed at 66 – Both claimed at 62

– One claimed at 62 and the other waited until 66

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Both Dan and Laura Claim at 66 Dan Claims His Social Security at Age 62

Dan Claims His Social Security at Age 66

Laura Claims Spousal Benefit at Age 62 Laura Claims Spousal Benefit at Age 66

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Dan= $1,000 Laura = $500

Dan Claims at 66, Laura Claims at 62 Dan Claims His Social Security at Age 62

Dan Claims His Social Security at Age 66

Laura Claims Spousal Benefit at Age 62

Dan=$1,000 Laura = $350 (35% of Dan’s full benefit)

Laura Claims Spousal Benefit at Age 66

Dan= $1000 Laura = $500

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Both Dan and Laura Claim at 62

Laura Claims Spousal Benefit at Age 62 Laura Claims Spousal Benefit at Age 66

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Dan Claims His Social Security at Age 62

Dan Claims His Social Security at Age 66

Dan= $750 Laura = $350 (35% of Dan’s full benefit)

Dan=$1,000 Laura = $350 (35% of Dan’s full benefit) Dan= $1,000 Laura = $500

Dan Claims at 62, Laura Claims at 66 Dan Claims His Social Security at Age 62

Dan Claims His Social Security at Age 66

Laura Claims Spousal Benefit at Age 62

Dan= $750 Laura = $350 (35% of Dan’s full benefit at age 66)

Dan=$1,000 Laura = $350 (35% of Dan’s full benefit at age 66)

Laura Claims Spousal Benefit at Age 66

Dan=$750 Dan= $1,000 Laura= $500 (because Laura = $500 she waited until age 66, she receives half of his age 66 benefit)

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Joint Income Example: Contemplating Early Retirement James and Linda •

• •

James is contemplating retirement at age of 62 versus waiting until full retirement age of 66. His wife Linda never worked. How will retirement at 62 impact the annual Social Security Benefits James and Linda receive?

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Joint Income Example: Early Retirement Reduces Annual Household Benefit $20,000

$18,000

$16,000 $13,500

$12,000 $8,000 $4,000 $0

Began at 62

Began at 66

Assumptions: Began at Age 62: Assumes husband retires early at age 62; he receives reduced monthly benefit of $1,125/month. Began at 66: Assumes husband retires at full retirement age of 66 and collects full retirement benefit of $1,500 per month. Source: “Annual Statistical Supplement.” 2012. Table 5.A1.1-Number and average monthly benefit for retired workers by age.

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Joint Income Example: Both Spouses Worked, Retire at Full Retirement Age Robert and Mary • • •

• • •

Both worked. Both are 66. Both are collecting Social Security benefits this year for the first time. His monthly benefit is $1,500. Her monthly benefit is $900. What is the household maximum Social Security benefit?

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Joint Income Example: Both Spouses Worked, Retire at Full Retirement Age Robert and Mary Who

Husband

Wife

Total

Max Benefit

$1,500

$900

$2,400

Calculation

His benefit higher than her benefit

Her benefit ($900) > half of his benefit ($750)

Sum of Husband and Wife’s Benefit

Source: Social Security Administration. “Frequently Asked Retirement Questions.” socialsecurity.gov/planners/faqs.htm. Accessed December 20, 2013.

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Joint Income Example: Claim and Suspend John and Barbara • •

•

John just turned 66 and reached his Full Retirement Age. His wife Barbara is 65. She never worked, but could receive a Social Security Spousal Benefit based on John’s work history. John plans to keep working, but would like a little extra money to do the things he enjoys now while he is still healthy.

Solution: Barbara collects Spousal Benefits, while John continues to accrue delayed credits on his benefits.

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File and Suspend: Available at Age 66 70 Accrues 8% credit per year of waiting

At 70

69 John •Claims Social Security •Receives 132% of original FRA amount

68 67 66

FRA

John is FRA • Files for Social Security benefits • Immediately suspends Because John filed, Linda can apply for spousal benefits

Spousal benefits do not accrue delayed benefits

File and suspend can only be implemented if the working spouse has attained Full Retirement Age. If application for Social Security is before Full Retirement Age, the client must take Social Security. If the spouse claiming the spousal benefit is under Full Retirement Age, their spousal benefit and personal Social Security retirement benefit (if applicable) is permanently reduced.

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Both Spouses Worked: Wife Worked Part-Time, or Returned to Work When Children were Older Michael and Patricia •

Patricia is 62. – Lower wage earner of the couple – Determined to retire

•

Michael is 66. – Higher wage earner – Wants to wait until 70 to maximize his benefit and the survivor benefit

•

Because Michael waited until 66 to file for Social Security he can: – Restrict his application to spousal benefit only. – Switch to his own benefit at 70.

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Both Spouses Worked: Wife was Part-Time/ Return-to-Work Mother Monthly Social Security Benefits

Michael's Benefit

Patricia's Benefit

$3,000 $2,500 $2,000 $1,500 $1,000

$500 $0

Michael turns 70, Patricia is 66 Michael passes away

Because Patricia applied for Social Security before her FRA, she receives the greater of her reduced spousal or her reduced personal benefit. She will receive this amount while both of them are living. Page 27 | 25043-05-0114

Both Spouses Worked: Both Worked Full-Time, Entire Careers David and Susan •

David is 66 and worked his whole life. – Monthly benefits at 66: $2,000 – Monthly benefits at 70: $2,650

•

Wife Susan is 64 and worked most of her life. – Monthly benefit at 66: $1,500 – Monthly benefit at 70: $2,000

•

Maximum spousal benefit: – For Susan: $1,000 (50% of David’s) – For David: $750 (50% of Susan’s)

What are some of their options for claiming Social Security?

