Important things to keep in mind Not a
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Important things to keep in mind Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May lose value The content of this presentation is provided for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation to buy or sell any specific securities product. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency. The general distributor is Nationwide Investment Services Corporation (NISC), member FINRA. The Nationwide Retirement Institute is a division of NISC. Social Security 360 and Social Security 360 Analyzer are service marks of Nationwide Life Insurance Company. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company. © 2015 Nationwide NFM-11701 AO. 3 (04/15) 2
Today’s agenda • • • Social Security—The choice of a lifetime Social Security basics Making your Social Security decision 4
Social Security — The choice of a lifetime — 5
WHY SOCIAL SECURITY IS THE CHOICE OF A LIFETIME Most file at the earliest possible time New Social Security claimants in a calendar year 1 Almost two in three individuals filed early for reduced benefits 2 38% 32% 24% 4% 2% 1 Source: SS Supplement 2014. Table 6. B. 1, Social Security Administration 2 FRA = Full retirement age. For this data, FRA is 66. 6
Meet Jim & Linda a 62 -year-old married couple $2, 400 $1, 300 Jim’s SS benefit at FRA Linda’s SS benefit at FRA $315, 504 Cumulative benefit lost by filing early This example is hypothetical and for illustrative purposes only 3 Figures as shown represent future value and assume average life expectancy of 83 for men and 86 for women and 2. 5% annual cost-of-living adjustments (COLA). $1, 027, 404 $1, 342, 908 Cumulative benefit if both file at 623 Cumulative benefit if both optimize SS benefits 3 7
WHY SOCIAL SECURITY IS THE CHOICE OF A LIFETIME Will Social Security be there for you? Based on current assumptions and no future changes to existing legislation 12: • Full benefits payable to at least 2033 • With no legislative changes, Social Security would pay 77% of benefits afterward 12 Source: 2013 Summary Annual Report of the Social Security and Medicare Boards of Trustees 8
WHY SOCIAL SECURITY IS THE CHOICE OF A LIFETIME Proposals to address Social Security solvency Link COLAs to different inflation indexes • May increase solvency without significant effect on most Americans • Current retirees will see smaller annual benefit increases Increase FRA beyond 67 • Expected to impact workers age 45 and younger to allow time to plan for retiring later 9
WHY SOCIAL SECURITY IS THE CHOICE OF A LIFETIME Proposals to address Social Security solvency Increase or eliminate wage cap • Raises amount of earned income subject to Social Security taxes • 2015 cap is set at earned income up to $118, 500 Increase payroll taxes • Currently set at 12. 4% split evenly between workers and employers 10
WHY SOCIAL SECURITY IS THE CHOICE OF A LIFETIME Will you be there for Social Security? 65 YRS 50% chance of of 14 reaching ageage 25% chance of of 14 14 reaching ageage 14 Source: 2012 LIMRA Retirement Income Reference Book 65 YRS 83 86 89 92 For married couples, there is a 50% chance one spouse will reach age 90 11
Social Security — The basics — 12
SOCIAL SECURITY BASICS What does Social Security offer? Old Age, Survivors and Disability Insurance (OASDI) Guaranteed lifetime income Indexed to inflation Survivor benefits Preferential tax treatment 13
SOCIAL SECURITY BASICS Social Security Act of 1935 • Designed to help older Americans living in poverty during the Great Depression • Never meant to be sole source of retirement income Ida May Fuller First recipient of a monthly Social Security check (1940) 14
SOCIAL SECURITY BASICS Primary Insurance Amount (PIA) • Amount received each month if benefits start at full retirement age • Based on lifetime Social Security earnings adjusted for inflation o o Average indexed monthly earnings (AIME) over highest 35 years of earnings Benefit reflects a percentage of avg. monthly earnings Higher earners receive a smaller % than low-wage earners Maximum PIA for 2015 is $2, 663 • Social Security statements available on my. Social. Security (Sign up at ssa. gov/myaccount) 15
