slide 1 of 39 0236362-00002-00 ed.01/2013 a closer look at your social security benefits utpal...

of 390236362-00002-00 Ed.01/2013

A Closer Look At Your Social Security Benefits

Utpal Parekh, CFP®, ChFC®, CLU®, CASL®, LUTCF, MBAFinancial Planner

Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

of 39

This guide presents a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time.

of 39

Individual Benefits

Spousal Benefits

Social Security Maximization Strategies

Agenda

of 39

Becoming eligible 40 quarters of wages that were subject to Social Security

payroll taxes Quarters do not need to be consecutive

Benefits calculated based on average of the 35 highest years of earnings

$0 used in all years less than 35 Will result in a lower benefit

Funding and Calculation of Benefits

Source: SSA Publication No. 05-10003, ICN 451385, February 2012

of 39

When Is My Full Retirement Age (FRA)?

Date of Birth Full Retirement Age

1943-1954 66

1955 66 and 2 months





1960 and later 67

Source: www.ssa.gov as of October 2012

of 39

Age FRA 67

62 30% reduction

63 25% reduction

64 20% reduction

65 13.3% reduction

66 6.7% reduction

67 full benefits

Can I Take My Benefits Early?

Age FRA 66

62 25% reduction

63 20% reduction

64 13.3% reduction

65 6.7% reduction

66 full benefits


of 39

Retirement Earnings Test

Under Full Retirement Age (FRA)

Give up $1 in benefits for every $2 you earn above a $15,120 limit

In the year you reach Full Retirement Age (FRA)

Give up $1 in benefits for every $3 you earn above a $40,080 limit

If you are at Full Retirement Age (FRA)

No penalty

Taking Benefits and Working


of 39

John is age 62 with a $12,000 annual benefit

Still working, earns $25,000 per year• $9,880 over the earnings threshold

• Will give up $4,940 of benefits

• Receives only $7,060 in benefits this year

At full retirement age, no longer any benefit reduction

Working While Collecting Social Security

This is a hypothetical example for illustrative purposes only.

of 39

Benefits of Waiting

Increase in benefits for clients withFull Retirement Age (FRA) of 66/67

Age FRA 66

67 8% increase

68 16% increase

69 24% increase

70 32% increase

Age FRA 67

68 8% increase

69 16% increase

70 24% increase


of 39

Social Security Maximization Strategy

Break even Points:

Age 66 vs. 62: Age 76

Age 70 vs. 62: Age 79

Age 70 vs. 66: Age 81

This is a hypothetical example for illustrative purposes only. This assumes a full retirement age benefit of $24,000 a year, an annual cost of living adjust of 3%, and the client living to age 95.

of 39

Taxation of Social Security Benefits

Provisional Income includes:

½ Social Security benefits

Income from municipal bonds

Wages

Business income

Interest

Capital gains

Dividends

Traditional IRA distributions

Rental income

And more…

Provisional Income does not include:

Tax-deferred build-up inside IRAs, 401(k)s and annuities

Income from Roth IRAs

Non-taxable income from life insurance

Benefits may be taxable depending on the amount of your provisional income

of 39

Taxation of Social Security Benefits

Benefits only taxable if provisional income exceeds:

Single or Head of Household $25,000 = Social Security not taxable

$25,000 - $34,000 = up to 50% taxable Above $34,000 = up to 85% taxable

Married Filing Jointly $32,000 = Social Security not taxable

$32,000 - $44,000 = up to 50% taxable Above $44,000 = up to 85% taxable

Source: www.ssa.gov as of October 2012Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

of 39Slide 13 of 39

Spousal Benefits

of 39

Married individuals can claim Social Security benefits based on

Personal earnings record, or Spouse’s earnings record

If electing based on spouse’s earnings record Spousal benefit is up to 50% of their spouse’s

Social Security benefit Cannot claim spousal benefit until the spouse files for benefits

Spousal Benefits


of 39

How is the spouse’s benefit calculated? Gary’s full retirement age benefit: $2,000 Amy has no earnings history

Amy is entitled to the greater of: 50% of Gary’s benefit: $1,000 Amy’s own benefit: $0

Amy’s benefit is increased to $1,000: The $1,000 increase is Amy’s spousal benefit

Spousal Benefit

of 39

Age % Reduced FRA 66

62 35% spousal benefit

63 37.5% spousal benefit




Taking Spousal Benefits Early

Lower-earning spouse files for benefits before Full Retirement Age (FRA)

Own benefit reduced

Spousal benefit reduced as well

Age % Reduced FRA 67








of 39

Reduced Spousal Benefit

Amy, the lower earning spouse, files for benefits before her full retirement age

Gary’s FRA benefit: $2,000 Amy’s FRA benefit: $0 Amy’s FRA spousal benefit is $1,000

What if Amy takes benefits at age 62? At age 62, her spousal benefit is reduced to 35% of

Gary’s FRA benefit ($2,000 x 35% = $700) Receives $700 per month instead of $1,000 per

month


of 39

Surviving spouse can receive or step up to the benefit of the deceased spouse

If survivor is full retirement age, 100% of spouse’s benefit

Generally survivor benefits begin at age 60• Survivor benefits reduced if received before full

retirement age – up to 28.5%

• Exceptions for surviving spouse with children who are under 19

Survivor can switch to his or her own benefits

• Advantageous if greater when full retirement age reached

Survivor Benefits


of 39

Government Pension Offset• Affects spousal / survivor benefits if the spouse / survivor has a

pension from a government

• 2/3 of what you receive from your government pension will be subtracted from your Social Security benefit

Windfall Elimination Provision • If you work for an employer who does not withhold Social Security

taxes from your salary, such as a government agency, any pension you receive based on that work may reduce your Social Security benefits up to 50%

• Pension from an employer where Social Security taxes were paid is not taken into consideration

Social Security and Other Pension Benefits

of 39

Can I Collect Benefits from a Divorced Spouse?

