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

ralph-alvarez
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  1. Retirement Income Strategies: How Social SecurityCan Maximize a Client’s Lifestyle,Legacy and Livelihood Presenter Name Date 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.

  2. Social Security by the Numbers 61% of couples age 60-66 would switch advisors if their current advisor couldn’t help them with Social Security.* Social Security Retirement Benefits as a Source of Income Replacement for Husbands and Wives Utilizing the Spousal Benefit** • 84% percent of couples age 60-66 expect Social Security advice from a financial planner.* • Social Security is a major source of income for most households.** *Social Security Timing and Market Tools: Social Security Planning: The Emerging Cornerstone of Your Financial Practice?” August 2013. **Rose, Clarence C. Social Security Retirement Decision Making. Journal of Personal Finance. Volume 9, 2010.

  3. Agenda • How Benefits are Calculated • Maximizing Income for Married Couples • Maximizing After-Tax Income with Social Security

  4. How are Social Security Benefits Calculated? Eligibility 40 quarters of work Calculation Look at average of 35 highest earning years of work

  5. Full Retirement Age is Dependent on Year of Birth Source: Social Security Administration. “Social Security Retirement Benefits.” SSA Publication No. 05-10035. April 2013.

  6. What Happens if Clients Claim Social Security at …? 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.

  7. What Happens if a Client Stops Working before 62? Can they collect benefits before 62 since they are no longer working? Most likely no. Exceptions may apply for complete and permanent disability. Will they get the same benefits as if they had waited to retire at 62? Probably not. Benefits averaged over 35 years.

  8. Can Clients Work and Receive Social Security Benefits?Benefits May Be Reduced if Income Exceeds Certain Thresholds A client must still pay Medicare and Social Security taxes if they are working & receiving Social Security benefits. Source: Social Security Administration. “How Work Affects Your Benefits.” SSA Publication No. 05-10069. January 2013.

  9. Collecting Social Security before and after Full Retirement AgeReduction in Benefits is Permanent, Credit also Permanent *Assumes a client was born between 1943 and 1960. Source: Social Security Administration. “Retirement Planner: Full Retirement Age.” ssa.gov/pubs/retirechart.htm accessed November 20, 2013.

  10. Benefit per Month is Based on Beginning Age Assumes Monthly Benefit of $1,000 at Full Retirement Age of 66 Source: Social Security Administration. “When to Start Receiving Retirement Benefits.” SSA Publication No. 05-10147. August 2012.

  11. When a Client Claims Social Security Could Impact Their Lifestyle Where Could You Live in Retirement? Collect at 70 Collect at 66 Collect at 62 Mobile Home Newly Refurbished Home New Home with Wooded Yard Source: ashevillerent.com. Accessed December 17, 2013.

  12. Agenda • How Benefits are Calculated • Maximizing Income for Married Couples • Maximizing After-Tax Income with Social Security

  13. What about the Spouse? If both spouses worked, receive greater of personal Social Security benefit or Spousal/Survivor benefit. Source: Social Security Administration. “Do You Qualify for Benefits on Someone Else’s Social Security Record?” ssa.gov/retire2/applying6.htm. Accessed December 9, 2013.

  14. What if the Client is Divorced? 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 Eligible for Spousal/ Survivor Benefits if all thefollowing conditions are met: *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.

  15. Case Study: What if Only One Spouse Worked? Husband is Sole Provider for Family James and Linda 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 This case study is a hypothetical illustration only. Assumptions: Heis medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $2,050. Sheis the same age. Source: Social Security Administration. "Annual Statistical Supplement 2012.” Table 5.A1.1. December 2012.

  16. Cat Food or Caviar? Taking Social Security at 62 can Reduce Household Income by 40% Poverty Line (Married Couple) This case study is a hypothetical illustration only.Assumptions: Heis medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $2,050. Sheis the same age. She collects as soon as possible. When she is 62, receives 32% of his age 66 benefit. If she waits until she is 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 2013 was $15,510. (Source: Federal Register) Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2012.” Table 5.A1.1-Number and Average Monthly Benefit for Retired Workers by Age, December 2012.

  17. Cat Food or Caviar? Taking Social Security at 62 can Reduce Survivor Benefit by Nearly 50% Poverty Line (Married Couple) Poverty Line (Single) This case study is a hypothetical illustration only. Assumptions: Heis medium earner. Monthly benefits at: 62- $1,125, 66- $1,500, 70- $2,050. Sheis the same age. She collects as soon as possible. When she is 62, receives 32% of his age 66 benefit, If she waits until she is 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 have reached full retirement age. This is allows her to receive 100% of his benefit. Poverty line for a single person in 2013 was $11,490. Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2012.” Table 5.A1.1-Number and Average Monthly Benefit for Retired Workers by Age. December 2012.

  18. 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 accrue delayed retirement credits

  19. File and Suspend: Available When Worker is Age 66 (But Not Before) 70 At 70 • James • Claims Social Security • Receives 132% of original FRA amount 69 68 67 Accrues 8% credit per year of waiting 66 • James is FRA • Files for Social Security benefits • Immediately suspends FRA Spousal benefits do not accrue delayed benefits Because James filed,Linda can apply forspousal 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.  

