Understanding Social Security & Medicare - Benefits · 2018-08-06 · Understanding Social Security...

Understanding

Social Security & Medicare

Alight Financial Advisors LLCAlight Financial Solutions LLC, a broker/dealer, member FINRA/SIPC

Alight Financial Advisors LLC (AFA) is a federally registered investment advisor and wholly

owned subsidiary of Alight Solutions LLC

Proprietary & Confidential 2

This information is provided by Alight Financial Advisors LLC (AFA) for general

informational purposes only and should not be considered an individualized

recommendation or personalized advice. The strategies mentioned may not be

suitable for everyone. Each investor needs to pursue a particular investment

strategy based on his or her own particular situation.

Data contained herein is obtained from what are considered reliable sources;

however, its accuracy, completeness, or reliability cannot be guaranteed.

The content of this presentation is for informational purposes only. This

information does not constitute investment advice or an offer to invest or to

provide management services.

The information in this document does not constitute tax advice. Please see

your tax advisor to determine how this information may apply to your own

situation.

Disclaimer


Discover the history of the Social Security and Medicare programs

Grasp the basics of the retirement benefit, the spousal benefit, and

the survivors benefit

Understand how the benefit calculation is made

Learn about Full Retirement Age and the impact to taking the benefit

early vs. taking the benefit late

Explore other considerations like taxation of benefits

Learn the four basic parts to Medicare

Learning Objectives

Proprietary & Confidential

Overview

4


Social Security

established

under FDR

Survivor’s

benefits added

COLA’s

enacted by

Congress

Disability

benefits added

Medicare

established

1935 1940 196519561950

Source: https://www.ssa.gov/history/briefhistory3.html

Origins of Social Security

https://www.ssa.gov/history/briefhistory3.html


• 40 Credits to be considered fully insured

• 1 credit for every $1,320 earned income

• Maximum 4 credits per year

Eligibility

.

Paying Into the Program

• Receiving payments early will reduce benefit

• Receiving payments later will increase benefit

• May be adjusted annually for COLA

Benefit Payment

The Retirement Benefit

• Employee pays 6.2%

• Employer pays 6.2%

• Wage cap at $128,400

• Known as OASDI tax


Spouse

Survivor

• Deceased worker must have been

fully insured

• 100% benefit if Full Retirement Age

• Could be reduced taken early

• Must be age 60 or older1

1May be eligible for a survivor benefit starting at age 50 if disabled, or

any age if taking care of a dependent under 16 or disabled

• 50% of working spouses benefit

• Must be married at least 12 months

• Divorced spouse if married at least 10

years and not remarried

• Reduction in benefit if not Full

Retirement Age

Spouse and Survivor Benefit


Receiving the Benefit

8


PIAPrimary Insurance Amount

Amount the Social Security benefit

is based on. If receiving the

benefit at Full Retirement Age, the

benefit is 100% of the PIA

AIMEAvg. Indexed Monthly Earnings

Average monthly earnings for the

highest 35 years, indexed to

inflation

Use highest 35 years of earnings

Index earnings to inflation to get AIME

Three tiered formula to calculate PIA

90% on first $895

32% over $895 but below $5,397

15% over $5,397XPrimary Insurance Amount

How the Benefit is Calculated


Arthur is getting ready to retire. His Average Indexed Monthly Earnings

is calculated to be $5,800, and he wants to know what his PIA will be

$805.50

$1,440.64

$60.45

90% of first $895

32% over $895 but

below $5,397

15% over $5,397+

$2,306.59 Primary Insurance Amount

How the Benefit is Calculated: Example


Birth Year Age of Full Benefits

1943 – 1954 66

1955 66 and 2 months





1960 and later 67

Full Retirement age is the age at which you receive 100% of the benefit

Full Retirement Age


Birth Year Benefit Reduction

1943 – 1954 25%

1955 25.83%

1956 26.67%

1957 27.50%

1958 28.33%

1959 29.17%

1960 and later 30%

Benefit reduction if taken at age 62

Benefit is reduced by 5/9% for each month taken early up to 36 months. Any additional

