Knowing what you can do, So you can know what you should do.

1. Knowing what you can do, So you can know what you should do.

2. Instructor Introduction David Vick is the President of Vick & Associates located in Scottsdale, AZ. He is an author, speaker, & series 65 licensed Fiduciary Advisor. David & his wife Diane have one son and two grandkids. They enjoy travel, reading, sports of all kinds and the Arizona Cardinals!

3. Disclaimer Maximizing Social Security is an educational program, and is not intended to sell investment or insurance products, nor is it intended to provide tax or legal advice. Consult with your tax advisor and/or legal counsel for suitability for your specific situation. This presentation is not endorsed or approved by the Social Security Office or any other Government Agency. Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Projected rates do not reflect the actual or expected performance within any example or financial product.

4. Course Introduction • Participation and questions are good • Class is from 6:00pm to 8:30 + • One hour strategy session • Course materials: Maximizing Social Security Workbook • Fill out Workshop Goals sheet

6. 4 Social Security - By the Numbers • 1935 - August 14, President Franklin D. Roosevelt signed into law the Social Security Act. • 1937 – Taxes (Federal Insurance Contributions Act or FICA) were started to be collected for the Social Security Act. http://www.ssa.gov/history/hfaq.html

7. 4 Social Security - By the Numbers • 1940 - Regular monthly benefit payments began • 1956 – Disability benefits were added • 1972 – Cost of Living Adjustments (COLA) were written into the code and first paid in 1975 • 453.7 million – Social Security numbers issued since November 1936, with an add-rate of 5.5 million per year http://www.ssa.gov/history/hfaq.html https://en.wikipedia.org/wiki/Social_Security_number

8. 4 Social Security - By the Numbers • 222,488 – Number of Americans receiving Social Security benefits in 1940, less than 1% of the total population • 61 million – Number of those receiving Social Security Benefits in 2017, about 20% of the total population* • $22.71 – The average monthly benefit for a retired worker in 1940 • $1,461– The average monthly benefit for a retired worker in January 2019* *Source: SSA.gov

9. 4 Social Security - By the Numbers • 159 to 1 The ratio of workers paying into the system for every beneficiary in 1940 • 2.8 to 1 The ratio of workers paying into the system for every beneficiary in 2017 • 2.2 to 1 The ratio of workers estimated to be paying into the system for every beneficiary in 2035 • 2034 The year it is estimated that the Social Security Trust Fund will run out of money https://www.ssa.gov/history/ratios.html https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

10. 5 Yesterday & Today OASDI Old Age, Survivor, and Disability Insurance The OASDI provides retirement benefits when someone retires, or benefits to survivors when someone passes away who has paid into the OASDI fund, or benefits to someone who becomes disabled.

11. 5 Yesterday & Today • First monthly check to Ida May Fuller, January 1940, then 65, of Ludlow, Vermont for the amount of $22.54. • She received her first increase in benefits in 1950. • She passed away in 1975 at age 100.

12. Do You Remember This Family? • Ward earned credits while working and June stayed home with Wally and the Beaver.

13. How to Find Your Social Security Benefit Amount 

14. 6 Using Your Online Statement to Estimate Benefits • The “My Social Security” online account system will provide your personal Social Security Statement • Go to www.socialsecurity.gov/myaccount and click on Create an Account

15. Qualifying for Social Security Benefits

16. 7 Benefits Tied to Your Work Record • Qualifying based on “credits” earned • Maximum of four “credits” each year • One credit = $1,360 • $5,440 = 4 credits in 1 year • Earned income only • Need a minimum of 40 credits • 10 years of work

17. Calculating Your Retirement Benefits 

18. 8 What is Full Retirement Age or FRA? • FRA - Full Retirement Age or Normal Retirement Age - age eligible to receive full or unreduced benefits • Benefits as early as age 62 and as late as age 70 • Born after 1937, FRA later than age 65 • Born after 1937, greater reduction in benefits taken before Full Retirement Age https://www.socialsecurity.gov/planners/retire/agereduction.html

19. 8 FRA – Full Retirement Age • PIA: Primary Insurance Amount • Tally each year’s earning on which Social Security taxes were paid and apply an index factor to each year • Total your 35 highest indexed earnings years

20. 9 Maximum Taxable Earnings • Both self-employed income and regular wages that are covered by Social Security are subject to taxes each year up to a maximum amount. • (note increases!)

21. 10 Taking Benefits Before Full Retirement Age • You can start receiving benefits as early as age 62, but you will receive a reduced benefit. • This chart illustrates age 62 percentage reduction amounts by year of birth. “Retirement Planner: Benefits by Year of Birth”https://www.socialsecurity.gov/planners/retire/agereduction.html#chart

22. The Beaver’s Benefits • Beaver born in 1943 • His FRA is 66 • Let’s say his benefits at FRA is $2,500/Month • Age 62 benefits = $1,875/Month • Beav’s wife’s spousal benefit is $875/Month

23. 10-11 When Would I Break Even? • Male • Born 6/15/1955 • Income: $84,000 • PIA at 62: $1,539/mo • $18,468/yr • PIA at FRA: $2,467/mo • $29,604/yr • PIA at 70: $3,724/mo • $44,688/yr Surviving Spouse Considerations https://www.socialsecurity.gov/OACT/quickcalc/

24. Taking Benefits Before Full Retirement AgeA very common and a very expensive mistake !

25. Qualifying for Social Security Benefits Benefits for spouses

26. 12 Benefits for Spouses • A nonworking spouse will receive 50% of their spouse’s FRA benefit if they apply at FRA • At age 62, their benefit is reduced by as much as 30% depending on their FRA • Spousal benefits are gender neutral • Spousal benefits don’t earn delayed credits  