Possible to collect benefits from a divorced spouse

Survivor benefits Retirement benefits

Survivor benefits: Marriage lasted for 10 years At least age 60 or older Cannot remarry until over age 60


Retirement benefits: Your marriage lasted at least 10

years

Cannot be remarried

Your ex-spouse is entitled to Social Security

of 39Slide 21 of 39


of 39


Age

Jen stayed home and raised the family, so she has no earned Social Security benefits of her own

85

Matt dies at age 85

92

Jen dies at age 92

62

Jen and Matt are married and both 62 years old


66

Matt’s full monthly Social Security benefit at age 66 will be $2,000

of 39

Option 1: File Early At Age 62

Matt files, lives 23 years



Reduced benefit of $1,500 month / $18,000 year for 23 years

Jen files, lives 30 years Reduced spousal benefit of $700 month / $8,400 year for 23

years Survivor benefit of $1,500 month / $18,000 year for 7 years

of 39

Option 2: File At Full Retirement Age

Matt files at 66, lives 19 years



Receives $2,000 per month / $24,000 per year

Jen files at 66, lives 26 years

Receives $1,000 per month / $12,000 per year for 19 years Survivor benefits of $2,000 month / $24,000 year for 7 years

of 39

Option 3: Matt Files & Suspends

Matt files at 66, lives 19 years,suspends benefits until age 70



At age 70 receives $2,640 per month / $31,680 per year

Jen files at 66, lives 26 years Receives $1,000 per month / $12,000 per year for 19 years Survivor benefits of $2,640 month / $31,680 year for 7 years

of 39

Matt and Jen Claim at 62 $414,000 in his benefits $193,200 in spousal benefits $126,000 in survivor benefit

Total Payout: $733,200

Matt and Jen Claim at 66 $456,000 in his benefits $228,000 in spousal benefits $168,000 in survivor benefit


Matt Files & Suspends at 66 $475,200 in his benefits $228,000 in spousal benefits $221,760 in survivor benefit




of 39

Increases benefits for couples who retire at different ages

Things to remember• Married couples are eligible for benefits based on

their earnings history or their spouse’s earnings history

• You cannot collect on your spouse’s earnings history until your spouse files for benefits

• You can file for benefits and immediately suspend receiving those benefits

• Spouse who suspends the benefits continues to receive delayed retirement credits (DRC)

• “Suspending” spouse must have reached full retirement age

File and Suspend


of 39


Age 85

Adam dies at age 85

92

Meghan dies at age 92


62

Adam and Meghan are married and both 66 years old

Meghan’s full monthly Social Security benefit at age 66 will be $1,500 per month

70

Adam is looking to retire at age 70, his Social Security benefit will be $2,640 per month

66

of 39



Option 1: Meghan files and Adam waits

Meghan files for benefits at age 66

She receives $1,500 per month / $18,000 per year for 19 years Survivor benefits of $2,640 month / $31,680 per year for 7 years

Adam files in four years at age 70

Adam receives $2,640 per month / $31,680 per year for 15 years

of 39

Option 2: Adam files a Restricted Application

Entitled to 50% of Meghan’s benefit In the first four years he receives $750 per month / $9,000 per year At age 70, he switches to his own benefit Over the next 15 years, he receives $2,640 per month / $31,680

per year

At age 66 Adam files a Restricted Application



Meghan files at 66, her benefits are unaffected

of 39

Meghan Files At 66 / Adam Files At 70 $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit

Total Payout: $1,038,960

Adam Uses Restricted Application $36,000 in spousal benefits $475,200 in his benefits $342,000 in her benefits $221,760 in survivor benefit

Total Payout: $1,074,960



of 39

Increases benefits for couples with their own earnings history who may be retiring at different ages

Things to remember• Individuals can collect spousal benefits and allow their personal

earnings history benefits to receive delayed retirement credits

• You cannot collect benefits on your spouse’s earnings history until your spouse files for benefits

• You cannot file a restricted application until you have reached full retirement age

Restricted Application


of 39

Retirement Income – Then and Now

“Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.”

Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*

Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*

“Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.”

of 39

Retirement Income – Then and Now

of 39

Monitor your Social Security statements• Statements are now available online. Go to socialsecurity.gov

to create a secure user account and view your statement

Evaluate impact of commencement dates on your retirement plan

Work with a Financial Professional to review your income sources and evaluate options for retirement income flexibility

Summary

of 39

Questions?

of 39

Annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations.

This material was prepared to support the marketing of variable annuities. Prudential, its affiliates, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended to be used for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax or legal statements made herein.

© 2013. Prudential Annuities, Prudential, the Prudential logo, the Rock symbol, and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Disclosures

0236362-00002-00 Ed.01/2013[WO# 554801 ML 13-000507 MSA130006 RJ1212]

slide 1 of 39 0236362-00002-00 ed.01/2013 a closer look at your social security benefits utpal...

Documents