Retirement Income Strategies: How Social Security Can Maximize a Client’s Lifestyle, Legacy and...

Retirement Income Strategies: How Social SecurityCan Maximize a Client’s Lifestyle,Legacy and Livelihood

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.

SpeakerDate

| 25312-04-0115

Social Security Retirement Benefits Replacement Rates Based on Career

Average Wages**

Social Security by the Numbers

*Social Security Timing and Market Tools: Social Security Planning: The Emerging Cornerstone of Your Financial Practice?” August 2013. **Social Security Administration Actuarial Note Number 2014.9 and Pioneer Investments

• 84% percent of couples age 60-66 expect Social Security advice from a financial planner.*

• 61% of couples age 60-66 would switch advisors if their current advisor couldn’t help them with Social Security.*

• Social Security is a major source of income for most households.**

| 25312-04-0115

Agenda

1. How Benefits are Calculated

2. Maximizing Income for Married Couples

3. Maximizing After-Tax Income with Social Security

| 25312-04-0115

How are Social Security Benefits Calculated?

CalculationLook at average of 35 highest earning

years of work

Eligibility 40 quarters of work

| 25312-04-0115

Year of Birth Full Retirement Age (FRA)

1943-1954 66

1955 66 and 2 months





1960 and later 67

Source: Social Security Administration. “Social Security Retirement Benefits.” SSA Publication No. 05-10035. April 2013.

Full Retirement Age is Dependent on Year of Birth

| 25312-04-0115

Collecting Social Security before and after Full Retirement AgeReduction in Benefits is Permanent, Credit also Permanent

Assumes a client was born between 1943 and 1954.Source: Social Security Administration. “Full Retirement Age: If You Were Born between 1943 and 1954.” www.ssa.gov.

FRA

| 25312-04-0115

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

Source: Social Security Administration. “How Work Affects Your Benefits.” SSA Publication No. 05-10069. January 2014.

Age Benefit Reduction 2015 Earned Income Limits

62 until year attaining FRA

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

$15,720

($1,310/month first calendar year)

Year of attaining FRA

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

$41,800

($3,490/month first calendar year)

After FRA No benefit reduction No limit on earnings

A client must still pay Medicare and Social Security taxes if they are working & receiving Social Security benefits.

| 25312-04-0115

Benefit per Month is Based on Beginning Age

Source: Social Security Administration. “When to Start Receiving Retirement Benefits.” SSA Publication No. 05-10147. January 2014.

Assumes Monthly Benefit of $1,000 at Full Retirement Age of 66

| 25312-04-0115

Collect at 70

New Home

Collect at 66

Older Refurbished

Home

Collect at 62

Mobile Home

When a Client Claims could Impact Their Lifestyle

Source: ashevillerent.com.

Where could You Live in Retirement?

| 25312-04-0115

Agenda




| 25312-04-0115

Source: Social Security Administration. “Retirement Planner: Benefits for You as a Spouse.” www.ssa.gov.

What about the Spouse?

Payment Period Maximum Benefit Partial Benefit

Spousal Benefit

While primary worker is still alive and applied for Social Security

Spouse of primary worker must be FRA when first claiming

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

Spousal benefits don’t increase after FRA

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

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

Reduction in benefit is permanent

Survivor Benefit

After primary worker passes away

Surviving spouse must 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 benefitIf both spouses worked, receive greater of personal Social

Security benefit or Spousal/Survivor benefit.

| 25312-04-0115

• Married for at least 10 years• Divorced for at least 2 years• Must be age 62 to receive a spousal

benefit, age 60 (50 if disabled) to receive a survivor benefit

• Ex-spouse must be at least age 62 and worked 40 quarters to receive a spousal benefit.

• Did not remarry*– If remarried, client generally forfeits

benefits from ex-spouse*– If ex-spouse remarries and client does

not, they remain entitled to spousal and survivor benefits off of ex-spouse

What if the Client is Divorced?