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Both Spouses Career Workers:

Monthly Social Security Benefits

Option 1 – Both Take at 66 David's Benefit

$4,000

Susan's Benefit

$3,500 $3,000 $2,500 $2,000 Susan turns 66, starts her benefit

$1,500 $1,000

$500 $0 David retires at 66, starts his benefit

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David passes away

Both Spouses Career Workers: Option 2 – One Takes Personal Benefit at 66

Monthly Social Security Benefits

$4,500

David's Benefit

Susan's Benefit

$4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

David turns 70, switches to his benefit Susan’s benefit stays the same Susan is 66, applies for her benefit Opens door for David to receive spousal

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David passes away

Both Spouses Career Workers: Option 3 – Both Wait Until 70

Monthly Social Security Benefits

$5,000

David's Benefit

Susan's Benefit

$4,500 $4,000 $3,500 $3,000

Susan is 70, switches to her personal benefit

$2,500 $2,000 $1,500 $1,000 $500

$0 Susan is 66, starts off with spousal benefit David turns 70, turns on his benefit and Susan’s spousal benefit stays the same Page 31 | 25043-05-0114

David passes away

Things to Consider When Claiming Social Security •

Each decision is unique and based on your circumstances

•

Impact of claiming Social Security on other assets: – If you can live off of less than 4% of assets* - delay benefits – If you need more than 4% of assets* - take benefits

•

Longevity (if married it is the longest living spouse)

•

Highest earning spouse should delay as long as possible

•

Waiting until age 66 (if possible) may offer more options: – Work and receive Social Security – File and suspend – Start off with spousal, switch to personal later *The 4% rule is a general guideline that suggests that withdrawing only 4% of your assets increases the chance that you may not run out of money during retirement. However, results can change based on market conditions and life events. It is best to consult with a financial advisor about your personal circumstance and the factors effecting your withdrawal rate.

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What Will You Be Doing on Your 80th or 90th Birthday? • Average man turning 62 today can expect to live to 83. • Average woman turning 62 today can expect to live to 86. • One out of four 65-year-olds will live to 90. • One out of ten 65-year-olds will live to 95.

Source: Social Security Administration. socialsecurity.gov/planners/lifeexpectancy.htm Accessed November 21, 2013

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Agenda 1.

How Benefits are Calculated

2.

Maximizing Income for Married Couples

3.

Taxes and Social Security Contact Information

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Social Security May Be Taxable at Federal Level Income Limits Determine Percentage of Taxable Social Security Benefits

Up to 50% of Benefits Taxable

Up to 85% of Benefits Taxable

Single

$25,000 - $34,000

$34,001+

Married, Filing Jointly

$32,000 - $44,000

$44,001+

These thresholds were set in 1983 and are not indexed for inflation.

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What Is Provisional Income? Determines Taxable Portion of Social Security; Only 50% of Social Security Included

AGI

+

Tax Exempt Income*

+

50% of Social Security Income

=

Provisional Income (Used to determine taxable portion of Social Security benefits)

AGI (Adjusted Gross Income) is the last line of page 1 of the IRS Form 1040 (U.S. Individual Income Tax Return). *May have to add in other exclusions such as deductions for interest on qualified educational loans and exclusions for savings bonds used for higher education. See IRS Info 2009-0073 for further details. Pioneer does not offer tax advice. The information on this slide serves as a guide and does not replace the advice of a qualified tax advisor. Please contact a qualified tax advisor for specifics on a client’s individual circumstance. Sources: IRS Publication 915. Social Security Handbook question 2501 and IRS Info 2009-0073.

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Social Security Income Calculation What is Excluded in Income? • • • • • •

Roth IRA Distributions Qualified Charitable Deductions Non-taxable Pensions and Annuities Child Support Inheritance/ Gifts Life Insurance Proceeds

Pioneer does not offer tax advice. The information on this slide serves as a guide and does not replace the advice of a qualified tax advisor. Please contact a qualified tax advisor for specifics on your individual circumstance.

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How to Apply for Benefits • Choose one of the three methods – www.socialsecurity.gov/applyonline – Call 1-800-772-1213 Monday – Friday 7AM-7PM – Make an appointment to visit any Social Security office to apply in person

• Bring (some or all) – Social Security number/card for you and spouse – Birth certificate – W-2 forms or self-employment tax return for last year – Military discharge papers – Name of your financial institution, routing number and account number

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Neither Pioneer, nor its representatives are legal or tax advisors. In addition, Pioneer does not provide advice or recommendations. The investments you choose should correspond to your financial needs, goals and risk tolerance. For assistance in determining your financial situation, please consult an investment professional.

Securities offered through Pioneer Funds Distributor, Inc. Underwriter of Pioneer mutual funds, Member SIPC 60 State Street Boston, Massachusetts

us.pioneerinvestments.com 2014 Pioneer Investments

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