Social Security Primer

1. Social Security Primer Matthew Schwerin CAPS Financial Group Office (630) 474-9088 Cell (630) 247-0033 mschwerin@nsinvest.com

2. Retirement Plan Review • Two kinds of retirement plans: 1) pensions (defined benefit), and 2) 401K type (defined contribution) • Pension income is a promise to pay, usually a monthly amount at a certain period, for as long as you live • Defined contribution plans is where you save money in an account with your name on it; you accumulate a balance and make the investment decisions • SS is obviously a pension plan - type benefit • With the demise of most pension plans, SS become that much more important (can’t outlive it!)

3. Some Facts • Social security never meant to be sole source of retirement income for people • The more income you make, the less of a % of your income social security will provide • Life expectancy for 65 year old today: 82 for men, 85 for women • Currently there is a surplus of taxes being paid in to benefits taken out

4. Basics • You don’t have to “sign up”; mandatory! • Contributions through FICA taxes or self employment taxes • FICA taxes up to max of $117K of earnings • Current payments to retirees come from current workers’ FICA taxes • SS has a cost of living adjustment (COLA) • 2014 COLA was 1.5% • Medicare premiums deducted from SS check

5. Eligibility • Need to work in a SS covered job for 10 yrs & earn the minimum $ amt to earn 4 credits per year; need 40 total credits to qualify • Benefits are calculated on your highest 35 years of earnings (indexed for inflation) • You should apply about 3 months before you want benefits to begin

6. Benefits • Earnings and some complicated rules determine your PIA (primary ins. amount) • PIA is, at age 62, what your benefit will be at full retirement age (FRA) • PIA will be adjusted for: • When benefits are claimed • Annual COLA’s • Additional years of earnings • Key objective of SS planning is to maximize your own benefits

7. Benefits • If you take SS at age 62, you would collect 75% of your PIA at full retirement age • If you wait until 70, you can collect 132% of your PIA; each year you wait, benefit goes up 8% • See handout on age eligibility • See breakeven analysis handout

8. Spousal Benefits • Analysis of married couple benefits is more complicated than straight breakeven analysis • Several strategies for spouses with many different permutations • Example – file and suspend, spouse takes spousal benefit then takes own benefit • I want higher earning spouse to wait until 70, it then becomes longevity insurance using survivor benefit rules

9. Survivor Benefits • Upon your death, your spouse is entitled to receive a survivor benefit • The longer the worker waits, the higher the benefit amount the larger the survivor benefit will be • Survivor benefits can be paid as early as age 60 or 50 if the person is disabled • Unmarried children under 18 can receive survivor benefits • Sit down with SS rep to go over your options

10. Many other topics on SS • Divorced benefits • Working while receiving benefits • Taxability of SS benefits • Will SS be around when I retire? • Should I count on SS in my retirement planning? • How do we fix SS?

11. CAPS Provides Three Services • Investment Management • Financial Planning • Retirement Plan Management (401K’s) • All provided on a 100% fee-only basis