months beyond 36 months, the benefit is reduced by 5/12%, or about 6% per year

Receiving Benefits Early


Benefit increase if delayed until age 70

Benefit is increased by 2/3% for each month the benefit is delayed,

or about 8% per year

Receiving Benefits Late

Birth Year Benefit Increase

1943 – 1954 32%

1955 30.7%

1956 29.3%

1957 28%

1958 26.7%

1959 25.3%

1960 and later 24%


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

62 63 64 65 66 67 68 69 70

$750$800

$933$866$1,000

$1,080

$1,160$1,240

$1,320

Assumes a PIA of $1,000 and a full retirement age of 66

Reduction of about 6% per year1 Increase of about 8% per year1

Mo

nth

ly b

en

efi

t am

ou

nt

Age to start receiving benefits

1Actual reduction is 5/9% for each month taken early up to 36 months, 5/12% for each month beyond 36 months

Actual increase is about 2/3% for each month taken late. Visit www.ssa.gov to learn more.

Full

Retire

ment A

ge

Comparison Chart

http://www.ssa.gov/


Do you have a current need for income?

Are you currently working?

Would you prefer higher payments?

Do you have concerns over the health of the program?

How would the benefit affect your taxes?

Do you believe you’ll have an average life expectancy?

Deciding When to Take the Benefit


Other Considerations

16


Benefit reduced $1

for every $2 earned

over $17,040

Benefit reduced $1

for every $3 earned

over $45,360

No reduction in

benefits when Full

Retirement Age

Before Year of FRA Year of FRA FRA and After

If some of your benefits are withheld because of your

earnings, your monthly benefit will increase starting at

your full retirement age1

1https://www.ssa.gov/pubs/EN-05-10069.pdf

How Work Affects the Benefit

https://www.ssa.gov/pubs/EN-05-10069.pdf


James is 62 and works part-time at a golf shop earning

$25,000 for the year. He also decides to claim his Social

Security benefit which is calculated to be $14,400 annually

1. $25,000 - $17,040 = $7,960

2. $7,960 / 2 = $3,980

3. $14,400 - $3,980 = $10,420

Total earnings over

the limit

Benefit will be reduced

by this amount

Adjusted annual

benefit1

1The $3,980 would be withheld up front. For example, James’ monthly payment was $1,200. As a

result of the reduction, James would receive $0 for his first three payments, and then $820 for his

fourth payment. Beginning with his fifth payment, he would start receiving $1,200 per month.

How Work Affects the Benefit


Combined

Income=Adjusted

Gross

Income+

Non-

taxable

interest+

50% of

Social

Security

benefit

Single Filers Joint Filers

Up to 50% taxable $25,000 - $34,000 $32,000 - $44,000

Up to 85% taxable Over $34,000 Over $44,000

Taxation of Benefits


$27,000=$20,000 + $1,000 + $6,000

AGI Non-Taxable

Interest50% of SS

BenefitTotal Combined

Income

Since Eileen is single and her combined income is between

$25,000 and $34,000, up to 50% of her Social Security benefit

would be taxable

Eileen is single and has an AGI of $20,000. She also has

$1,000 in non-taxable interest, and a Social Security benefit

of $12,000 per year

Taxation of Benefits: Example


Get Started

21


Create an Online Account


$1,600.00

$72,500.00XXX – XX – 1111

January 1st, 1962

Joh

n

[email protected]

mySocial Security Home Page


Apply for Benefits Online


What You’ll Need


Medicare

28


A

B

C

D

• Funded by 2.9% Medicare Tax1

• Compulsory

• Supplemental insurance

• Funded by premiums and Government subsidies

• Premiums will start at $134/month2

• Voluntary enrollment

• Provided through private insurers

• Funded by premiums and Government subsidies

• Must be enrolled in Part A and Part B

• Provided through private insurers

• May cover additional services

PART

PART

PART

PART

Medical Insurance

Hospital Insurance

Medicare Advantage

Prescription Drugs

1Medicare and OASDI tax is split between the employer and employee 50/502Most retirees will pay $109/month for part B. However, for retirees new to Medicare in 2017, the premium starts at $134