Eligible for Spousal/Survivor Benefits if:

| 25312-04-0115

Case Study: What if Only One Spouse Worked? Husband is Sole Provider for Family

This case study is a hypothetical illustration only. Assumptions: He is medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $1,981. She is the same age.Source: Social Security Administration. "Annual Statistical Supplement 2014.” Table 5.A1.1.

• James is 62. • He earned average wages over

his lifetime.• His wife Linda never worked. • What will be the household

benefits and the survivor benefit if retires at: – 62– 66– 70

James and Linda

| 25312-04-0115

Poverty Line(Married Couple)

Cat Food or Caviar? Taking Social Security at 62 can Reduce Household Income by 65%

This case study is a hypothetical illustration only. Assumptions: He is medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $1,981. She is the same age and collects as soon as possible. When she is 62, receives 35% of his age 66 benefit. If she claims at age 66, she receives 50% of his age 66 benefit. Her spousal benefit is capped at 50% of his year 66 benefit. Poverty line for married couples in 2014 was $15,730. (Source: Federal Register)

Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2014.” Table 5.A1.1-Number and “Average Monthly Benefit for Retired Workers by Age.” www.ssa.gov.

| 25312-04-0115

Poverty Line(Single)

Poverty Line(Married Couple)

Cat Food or Caviar? Taking Social Security at 62 can Reduce Household Income by 65%

This case study is a hypothetical illustration only. Assumptions: He is medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $1,981. She is the same age and collects as soon as possible. When she is 62, receives 35% of his age 66 benefit, If she claims at age 66, she receives 50% of his age 66 benefit. Her spousal benefit is capped at 50% of his year 66 benefit. We assume he passes away after both reached FRA. This allows her to receive a widow benefit of 82.5% of his benefit if he claimed at age 62, 100% of his benefit if he claimed at FRA or later. Poverty line for single person in 2014 was $11,670 (Federal Register).

Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2014.” Table 5.A1.1-Number and “Average Monthly Benefit for Retired Workers by Age.” www.ssa.gov.

| 25312-04-0115

Husband is Sole ProviderAdvanced Claiming Strategies with Spousal Benefits

• James and Linda want to know if there are any additional options available to them.

• Their advisor introduces them to File and Suspend:– Available at FRA– Allows spouse to apply for

spousal benefits– Worker benefits still increase by

8% per year

James and Linda

| 25312-04-0115

File and SuspendAvailable When Worker is Age 66 (But Not Before)

Benefits grow by 8% each year

66

Because James filed,Linda can apply forspousal benefits

James is FRA• Files for Social Security benefits• Immediately suspends

At 70

James•Claims Social Security•Receives 132% of original FRA amount

Spousal benefits do not increase

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

66

| 25312-04-0115

What if Both Spouses Worked? Comparing Social Security Options Based Only on Work Histories

This case study is a hypothetical illustration only. Assumptions: He has monthly benefits equivalent to the average male. Monthly benefits at: 66- $1,500, 70- $1,981. She has monthly benefits equivalent to the average female worker. Monthly benefits at: 64 = $982, 66- $1,133, 70- $1,495

Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2014." Table 5.A1.1-Number and Average Monthly Benefit for Retired Workers by Age.” www.ssa.gov.

• David is 66.• His wife Susan is 64 and worked

most of her life. • What will be their Social

Security retirement benefits if: – Both claim Social Security as

soon as David retires– Each claim at their respective

FRA– Each claim at 70

David and Susan

| 25312-04-0115

Household Social Security:

$42,000Household

Social Security: $31,500

Household Social Security:

$30,000

Conventional Wisdom Claim at Age 70 to Maximize Social Security Benefits

This case study is a hypothetical illustration only. All assumptions assume they keep working until they collect Social Security. Both claim at his FRA: He receives full benefit of $18,000. Since she is under FRA, she receives higher of her reduced benefit or her reduced spousal benefit (she cannot pick and choose benefits if under FRA). In this case, reduced personal benefit is greater than reduced spousal. Both claim at FRA: he receives his full benefit of $18,000. She chooses her full benefit of $13,500, which is greater than spousal benefit of $9,000 (0.5*$18,000=$9,000). Both claim at 70: Both take their maximum personal benefit.

