For many Americans, Social Security is the foundation of their retirement plan. However,there are few resources available to the public to help people understand how SocialSecurity functions. As a result, it is important for us as Financial Advisors to understand thisimportant, and complicated, retirement program.

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Over the next hour we will discuss the following items.

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If your clients pay taxes into Social Security, it does not automatically make them eligible to receivebenefits. To be eligible to receive Social Security benefits, they must work and pay Social Securitytaxes for 40 quarters.• The quarters do not need to be consecutive nor do they expire.• Once a taxpayer has worked and paid Social Security taxes for the 40 quarters, he/she is eligible toreceive benefits.

[CLICK]The benefit amount is determined by the taxpayer’s work history. Benefits are calculated byaveraging the 35 highest years of income. If a taxpayer does not have 35 years of earnings history,those years will count as $0 in the calculation. As a result, this will lower the benefits the taxpayerwill receive as it will have the effect of lowering the average.

[Optional Talking Points for Women]Women spend 27 years in work force while men work nearly 40 years. While the good news is thatthere are more women in the workforce now than at any other time in history, they continue toearn less than men, are more likely to work part-time and to leave the workforce temporarily toserve in a caregiver role. Lower earnings combined with fewer full-time years in the workforcemean that women are less likely to receive benefits from employer-based retirement plans, morelikely to receive smaller Social Security benefits, and have fewer personal savings for retirement. .[Women Institute for a Secure Retirement (WISER) 2013]

Benefits are calculated based off of the best 35 years of earnings. For each year out work, a zero isused in the calculation. Due to maternity and family leave, women are out of the workforce

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When will your clients reach their full retirement age? At their full retirement age they areeligible for their full social security retirement benefit. [Read Slide]

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If your clients decide to take Social Security early, their benefits will be reduced.Depending on when their full retirement age is, their Social Security benefit may bereduced as much as 30%. It is important to remember that, the reduced benefitwould generally be your clients permanent benefit for the rest of their life.’

[Optional Talking Points for Women]More of an impact on women who tend to have longer life expectancies as they areelecting a lower benefit for a longer period of time.

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[OPTIONAL SLIDE]Besides age, there are other factors to consider when determining when to begin SocialSecurity payments.Depending on your clients’ age, if they are still working and collecting Social Securitybenefits, their benefits could be reduced.[READ SLIDE]

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[Optional Slide]Let’s look at an example of how working while collecting Social Security can affectyour clients benefit. Let’s meet John. His benefit at age 62 is $12,000.• This reflects all reductions since he is below full retirement age.• He also is still working, earning $25,000.• He is $9,520 over the threshold ($25,000 – $15,480).• This means his benefit is reduced $4,760 – and instead of receiving $12,000 hewill only receive $7,240 ($12,000 – $4,760).

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If your clients decide to wait until after their full retirement age, their Social Securitybenefits may be increased. The 8% simple interest annual increases are known as deferredretirement credits. [Read Slide]

[Optional Talking Points for Women]• As women have longer life expectancies, they have a higher probability of benefitingdelaying their benefits.

• One also has to consider potential survivor benefits when weighing the benefit decision.Fox example a man who marries a younger woman who will be electing a spousal benefit,will eventually likely be collecting a survivorship benefit. By electing early, the primarycould be locking his spouse in lower benefits for what could be a significant amount ofyears. In those cases when one spouse is significantly younger and will be on a spousalbenefit, it might make sense to wait.

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[OPTIONAL SLIDE] When should your client take Social Security? Let’s look at some examples ofbreakeven points based on the age they decide to take their Social Security benefits.

None of us know for sure how long we’ll actually live, but let’s make some assumptions for thepurposes of our examples.For those that expect to live to or beyond their life expectancy, looking at their circumstances, itmay make sense to delay taking Social Security benefits. Let’s assume there will be a 3% cost-of-living adjustment every year:

Take distributions at age 62, (assuming a payment of $1,500), the total Social Securitybenefit at age 95 is $1,039,143Take distributions at age 66 (assuming a payment of $2,000), the total Social Securitybenefit at age 95 is $1,285,117Take distributions at age 70 (assuming a payment of $2,640), the total Social Securitybenefit at age 95 is $1,531,112

Even if your client doesn’t live to 95, it may make sense to delay benefits. If they delay takingdistributions until:[CLICK]

66 instead of 62, and you live past age 76, they will receive more Social Securitybenefits.[CLICK]70 instead of 62, and you live past age 79, they will receive more Social Securitybenefits.[CLICK]70 Instead of 66 and you live past age 81, they will receive more Social Security benefits.