Medicare Overview


Part A: Hospital Insurance

• $1,340 deductible for each benefit period1

• Days 1-60: $0

• Days 61-90: $335 per day coinsurance

• Days 91+: $670 per “lifetime reserve day”2

Part B: Medical Insurance

• $134 monthly premium3

• $183 deductible per year

• After deductible is met, 20% of Medicare

approved amount for most doctor services

Premiums, deductibles and coinsurance for

Medicare Part C and Part D will vary by plan

1 This is not an annual deductible, but a reoccurring deductible that resets once you have been out of the hospital for 60 days2 Medicare grants you 60 “lifetime reserve” days. Once these are exhausted, you are 100% responsible for costs beyond the 90 day mark3 Starting premium, subject to income. Some individuals may pay a different amount based on their income. Late enrollment may cause the

monthly premium to increase 10%

Deductibles and Coinsurance


COVERAGE GAP

100% deductible$0 - $405

25% coinsuranceCoverage level ends once you and

the plan have spent $3,7501

35% coinsurance on name brands2

44% coinsurance on generics

• Catastrophic coverage begins once you have

spent $5,000 out of pocket for the year

• 35% coinsurance and 50% manufacturer

discount count towards out-of-pocket expense

• Only the 44% coinsurance on generic brand

drugs count towards the out of pocket expense

1Included $405 deductible2Part D provides a plan benefit of 15% on a name brand drugs. Separately, there is a 50% manufacturers discount

on brand drugs. The net result is a 35% retiree paid coinsurance on brand drugs.

Source: The Centers for Medicare and Medicaid Services

The “Doughnut Hole” Coverage Gap


Mary is retired and has a heart condition requiring a

prescription for a generic drug that costs $500 per month,

or $6,000 annually

Mary pays the first

$405 and meets her

deductible

Mary and the plan spend the next

$3,345. Her coinsurance is $836.25

and she is now in the coverage gap

Mary and the plan spend the

remaining $2,250, leaving Mary with a

$990 coinsurance expense

Mary’s total out-of-pocket expense for the year is $2,231.25

The Coverage Gap Example


Check with your employer to see if there are any

enrollment rules regarding your plan

Enroll in Medicare three months before your 65th birthday,

even if you don’t intend on claiming SS right away

Failure to do so may result in a late enrollment penalty

Part B penalty is 10% increase in premiums

Part D penalty is 1% multiplied by the “national base

beneficiary” premium ($35.02 in 2018) for each uncovered

month

Source: www.medicare.gov

Remember

http://www.medicare.gov/


Overview• Origins of Social Security, Medicare,

and other benefits

• The retirement benefit

• Spousal and survivor benefits

Receiving the Benefit• How the benefit is calculated

• Primary insurance amount and

average indexed monthly earnings

• Taking the benefit early

• Taking the benefit late

• Deciding when to take the benefit

Other Considerations• How work affects the benefit

• Taxation of Social Security

Get Started• Creating a “my Social Security” account

• Applying for benefits online

• Documents you’ll need to apply for benefits

Medicare• Overview of Parts A,B,C & D

• Deductibles and coinsurance

• The “Doughnut hole” coverage gap

Course Summary


For More Information

35

LLNL Benefits Office

X 2-9955

Building 543, Room 1216

https://benefits.llnl.gov

https://benefits.llnl.gov/


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Understanding Social Security & Medicare - Benefits · 2018-08-06 · Understanding Social Security...

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