  20. David and Susan 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 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- $2,050. She has monthly benefits equivalent to the average female worker. Monthly benefits at: 64= $970, 66- $1,120, 70- $1,475 Source: Social Security Administration. "Annual Statistical Supplement to the Social Security Bulletin, 2012." Table 5.A1.1-Number and Average Monthly Benefit for Retired Workers by Age. December 2012.

  21. Conventional Wisdom: Wait until 70 to Maximize Social Security Annual Social Security Benefits Based Only on Earnings Household Social Security: $42,000 Household Social Security: $31,500 Household Social Security: $29,500 This case study is a hypothetical illustration only. All assumptions assume that he stops working at 66, and she stops working at either 64 or 66. 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 can not 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 $13,000, which is greater than spousal benefit of $9,000 (0.5*$18,000=$9,000). Both claim at 70: He first claims Social Security at 70 and earns delayed retirement credit for waiting. When she reaches 70, she claims Social Security on her earnings history. Source: Social Security Administration. "Annual Statistical Supplement, 2012.” Table 5.A1.1.

  22. Social Security Timing and a Client’s Legacy For each strategy, David and Susan want to know: Lifetime Social Security income Amount in her IRA at death Assumptions: He starts off with $197,00 in his Traditional and Roth IRA and she has $103,000 in her Traditional and Roth IRA (c.f. EBRI Issue Brief May,2013); Assume both pass away at life expectancy of a 66 year old per SSA (82 for him, 85 for her).

  23. 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. In the last two scenarios, it is assumed that she stops working at age 66 and they withdraw from IRA .He starts off with $197,000 in his Traditional and Roth IRA and she has $103,000 in her Traditional and Roth IRA (c.f. EBRI Issue Brief May 2013); they want $53,500 in annual income (c.f . Consumer Expenditure Survey,. U.S. Bureau of Labor Statistics. September, 2013). Assume both pass away at life expectancy of a 66 year old per SSA (82 for him, 85 for her). 1) Both claim at his FRA: Immediately start withdrawing from personal assets: $24,500 annually while both alive, $35,500 annually after his death. 2) Both claim at their FRA: They live off her earnings + his Social Security until she retires; withdraw $22,000 while both alive, $35,500 after his death. 3) Both claim at 70: He retires at FRA; they live off her earnings until she reaches FRA; from her FRA until 70 they live off of assets; when he is 70, he collects Social Security. She starts her Social Security at 70; withdraw $53,500 until they start SS, withdraw $11,500 during both lives; $29,000 after his death.

  24. David and Susan heard that they might be able to change between spousal benefits and their personal benefit. They are wondering: How it works If there are restrictions What will be their household Social Security benefits if they incorporate spousal benefits Are There Other Options if Both Spouses Worked? Advanced Claiming Strategies with Spousal Benefits

  25. Strategy: Higher earner delays Social Security until 70 Maximizes his benefit Maximizes survivor benefit Still collect a small Social Security benefit while waiting for high earner to turn 70 How it works: One spouse starts with spousal benefit at FRA and then switches to personal Other spouse either A) claims at FRA or later B) files and suspends Ideal Couple: Spouses within 3 years of age Restrictions: Must be FRA to restrict application to spousal benefit only Must be FRA to choose between spousal and personal benefit Only one spouse at a time can have a spousal benefit Advanced Spousal Claiming Strategies: Both Worked, Wait until FRA, Start with Spousal, Change to Personal Benefit (if Higher)

  26. After he passes away,she receives his benefit David turns 70:He claims full retirement benefit + credit David passes away David turns 70 Super File & Suspend: David files and Suspends; Susan Collects Spousal; at 70 Both Claim Social Security + Credit His Social Security Benefit Her Social Security Benefit $45,000 $40,000 She turns 70: Changes over to herfull Social Security benefit + credit $35,000 She continues with spousal benefit $30,000 Both are FRA $25,000 Household Social Security Income $20,000 $15,000 $10,000 • He files and suspends • This allows her to collect spousal benefits • He continues to receive delayed credits on his benefits $5,000 $0 Susan turns 70 This case study is a hypothetical illustration only. Assumptions: When Both are FRA: He files for and suspends his benefits. This allows her to claim spousal benefits. Plus, he receives delayed retirement credit. She receives spousal benefits based on his record. Because she is FRA, the spousal is 0.5* his benefit at 66= 0.5*$18,000 = $9,000 When He turns 70, he claims his Social Security benefit plus the delayed retirement credits. She continues with the spousal benefit in order to maximize the Social Security benefit based on her earnings. Total household Social Security income is $33,500 ($24,500 for him plus her $9,000 spousal). When She turns 70, she switches to her Social Security benefit plus the credit. Total household Social Security income is $42,000 ($24,500 for him plus $17,500 for her).