The longer they live past those “breakeven points,” the more benefits they will receive.

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These thresholds were put into place (in 1983), with the idea that only wealthyindividuals would be paying these taxes.

These thresholds are not indexed for inflation and the numbers of middle class peoplepaying these taxes—and the amount that they pay—are only increasing. The thresholdsare as follows:

Single persons: $25,000Married couples filing a joint return: $32,000

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Now that we have discussed individual benefits, let’s move on to spousal benefits.

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It should be noted that it is possible to receive benefits even if the taxpayer never workedor did not have enough credits to be eligible for benefits. Taxpayers who are married canreceive Social Security benefits based on their spouse’s earnings history. If a marriedtaxpayer has met the 40 quarter requirement, the taxpayer can elect to receive benefitsbased on the taxpayer’s personal earnings record or the taxpayer’s spousal benefits.

[CLICK]If benefits are based on the spouse’s earnings history, the spousal benefit is up to50% of the working spouse’s Social Security benefit. However, the taxpayer cannot claimspousal benefits until the working spouse files for benefits.

[Optional Talking Points for Women]•Women represent 56 percent of all Social Security beneficiaries age 62 and older andapproximately 68 percent of beneficiaries age 85 and older. [SSA.gov]•The Social Security decision made by one spouse can greatly impact the finances of thefamily for a long time. 63% of women over 65 receive benefits based on their husbandsrecord. If the husband opted for an early benefit the result is a reduced benefit for the livesof both spouses.

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Let’s look at how this would work. Let’s look at an example of a married coupleAmy and Gary. Assume Gary has, at full retirement age, a Social Security benefit of$2,000. Amy has no earnings history.

Amy would be entitled to $1,000. Why?

Half of her husband’s benefit is $1,000, and since his wife Amy has no benefit onher own, her spousal benefit will be $1,000.

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Now let’s look at how a spousal benefit can be reduced.If the lower-earning spouse takes Social Security before they reach their fullretirement age, not only will their own benefit be reduced as we showed earlier,but the spousal benefit, if taken, will be reduced as well. These tables showspousal benefit percentage reductions.

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Let’s look at an example with the same husband and wife. Here Amy decides totake her spousal benefit at age 62.If she takes benefits at age 62, assuming her full retirement age is 66, her spousalbenefit will be reduced by 35%, leaving her with a Social Security benefit of $700.($2000 X 35% = $700)

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Another way a spouse can receive Social Security benefits is when his/her spouse passesaway. This type of benefit is known as survivor benefits. If the surviving spouse is at fullretirement age, the benefit will step up to 100% of the deceased spouse’s benefit.

Survivor benefits can start as early as age 60, but if they begin this early the benefit will bereduced.

It is important to remember that a spouse can collect survivor benefits, and at some laterpoint switch over to his/her own benefits. In other words, collecting survivor benefits willnot have an effect on increasing their own benefits.

[Optional Talking Points for Women]•75% of women are widowed at an average age of 56 {National Center for Women inRetirement Research, 2011}•Longevity

•50% of women will live past 88•25% of women will live past 94•Half of women over age 65 will outlive their husband by 15 years [Pershing]

•41% of widows will have no access to retirement plans after the death of their husband[Center for Retirement Research, Boston College]•In 2011, for unmarried women – including widows – age 65 and older, Social Securitycomprises 50 percent of their total income. In contrast, Social Security benefits compriseonly 36 percent of unmarried elderly men's income and only 31 percent of elderly couples'income. [SSA.gov]•In 2011, 48 percent of all elderly unmarried females receiving Social Security benefitsrelied on Social Security for 90 percent or more of their income. [SSA.gov]

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Can I collect benefits from a divorced spouse?If your clients are divorced, they can still collect benefits from their ex-spouse’sSocial Security record. In other words, when determining your clients benefits, youwill calculate them as if they are still married.If your clients divorced ex-spouse has passed away, they can collect survivorbenefits so long as the marriage lasted for at least 10 years, they are age 60 orolder and they cannot remarry until over age 60 (unless the latter marriage ends,whether by death, divorce, or annulment).

