everything you want to know about social security...surviving spouse & social security x....

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CLAconnect.com/privateclient

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Everything You Want to Know About Social Security CliftonLarsonAllen Wealth Advisors, LLC

James P. Clemensen, CFP®

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Table Of Contents

I. Social Security Finances

II. Social Security Benefits

III. When To Take Social Security Benefits

IV. Spousal Benefits

V. File & Suspend

VI. Claim Now, Claim More Later

VII. Combination File & Suspend and Claim Now, Claim More Later

VIII. Divorce & Social Security

IX. Surviving Spouse & Social Security

X. Benefits For Children

XI. WEP & GPO

XII. Medicare Income-Related Monthly Adjustment Amount (IRMAA)

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Social Security Finances

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Long-Term Trust Fund Projections

Source: 2013 OASDI Trustees Report

0%

5%

10%

15%

20%

25%

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar Year

Payable benefits as percent

of scheduled benefits:

Current 100%

2033 77%

2087 72%

Cost: Scheduled and

payable benefits

Cost: Scheduled but not

fully payable benefits

Expenditure: Payable benefits

after trust fund exhaustion

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Social Security Benefits

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Full Retirement Age (FRA) Primary Insurance Amount (PIA) Average Indexed Monthly Earnings (AIME) Procedure Operations Manual System (POMS)

Retirement Benefit Spousal Benefit Survivor Benefit Application Suspend Restrict

Keywords

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Example of Benefit Formula

PIA formula:

– $826 x .90 = $743

– $4,154 x .32 = $1,329 ($4,980 - $826 = $4,154)

– $4,086 x .15 = $613 ($9,066 - $4,980 = $4,086)

$2,685

PIA = $2,685

(Amount worker will receive at full retirement age)

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When To Take Social Security Benefits

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Life expectancy (longevity risk)

Survivor needs (value of second to die benefit)

Need for income (liquidity risk)

Inflation protection

Investment risk/return

Public policy risk

Factors To Consider

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Life Expectancy

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Age Benefits

Are Claimed % of PIA

Benefit without

COLAs ($/mo)

Benefit with 2%

COLAs ($/mo)

62 75.0 2,014 2,014

63 80.0 2,148 2,191

64 86.7 2,328 2,422

65 93.3 2,505 2,658

66 100.0 2,685 2,906

67 108.0 2,900 3,302

68 116.0 3,115 3,508

69 124.0 3,329 3,824

70 132.0 3,544 4,152

Assumes PIA = $2,685

Delaying Benefits

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Year of Birth Full Retirement Age (FRA)

1924-37 65

1938 65 & 2mo

1939 65 & 4mo

1940 65 & 6mo

1941 65 & 8mo

1942 65 &10mo

1943-54 66

1955 66 & 2mo

1956 66 & 4mo

1957 66 & 6mo

1958 66 & 8mo

1959 66 &10mo

1960- 67

Full Retirement Age

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Delaying Benefits

Age of Application FRA = 66 FRA = 67

62 75.0% 70.0%

63 80.0% 75.0%

64 86.7% 80.0%

65 93.3% 86.7%

66 100.0% 93.3%

67 108.0% 100.0%

68 116.0% 108.0%

69 124.0% 116.0%

70 132.0% 124.0%

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Breakeven Analysis

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Spousal Benefits

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Spousal Benefits

A spouse may receive their own benefit, or 50% of their spouse’s benefit

Spousal benefits rules: • Primary worker must have applied for benefits (but can suspend to

build delayed credits if over FRA) • Spousal benefit is based on worker’s PIA, not his actual benefit • Spouse must be at least 62 for reduced benefit or 66 for full benefit • No delayed credits on spousal benefits after 66 • Marriage requirement is one year

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Age FRA = 66 FRA = 67

62 35.0% 32.5%

63 37.5% 35.0%

64 41.7% 37.5%

65 45.8% 41.7%

66 50.0% 45.8%

67 50.0% 50.0%

68 50.0% 50.0%

69 50.0% 50.0%

70 50.0% 50.0%

Spousal Benefits

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Social Security Spousal Strategies

• File & Suspend

– Use when wife wants to claim spousal benefit while

husband delays his benefit (or vice versa)

• Claim Now, Claim More Later

– Use when husband wants to claim spousal benefit off

wife’s record (or vice versa)