  27. She continues to receive her full Social Security benefit After he passes away,she receives his benefit He turns 70: Changes over to his full Social Security benefit + credit David passes away David turns 70 Change-up: Susan Claims Social Security; David Starts with Spousal Benefit then Changes Over to His Benefit Plus Credits at 70 His Social Security Benefit Her Social Security Benefit $40,000 $35,000 $30,000 Both are FRA $25,000 Household Social Security Income $20,000 Her full Social Security Benefit $15,000 $10,000 $5,000 His spousal benefit $0 This case study is a hypothetical illustration only. Assumptions: No Cost of Living Adjustments (to keep the concept understandable). When Both are Full Retirement Age (FRA): She files for Social Security and collects her full benefit of $13,500. He receives his spousal benefit. Because he is FRA, the spousal is 0.5x her Social Security benefit = 0.5*$13,500= $6,750. Total Household Social Security Income = $20,250. When he turns 70, he switches to his Social Security plus the delayed retirement credits ($24,500). Total Household Social Security amount is $38,000. When she turns 70, she continues with her benefit. She did not receive delayed retirement credit because she claimed her personal benefit at FRA.

  28. Lifetime Social Security and Legacy:Advanced Spousal StrategiesMay Increase Lifetime Social Security Income and Legacy • This case study is a hypothetical illustration only. Assumptions: He starts off with $235,00 in his Traditional and Roth IRA and she has $130,000 in her Traditional and Roth IRA (c.f. EBRI Issue Brief September, 2010); Assume both pass away at life expectancy of a 62 year old per SSA (83 for him, 86 for her). • Both claim at 70: Both work until their respective age of 70 and then retire. • Change-up: He retires at 66; they live off of her earnings until his age 68 (her age 66) . When She is 66, she retires and claims Social Security on her benefits ($11,000). He files for spousal benefits ($5,500) and switches to his benefit at 70. They withdraw from their IRAs to make up the difference in income • 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. They receive her spousal and supplement with withdrawals from IRA. When each is 70, they claim their own benefits.

  29. Collecting Social Security before FRA – Both Spouses Worked Can a client pick and choose between spousal or personal benefit before FRA? No. Choosing between personal benefit and spousal benefit is only available if both are 66(Full Retirement Age) What if both spouses claim before FRA? • Both receive higher of: • Reduced personal benefit • Reduced spousal benefit What if one spouse claims before FRA? • 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 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.

  30. Agenda • How Benefits are Calculated • Maximizing Income for Married Couples • Maximizing After-Tax Income with Social Security

  31. 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.

  32. Calculating Taxable Portion of Social Security • See IRS Form 1040 to determine if Social Security benefits are taxable 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.

  33. What is Provisional Income? Determines Taxable Portion of Social Security; Only 50% of Social Security Included Provisional Income (Used to determine taxable portion of Social Security benefits) + + = 50% of Social Security Income Tax Exempt Income* AGI 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.

  34. Case Study: Comparing Taxes Based on Social Security Income John and Barbara Robert and Mary Will their taxes be the same?

  35. Increasing Social Security May Decrease Taxes Only 1/2 of Social Security included in Provisional Income Total Income Taxes John and Barbara Social Security $20,000 Traditional IRA $35,000 Taxes = $2,400 Robert and Mary Traditional IRA $28,000 Social Security $27,000 Taxes = $1,275 Assumes couple is married, filling jointly. Standard deduction of $12,200, exemptions of $7,800. Assumes Traditional IRA is entirely pre-tax. 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.

  36. Items Excluded from Provisional Income Maximizing Excluded Items May Minimize Taxes • Roth IRA Distributions • Qualified Charitable Deductions • Non-taxable Pensionsand 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 a client’s individual circumstance.

  37. Michael and Patricia Case Study: After-Tax Income With and Without Roth John and Barbara Will their taxes be the same?

  38. Strategically Using Roth IRA May Control Taxes During Retirement Total Income Taxes John and Barbara Social Security $20,000 Traditional IRA $35,000 Taxes = $2,400 Michael and Patricia Social Security $20,000 Traditional IRA $20,000 Taxes = $0 Roth IRA $15,000 Assumes couple is married, filling jointly. Standard deduction of $12,200, exemptions of $7,800. Assumes Traditional IRA is entirely pre-tax. 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.

  39. Recap: Social Security is the Foundation of Many Clients’ Income During Retirement 61% of couples aged 60-66 would switch advisors if their current advisor could not help them with Social Security.* 84% percent of couples age 60-66 expect Social Security advice from a financial planner.* Create strategies that maximize retirement income and reduce taxes on Social Security benefits. Focus on the couple’s benefits, not the individual benefits. Look beyond the numbers; small differences could have a large impact on the longevity of their assets. • Social Security is a major • source of income for most households.** * Social Security Timing and Market Tools: “Social Security Planning: The Emerging Cornerstone of Your Financial Practice?” August 2013. ** Rose, Clarence C. “Social Security Retirement Decision Making,.”Journal of Personal Finance. Volume 9: 2010.

  40. 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, Massachusettsus.pioneerinvestments.com2014 Pioneer Investments

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