[Optional Talking Points for Women]Understanding divorced spouse benefits is crucial especially when we consider thatnearly 50% of all marriages end in divorce [US Census Bureau, 2012].Women’s standard of living drops 72% in first year after divorce. A disproportionatenumber of women need expert financial advice after divorce to ensure they arereceiving the benefits that they are eligible for. [Pershing]

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The last section we will cover today involves strategies to maximize Social Security.

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Let’s look at an example involving Matt and Jen. This couple is considering different options forbeginning their Social Security benefits.[Read Slide.]What are their options?

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Option number one is for Matt and Jen to both begin benefits at age 62.

Since Jen does not have a Social Security record of her own, she will need Matt tofile for benefits to enable her to become eligible for spousal benefits. The firstoption is to have Matt file for his Social Security benefit today. When he does this,Jen will become eligible to begin her spousal benefits. Since she is below her fullretirement age, instead of 50% of Matt’s benefit, she will receive 35% of Matt’sbenefit. Since Matt is also below full retirement age, his benefit will have a 25%reduction – so instead of the $2,000 per month he is entitled to at age 66, he willreceive $1,500 per month.

Assuming that Matt lives until age 85 and Jen lives until age 92, Matt will receive his$18,000 per year payment for the next 23 years. Note that this figure couldincrease for Social Security Cost of Living Adjustments (COLA).

Jen will receive her own spousal benefit for the next 23 years until Matt dies. Atthat point, she will begin her survivor benefit. Since Matt began his social securitybenefit before his full retirement age and Jen is beginning her survival benefit afterher full retirement age, she will receive 82.5% of Matt’s full retirement age benefit.If this rule did not exist Jen’s survivor benefits would only increase to what Mattwas receiving - $1,500. Because of this rule though her benefit will increase to$1,650 per month .Note that figure could be larger if there are COLAs.

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Option #2 is for Matt and Jen to both file at age 66.[Read slide]

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Another option is for Matt to file at age 66, but then immediately suspend hisbenefits. By doing this he will not begin receiving his Social Security benefits yet,but Jen can begin to receive her spousal benefits. At age 70, Matt will begin hisSocial Security benefits.[Read Slide]

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Here are the total payout amounts for each of the different scenarios for Matt and Jen.Remember, this is all the same client and they could have chosen any of the options. Thefile and suspend strategy results in the largest dollar amount for both Matt and Jen.[CLICK in paragraph two][CLICK in paragraph three]

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Let’s review some important information about the File and Suspend strategy. It allowsmarried couples who retire at different times to increase benefits. This approach worksreally well where one spouse has either no personal earnings history (i.e., homemaker) or avery limited earnings history. To understand the approach, it is important to remember acouple of things.[Read Slide or use below talking points]First, married couples are eligible to receive benefits based on their personal earningshistory or their spouse’s earnings history.Second, individuals cannot collect spousal benefits until their spouse files for benefits.Third, just because an individual files for benefits does not mean that the individual mustreceive those benefits.Fourth, if the spouse who files for benefits elects to suspend those benefits, the spousewill benefit from receiving DRC on the spouse’s personal benefits.And finally, and an important rule that must not be overlooked, the spouse who is filingfor benefits and suspending those benefits must have reached FRA for this strategy towork.

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Let’s look at an example involving a Adam and Meghan. This couple is considering different optionsfor beginning their Social Security benefits. [Read Slide.] What are their options?[Click, Click, Click]

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The first option is for Meghan to file for Social Security this year. Adam is looking totake advantage of the deferred retirement credits, so he will not begin his benefitsuntil age 70.

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The second option is for Meghan to file for her benefits at age 66, the fullretirement age for both her and Adam. By doing this, Adam is able to file forspousal benefits only – allowing him to receive 50% of Meghan’s benefit. Thisstrategy does not affect his own benefit from increasing by 8% per year. WhenAdam reaches age 70, he will then switch to his own benefit.