Source: Social Security Administration. "Annual Statistical Supplement, 2014.” Table 5.A1.1. www.ssa.gov.

Annual Social Security Benefits Based Only on Earnings

| 25312-04-0115

Social Security Timing and a Client’s Legacy

Assumptions: He starts off with $260,00 in his Traditional IRA and she has $140,000 in her Traditional IRA (c.f. EBRI Issue Brief May, 2014); Assume both pass away at life expectancy of a 66 year old per SSA (82 for him, 85 for her). Assets increase by 5% per year. Assume Social Security benefits and cost of living increases by 2% per year. Withdrawal is greater of amount needed to fund retirement income needs or RMD.

• For each strategy, David and Susan want to know the:– Lifetime Social Security income– Amount in her IRA at death

David and Susan

| 25312-04-0115

Lifetime Social Security and IRA Legacy Based Only on Work History Claiming Social Security before FRA may Dramatically Reduce Legacy

This case study is a hypothetical illustration only. Assumptions: David starts off with $260,000 in his Traditional IRA and she has $140,000 in her Traditional IRA (c.f. EBRI Issue Brief May 2014); they want $53,500 in annual income (c.f. Consumer Expenditure Survey, U.S. Bureau of Labor Statistics. September, 2014). Assume both pass away at life expectancy of a 66 year old per SSA (82 for him, 85 for her). 1) Both claim when he is 66 and immediately start withdrawing from personal assets; 2) Both claim at their FRA: They live off her earnings + his Social Security until she retires; withdraw from IRA after she retires; 3) Both claim at 70: Both work until 70, then retire and claim maximum Social Security benefit. Assets increase by 5% per year. Assume Social Security benefits and cost of living increases by 2% per year. Withdrawal is greater of amount needed to fund retirement income needs or RMD.

| 25312-04-0115

Are There Other Options if Both Spouses Worked? Advanced Claiming Strategies with Spousal Benefits

• David and Susan decide to take Social Security when they are both 66.

• They are wondering:– Are there other Social Security

claiming options?– If so, what are the restrictions?– What is the IRA balance after

both pass away?

David and Susan

| 25312-04-0115

Claiming at Age 66 Offers More Options to Married Couples

64 706865 67 69

Options if Claiming Before 66•Must take benefit (cannot file and suspend)•Can not choose spousal or personal benefit

– If spouse already claiming: receive greater of reduced personal benefit or reduced spousal benefit

– If spouse not claiming: receive reduced personal; reduced spousal available when other spouse applies

Options if Claiming After Age 66•Can elect to file and suspend

– Allows other spouse to apply for spousal benefits

– Worker benefits still accrue delayed retirement credits

•Can choose to start off with spousal or personal•Can switch benefits (personal or spousal)•Claiming one benefit will not reduce the other benefit

62 63

In order to receive a spousal benefit, the other spouse must have filed for their own personal Social Security retirement benefits. Can suspend any time after age 66. However, can only choose between spousal and personal if you are Full Retirement when first applying for any benefit.