• Combination File & Suspend and Claim Now,

Claim More Later

– Use for two high-earning spouses

– One Files & Suspends, the other files a restricted

application for the spousal benefit

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File & Suspend

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Immediate Benefit Scenario

Chandler & Monica

Age 62.00 and 62.00

Chandler’s PIA = $2,685 Monica’s PIA = $800

• Chandler and Monica immediately file for benefits of $2,014 and $981

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Delayed Benefit Scenario

Chandler & Monica

Age 62.00 and 62.00


• Chandler claims his $4,152 maximum benefit at 70

• Monica claims her $1,573 spousal benefit off Chandler’s record at her age 70

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Optimal Delayed Scenario

Chandler & Monica

Age 62.00 and 62.00


• Chandler Files & Suspends at 66

• Monica claims her $1,453 spousal benefit off Chandler’s record at 66


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Cumulative Benefits

Age Immediate Benefits Delayed Benefits Optimal Benefits

65 $127,679 $0 $0

70 $337,400 $67,606 $138,334

78 $719,290 $659,474 $730,214

80 $824,597 $822,681 $893,425

90 $1,418,487 $1,743,113 $1,813,876

100 $2,142,436 $2,865,115 $2,935,901

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Optimal Combination Scenario

Chandler & Monica

Age 62.00 and 62.00


• Monica claims her $600 retirement benefit at 62


• Monica claims her $1,185 spousal benefit off Chandler’s record at 66


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Claim Now, Claim More Later

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Sam & Diane

Age 62.00 and 62.00

Sam’s PIA = $2,685 Diane’s PIA = $1,000

• Sam and Diane immediately file for their own retirement benefits of $2,014 and $981

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Sam & Diane

Age 62.00 and 62.00


• Sam claims his $4,152 maximum benefit at 70

• Diane claims her $1,573 maximum benefit at 70

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Sam & Diane

Age 62.00 and 62.00


• Diane files for her own $1,082 benefit at 66

• Sam files for his $541 spousal benefit at 66

• At age 70, Sam claims his $4,152 full benefit and Diane switches to her higher spousal benefit of $1,573

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Cumulative Benefits


65 $146,226 $0 $0

70 $346,075 $67,592 $147,911

78 $709,988 $659,337 $739,778

80 $810,337 $822,510 $902,986

90 $1,376,271 $1,742,751 $1,823,418

100 $2,066,141 $2,864,519 $2,945,419

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Sam & Diane

Age 62.00 and 62.00


• Diane claims her $750 retirement benefit at 62

• Sam files for his $541 spousal benefit at 66

• At age 70, Sam claims his $4,152 full benefit and Diane switches to her higher spousal benefit of $1,280

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Combination File & Suspend and Claim

Now, Claim More Later

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Chandler & Monica

Age 62.00 and 62.00

Chandler’s PIA = $2,685 Monica’s PIA = $2,400

• Chandler and Monica immediately file for their own retirement benefits of $2,014 and $1,800

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Chandler & Monica

Age 62.00 and 62.00



• Monica claims her $3,712 maximum benefit at 70

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Chandler & Monica

Age 62.00 and 62.00



• Monica claims her $1,453 spousal benefit off Chandler ’s record at 66


• Monica switches to her $3,712 maximum benefit at 70

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Cumulative Benefits


65 $187,030 $0 $0

70 $442,646 $93,575 $164,296

77 $845,813 $803,151 $873,872

80 $1,036,459 $1,138,686 $1,209,408

90 $1,760,314 $2,412,671 $2,483,393

100 $2,642,689 $3,965,652 $4,036,374

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Chandler & Monica

Age 62.00 and 62.00


• Monica immediately files for her own retirement benefits of $1,800

• Chandler claims his $1,299 spousal benefit off Monica ’s record at 66


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Spousal Benefit Option Decision Table

Lower Benefit as %

of Higher Benefit Spousal Benefit Option

0.0% - 33.0% File & Suspend

33.0% - 37.9% Claim Now, Claim More Later

37.9% - 100.0% Claim Now, Claim More Later, OR…

Combination File & Suspend and Claim Now, Claim More Later

37.9% - 42.0%

70.0% - 100.0% Claim Now, Claim More Later (Ranges of relative attractiveness)

42.0% - 70.0% Combination File & Suspend and Claim Now, Claim More Later

(Range of relative attractiveness)