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By using the restricted application strategy, from ages 66-70 Adam is able to collect a totalof $36,000 in benefits that he otherwise would not have been able to. [CLICK in paragraph2]

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Here are some important factors with this strategy. Like File and Suspend, this strategyincreases the spousal benefit component of Social Security. However, in this case, thisstrategy can be used to increase benefits for married couples who have their own personalearnings history and would normally file for benefits using that history. Or put another way,the individual personal earnings history benefits are larger than the spousal benefits so itwould normally not make sense to apply for spousal benefits. The big difference in thisstrategy is that we are assuming that spouses wish to retire at different ages, either due toan age spread or career choice.

The important thing to remember is that an individual can collect spousal benefits at FRAand allow the individual’s personal earnings history benefit to collect DRC. Also, rememberthat we have been mentioning that an individual cannot collect spousal benefits until thespouse files for benefits.

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As you think about how your clients will use Social Security as part of their retirementincome plan, remember what the Social Security Administration says about their ownprogram on their statements:

[CLICK]

[READ] Social Security is the largest source of income for most elderly Americans today, butSocial Security was never intended to be your only source of income when you retire. Youalso will need other savings, investments, pensions or retirement accounts to make sureyou have enough money to live comfortably when you retire.

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[READ] Without changes, in 2033 the Social Security Trust Fund will be able to pay onlyabout 77 cents for each dollar of scheduled benefits.*

As you prepare for retirement you will need multiple sources of retirement income.

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Pensions are playing a smaller role for Americans as they prepare for retirement. Thenumber of traditional employer pension plans has decreased from a peak of 175,000 in1983 to just 25,000 today (USAA, “Retirement Income: It’s Up To You Now”, 2012). As aresult of this decline in pension plans, there is a greater emphasis on the need for increasedpersonal savings and investing wisely.

1. What strategies are available to help increase your Social Security benefits?

2. Other than Social Security, what guaranteed income sources do you have?

3. How important is it to have a source of guaranteed income?

[Optional Talking Points for Women]When evaluating the nest egg component you need to look at investment accounts,

401(k)'s, pensions, and IRA's when counseling couples and women, examine the balancesseparately as Women IRA balances are only 56% of men’s IRA balances {EBRI}. Whenplanning for retirement this can result in a dramatic reduction in income when the husbanddies.

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That being said, variable annuities offer all of these benefits.

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In addition, here are some things you should consider when evaluating whether a variableannuity is right for your client. [Speaker: Read slide.]

The costs associated with variable annuities vary depending on the annuity product chosenand any optional features selected. Charges are deducted to cover the cost of issuing andmaintaining the annuity contract, for insurance guarantees associated with the underlyingbase death benefit, as well as management expenses of the underlying investment options.

In addition, while variable annuities generally allow investors to access up to 10% of theirpurchase payments each year without incurring any charges, such withdrawals will besubject to ordinary income taxes and, if withdrawn prior to age 59½, may be subject to a10% federal income tax penalty. Withdrawals, other than from IRAs or employer retirementplans, are deemed to be gains out first for tax purposes. Additionally, withdrawals thatexceed a specified annual amount may be subject to a withdrawal charge. Withdrawalcharges are assessed for a specific period of time and generally reduce each year. Acomplete explanation of charges and additional costs is provided in the annuity’sprospectus. Please read it carefully before investing. Please note that all guarantees arebased on the claims-paying ability of the issuing company.

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Now that we have covered some of the advanced planning techniques of Social Security, it isimportant to put this information into practice. To start the process, follow this three-step plan.

Step one: schedule conversations with your clients. The topic of the conversation will varydepending on the age of your clients and their retirement strategies. But a good rule of thumb is tocategorize your clients into three groups: those with five to 10 years to retirement, those who areplanning to retire very soon and those already retired.

Step two: sit down with your clients and review their Social Security benefits and options. For thosefive to 10 years to retirement, utilizing the tools from the Social Security Administration is a greatway to estimate benefits and options. For those nearing retirement, it is vital to understand optionsand when to commence benefits. For those already retired, they may have already madeirrevocable decisions, but there may be strategies to reduce the taxation of their Social Securitybenefits.

Step three: ask the three questionsQuestion 1: What strategies do you have to increase your Social Security benefits?Question 2: Other than Social Security, what other guaranteed income sources do

you have?Question 3: How important is it to have a source of guaranteed income?

These three questions will help you develop a retirement strategy that will give your clients thepeace of mind they are looking for in retirement.

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Read Slide.

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This concludes topic five and the CE portion of our program. Are there any questions?

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