66

| 25312-04-0115

David retires at 66, starts his benefit

David passes away

Susan retires at 66, starts her benefit

Hou

seh

old

Socia

l S

ecu

rity

In

com

e

Both Spouses WorkedOption 1 - Both Take at 66

This case study is a hypothetical illustration only.

| 25312-04-0115

David turns 70, switches to his benefit;Susan’s benefit stays the same

David passes away

Mon

thly

S

ocia

l S

ecu

rity

Ben

efi

ts

Susan is 66, applies for her benefit; opens door for David to receive spousal

Both Spouses WorkedOption 2 - One Takes Personal Benefit at 66


| 25312-04-0115

Susan is 66, restricts application to spousal benefits only (David filed and suspended)

Susan is 70, switches to her personal benefit

David passes away

David turns 70, turns on his benefit and Susan’s spousal benefit stays the same

Both Spouses Career WorkedOption 3 – Both Take Personal at 70, Susan Starts with Spousal at 66


Mon

thly

S

ocia

l S

ecu

rity

Ben

efi

ts

| 25312-04-0115

Lifetime Social Security and Legacy: Advanced Spousal Strategies May Increase Lifetime Social Security Income and Legacy

This case study is a hypothetical illustration only. Assumptions: He starts off with $260,00 in his Traditional and Roth IRA and she has $140,000 in her Traditional and Roth IRA (c.f. EBRI Issue Brief May,2014); Assume both pass away at life expectancy of a 66 year old per SSA (82 for him, 85 for her). Both claim at 66: Both work until their respective age of 66 and then retire. She claims at 66, he starts with 50% of hers: He retires at 66; they live off of her earnings until his 68 (her age 66) . When she is 66, she retires and claims Social Security on her benefits ($13,500). He files for spousal benefits ($6,750) and switches to his benefit at 70. They withdraw from their IRAs. File and Suspend: He retires at 66; they live off of her earnings until his age 68 (her age 66). When she is 66, she retires. He files for benefits and suspends. She starts off with spousal. When each is 70, they claim their own benefits. They withdraw from the IRA to supplement income. Assets increase by 5% per year. Assume Social Security benefits and cost of living increases by 2% per year. Withdrawal is greater of amount needed to fund retirement income needs or RMD.

| 25312-04-0115

Can a client pick and choose between spousal or personal benefit before

FRA?

What if both spouses claim before FRA?

What if one spouse claims before FRA?

Collecting Social Security before FRA – Both Spouses Worked

FRA is Full Retirement Age. See slide 8 for details. “Adjusted” spousal benefit only applies if a client claims Social Security before FRA, and then their spouse claims at a later date. The adjustment is: Spousal Benefit – Personal Benefit. This amount (if positive) is added to the client’s current benefit.

No. Choosing between personal benefit and

spousal benefit is only available if both are 66

(FRA)

Both receive higher of:•Reduced personal benefit•Reduced spousal benefit • Receives reduced benefit

based on his/her earnings record

• When second spouse claims Social Security, the first spouse automatically receives higher of:

– Reduced Personal Benefit – Adjusted Spousal Benefit

| 25312-04-0115

File and Suspend versus Restrict Application

Worker must be Full Retirement Age in order to suspend; applicant must be FRA in order to restrict application to spousal benefits only

Strategy Description

File and Suspend

Worker files application so that spouse can receive a spousal benefit; worker then suspends personal benefit; spouse receives spousal benefit, worker’s personal benefit continues to grow

Restrict Application

Restrict application to spousal benefits only; receive spousal benefits; personal benefits continue to grow (spouse must have filed for their personal benefits in order to receive a spousal benefit)

| 25312-04-0115

Agenda




| 25312-04-0115

Social Security may be Taxable at Federal LevelIncome Determines Whether or Not Social Security Benefits are Taxable

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

Sources: IRS Publication 915, Social Security Handbook question 2501, IRS Info 2009-0073 and www.ssa.gov.

Social Security

Benefits Not Taxable

Up to 50% of Social

Security Benefits Taxable

Up to 85% of Social

Security Benefits Taxable

Single< $25,000 in

income$25,000 - $34,000

$34,001 +

Married, Filing Jointly

< $32,000 in income

$32,000 - $44,000

$44,001 +

| 25312-04-0115

Calculating Taxable Portion of Social Security

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.