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Divorce & Social Security

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Divorced Spouse Benefits

• Marriage must have lasted 10 years or more • Person receiving divorced-spouse benefit is currently

unmarried • Ex-spouse is at least 62 • If divorce occurred more than 2 years ago, ex-spouse

does not need to have filed for his own benefit • More than one ex-spouse can receive benefits on the

same worker's record • Benefits paid to one ex-spouse do not affect those paid

to the worker, the current spouse, or other ex-spouses • The worker will not be notified that the ex-spouse has

applied for benefits

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Survivor Benefits Key Points

• Individual Social Security benefits stop at death

• The surviving spouse is entitled to a survivor benefit equal to the deceased spouse’s benefit

– If Sam dies, Diane’s “original” survivor benefit will equal Sam’s benefit at the time of his death

– Diane will receive the full survivor benefit if she claims it at her full retirement age or later

– Diane’s own benefit will stop

• If Diane’s own retirement benefit is higher, she will keep her own benefit

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Survivor Benefits

Apply at age If FRA = 66

60 71.50%

61 76.25%

62 81.00%

63 85.75%

64 90.50%

65 95.25%

66 100.00%

67 100.00%

68 100.00%

69 100.00%

70 100.00%

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Sam & Diane

Age 60.00 and 60.00


• Sam dies

• Diane immediately claims survivor benefits at 60, receives reduced benefits of $1,920

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Sam & Diane

Age 60.00 and 60.00


• Sam dies

• Diane claims survivor benefits at 66, receives benefits of $3,024

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Optimal Scenario

Sam & Diane

Age 60.00 and 60.00


• Sam dies

• Diane claims retirement benefits at 62, receives reduced benefits of $780

• Diane claims survivor benefits at 66, receives full benefits of $3,024

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Chandler & Monica

Age 60.00 and 60.00


• Chandler dies

• Monica immediately claims survivor benefits at 60, receives reduced benefits of $1,920

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Delayed Scenario

Chandler & Monica

Age 60.00 and 60.00


• Chandler dies

• Monica claims retirement benefits at age 70, receives benefits of $3,862

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Chandler & Monica

Age 60.00 and 60.00


• Chandler dies

• Monica immediately claims survivor benefits at 60, receives reduced benefits of $1,920

• Monica claims retirement benefits at age 70, receives benefits of $3,862

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Benefits For Children

Children of retirees can also receive Social Security benefits until they complete high school (family maximum payment limits payout to 180% of retiree’s full retirement age benefit)

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Sam & Diane

Age 62.00 and 54.00


• Sam immediately claims his $1,920 reduced benefit

• Norm, Cliff, and Woody (age 14) receive benefits through high school of $674

• Sam suspends benefits at age 66, claims $3,146 benefit at age 70

• Diane files for $1,113 spousal benefits at 62

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Advice For Individuals By Marital Status

Currently married Coordinate benefits with spouse; one or both spouses delay own benefit to age 70, one spouse receives spousal benefit 66-70

Divorced Delay own benefit to 70, take divorced-spouse benefit from 66-70

Widowed Coordinate retirement and survivor benefits; take higher benefit last

Never married Maximize own benefit by working; delay start of benefits to age 70

Individual With Deceased Ex-spouse

Consider survivor benefit as a possible resource if not remarried before age 60

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WEP & GPO

Windfall Elimination Provision (WEP) • Social Security benefit may be reduced if client worked in a non-Social

Security covered job (e.g., police officers, government employees) • $408 maximum reduction

Government Pension Offset (GPO) • Applies to spousal/survivor benefits; reduction is 2/3 the amount of pension

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Medicare Income-Related Monthly Adjustment Amount (IRMAA)

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Joint MAGI

+ Tax Exempt

Standard Part B

Premium

IRMAA Part B

Premium

IRMAA Part D

Premium

<$170,000 $104.90 $0.00 $0.00

$170,000 - $214,000 $104.90 $42.00 $12.30

$214,000 - $320,000 $104.90 $104.90 $31.80

$320,000 - $428,000 $104.90 $167.80 $51.30

>$428,000 $104.90 $230.80 $70.80

Medicare IRMAA

• Marriage • Divorce/Annulment

• Death of Your Spouse

• Work Stoppage

• Work Reduction • Loss of Income-Producing Property • Loss of Pension Income • Employer Settlement Payment

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CLAconnect.com/privateclient

James Clemensen, CFP®, Wealth Advisor 612-373-1404 [email protected] CliftonLarsonAllen Wealth Advisors LLC

everything you want to know about social security...surviving spouse & social security x....

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