27. June’s Spousal Benefits(Assuming June worked outside the home) • Example: Ward is 66, retires and claims his benefits ($2,400/Month) • June, 62, decides to claim her benefits also • June’s own benefit at FRA is $1000/month • $750/month at 62 (25% reduction)

28. June’s Spousal Benefits(Assuming June actually worked outside the home) • Ward’s PIA $2,400 • 50% of Ward’s PIA $1,200 • June’s PIA $1,000 • Spousal Add-On $200 • June’s Spousal Add-on receives a 30% reduction and is $140 • June’s own PIA of $1,000 is reduced by 25% and is $750

29. June’s Spousal Benefits(Assuming June actually worked outside the home) • June’s Own Benefit $750 • June’s Spousal Benefit $140 • June’s total benefits$890

30. June’s Spousal Only Benefits(if she turned 62 by 1/1/16 and currently FRA) • If she waits until FRA, June can select her spousal benefits, and let her own benefits build delayed credits. Also, Ward would have to be receiving his benefits. • June’s Spousal Only Benefit = $1,200 (1/2 Wards PIA) • June’s own benefit = $1,000 • June elects the spousal only benefit (restricted application) and lets her $1,000 earn delayed credits. • June’s benefit at age 70 is at least $1,320

31. Qualifying for Social Security Benefits Benefits for divorced spouses

32. 13 Benefits for divorced spouses • Benefits are paid to a divorced spouse if he/she is: • Currently single • At least age 62 • Had been married at least 10 continuous years • Worker (ex-spouse) is receiving a retirement or disability benefit if divorced for 2 years or less • If divorced for greater than 2 years, the worker does not have to be receiving a SS benefit

33. 13 Divorced Spouse can maximize benefits(Restricted Application) • If the divorced spouse was born by January 1, 1954, he/she can file can only for a spousal benefit at Full Retirement Age, (Restricted Application), allowing own benefit to grow and earn Delayed Retirement Credits. This will result in: • Receiving the divorced spouse benefits from ages 66 to 70 • Letting her own benefit receive delayed credits until age 70

34. It could happen, right? Ward and June divorced after Beaver was caught shoplifting at Kmart. • She’s 62 & currently unmarried • June & Ward were married for 20 years • Ward is 66, but delaying benefits until age 70 What could June do?

35. Qualifying for Social Security Benefits Benefits for widows and widowers

36. 14 Benefits for widows and widowers • A spouse may switch to her husband’s higher benefit at his death or vice versa. • Survivor benefit will be based on the high earning husband’s benefits. • Including any delayed credits • The husband need not have already applied for the widow to receive the higher benefit.

37. 14 Benefits for widows and widowers • A widowed spouse may claim benefits as early as age 60, or 50 if they are disabled. • Normal reduction for receiving benefits early will apply.

38. 14 Benefits for widows and widowers • If a widow remarries before claiming at age 60, the survivor benefit is disallowed, unless that marriage ends. • If a widow was married at least ten years and their spouse dies, whether they were still married or divorced at the time of the death, they may be entitled to a survivor benefit.

39. Ward Passed Away, and June… • June remarried at age 55 to Ted, Ward’s golfing buddy. • She went in to claim benefits at age 60, based on Ward, but was disallowed because of her marriage to Ted! • So, June promptly divorced Ted and claimed her Survivor’s benefits and now lives on a golf course with the Beav, (who owns the course).

40. 14 Benefits for widows and widowers • Widows and widowers who qualify for benefits based on their own work credits may want to take advantage of delayed credits on their benefits until age 70 while receiving survivor benefits at age 60. • Earnings Test still applies prior to full retirement age.

41. ReceivingSocial Security Benefits Working While You Receive Benefits

42. 15 Working while you receive benefits • Until you reach full retirement month, working may reduce your benefit amount • Once you reach FRA your benefits are recalculated so you now receive additional • Only earned income counts

43. 15 Formula for Determining Benefits While Working Before FRA: • Deduct $1 of benefits for every $2 you earn above of $17,640 in 2019 In the year you reach FRA: • Deduct $1 in benefits for every $3 you earn above $46,920 in 2019 • only count earnings before the month you reach FRA • No limit on your earnings starting with the month you reach FRA Source: SSA.gov

44. Working while you receive benefits • Ward, 62, receives $1,200 in SS benefits and decides to work part time at the golf course earning $19,320/year. $19,320 - $17,640 $1,680 $ 840 Lost SS Benefit at age 62 • Ward would not receive a benefit for the first month and then in the second month begin benefits. Source: SSA.gov

45. Receiving Social Security Benefits COLAs and Taxation of Benefits

46. 16-17 How COLAs Affect Benefits  • Cost of Living Allowances - COLA • Designed to keep up with inflation • COLAs announced in October - affects benefits starting in January • COLA for 2018 is 2% • COLAs are tied to the CPI-W • For long term planning the Social Security Trustees use the inflation rate of 2.7% https://www.ssa.gov/news/press/factsheets/colafacts2018.pdf

47. 18 Taxation of Benefits • Provisional Income • Provisional Income is used to determine whether you will pay taxes on your Social Security benefits • How to Compute PI: Adjusted Gross Income + municipal interest income= Modified Adjusted Gross Income (MAGI) + half of SS Benefits= Provisional Income (PI)

48. 18 Taxation of Benefits

49. Windfall Elimination Provision & Government Pension Offset 

50. 19 Windfall Elimination Provision - WEP If you receive a pension from a non-Social Security covered job, your Social Security benefit may be reduced. The longer you work in the Social Security covered job, the reduction will be less. No WEP reduction if in a Social Security covered job for more than 30 years.