• See IRS Form 1040 to determine if Social Security benefits are taxable

| 25312-04-0115

50% of Social

Security Income

Combined Income

(Used to determine

taxable portion of Social Security benefits)

AGITax

Exempt Income*+ + =

What is Combined Income? Determines Taxable Portion of Social Security; Only 50% of Social Security Included

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 Publication 915, Social Security Handbook question 2501 and IRS Info 2009-0073 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.

| 25312-04-0115

Robert and Mary

66

$27,000

$28,000

$55,000

Case Study: Comparing Taxes Based on Social Security Income

John and Barbara

Claiming Age 62

Social Security Income

$20,000

Traditional IRA Withdrawal

$35,000

Total Income $55,000

Will their taxes be the same?

| 25312-04-0115

Increasing Social Security May Decrease Taxes Only 1/2 of Social Security included in Combined Income

This case study is a hypothetical illustration only. 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.

Taxes = $2,300

Social Security$20,000

Traditional IRA

$35,000

John and Barbara

Robert and Mary

Total Income Taxes

Assumes couple is married, filling jointly. Standard deduction of $12,600, exemptions of $8,000. Assumes Traditional IRA is entirely pre-tax. Additional age 65 deduction of $1,250 for married taxpayers was not applied in this situation to keep the comparison more accurate.

Traditional IRA

$28,000

Social Security$27,000 Taxes = $1,225

| 25312-04-0115

Items Excluded from Combined IncomeMaximizing Excluded Items may Minimize Taxes

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.

• Roth IRA Distributions• Qualified Charitable Deductions• Non-taxable Pensions

and Annuities• Child Support• Inheritance/Gifts• Life Insurance Proceeds• Qualified medical distributions

from HSA

| 25312-04-0115

Michael and Patricia

$20,000

$20,000

$15,000

$55,000

Case Study: After-Tax Income With and Without Roth

John and Barbara

Social Security Income

$20,000

Traditional IRA Withdrawal

$35,000

Roth IRA Withdrawal

0

Total Income $55,000

Will their taxes be the same?

| 25312-04-0115

Taxes = $2,300

Taxes = $0


Traditional IRA

$35,000

Traditional IRA

$20,000


Roth IRA $15,000

John and Barbara

Michael and Patricia

Total Income Taxes

Assumes couple is married, filling jointly. Standard deduction of $12,600, exemptions of $8,000. Assumes Traditional IRA is entirely pre-tax.

Strategically Using Roth IRA May Control Taxes during Retirement

This case study is a hypothetical illustration only. 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.

| 25312-04-0115

84% percent of couples age 60-66 expect Social Security advice from a

financial planner.*

61% of couples aged 60-66 would switch advisors if their current advisor could not help

them with Social Security.*

Social Security is a major source of income for most

households.**

Recap: Social Security is the Foundation of Many Clients’ Income During Retirement

*Social Security Timing and Market Tools: “Social Security Planning: The Emerging Cornerstone of Your Financial Practice?” August 2013. ** Social Security Administration. “Income of the Aged 2014.” www.ssa.gov.

Create strategies that maximize retirement

income and reduce taxes on Social Security

benefits.

Focus on the couple’s benefits, not the

individual’s.

Look beyond the numbers; small differences could have a large impact on the longevity of their

assets.

| 25312-04-0115

Neither Pioneer, nor its representatives are legal or tax advisors. In addition, Pioneer does not provide advice or recommendations. The investments a client chooses should

correspond to a client’s financial needs, goals, and risk tolerance. For assistance in determining a client’s financial situation, please consult an investment professional.

Securities offered through Pioneer Funds Distributor, Inc.

Underwriter of Pioneer mutual funds, Member SIPC

60 State StreetBoston, Massachusetts

us.pioneerinvestments.com2015 Pioneer Investments

| 25312-04-0115

Retirement Income Strategies: How Social Security Can Maximize a Client’s Lifestyle, Legacy and...

Documents

Transcript of Retirement Income Strategies: How Social Security Can Maximize a Client’s Lifestyle, Legacy and...