SOCIAL SECURITY BASICS Full Retirement Age (FRA) 16
SOCIAL SECURITY BASICS Early and delayed filling affects monthly benefit Delaying benefits from FRA of 66 - 70 can increase monthly benefit by 32% Delaying benefits from 62 to age 70 can increase monthly benefit by 76% 75% 80% 86% 93% 100% 108% 116% 124% 132% % of PIA received FRA 62 63 64 65 66 67 68 69 70 Starting age of SS benefits 17
SOCIAL SECURITY BASICS Early and delayed filling affects monthly benefit Delaying benefits from FRA of 67 - 70 can increase monthly benefit by 32% Delaying benefits from 62 to age 70 can increase monthly benefit by 76% 70% 75% 80% 86% 93% 100% 108% 116% 124% % of PIA received FRA 62 63 64 65 66 67 68 69 70 Starting age of SS benefits 18
SOCIAL SECURITY BASICS Social Security filing options Before FRA Deemed Filing File for all eligible benefits Benefits reduced if filing before FRA In the year of FRA (Up to FRA month) After FRA Standard Filing File for all eligible benefits File and Suspend Allows spouse to collect spousal benefits File Restricted Allows you to begin spousal or survivor benefits 19
SOCIAL SECURITY BASICS Filing rules for different situations Surviving spouses Spouses Dependent children Divorced spouses Disabled individuals 20
SOCIAL SECURITY BASICS Spousal filing rules Eligibility • Eligible at 62* • Married for at least one year Benefits • Up to 50% of spouse’s PIA • One spouse must file for the other to claim benefits * Filing from 62 and up to FRA will permanently reduce monthly benefits 21
SOCIAL SECURITY BASICS For surviving spouses Eligibility Benefits • Married for at least 9 months • Benefits can be taken as early as age 60* • Currently married or remarried after age 60* • Up to spouse’s PIA including delayed retirement credits earned • Survivor benefits can be received independent of individual benefits * Filing from 60 and up to FRA will permanently reduce monthly benefits * Marriage lasted 10 years or more 22
SOCIAL SECURITY BASICS For divorced spouses Eligibility Benefits • Married for at least 10 years • Spousal, then survivor benefits • Currently unmarried • No impact on ex-spouse’s benefit • Ex-spouse does not have to file beyond two years after divorce • Not subject to the family maximum 23
SOCIAL SECURITY BASICS Using different filing options together File and Suspend with File Restricted At 66… At 70… At 83… • Jim files and suspends • Jim collects his benefits while Linda switches to her own benefit • Jim passes away • Linda files restricted for spousal benefits • Linda starts survivor benefits at Jim’s benefit amount Cumulative Social Security benefits: $1, 342, 908 Linda mo. benefit: Jim monthly benefit: $1, 324 $3, 859 Linda monthly benefit: $5, 319 Linda monthly benefit: $2, 090 24
SOCIAL SECURITY BASICS Comparing options Jim files and suspends; Linda files restricted Cumulative benefits: $1, 342, 908 Jim files restricted; Linda files and suspends Cumulative benefits: $1, 312, 656 2% less in benefits Standard filing for both at FRA Cumulative benefits: $1, 170, 744 13% less in benefits Both file early at 62 (deemed filing) Cumulative benefits: $1, 027, 404 24% less in benefits 25
SOCIAL SECURITY BASICS For dependent children Eligibility Benefits • Dependent under age 18 • 50% of parent’s PIA • Disabled dependents if disability occurred before age 22 • 75% of deceased’s PIA 26
SOCIAL SECURITY BASICS For disabled individuals Eligibility Benefits • Qualifying medical condition • Individual benefit • Spousal benefit • Recent work test (individual) • Survivor benefit • Duration of work test (individual) • Dependent children benefit 27
— Making your — Social Security decision 28
MAKING YOUR SOCIAL SECURITY DECISION Simplifying Social Security decisions Nationwide’s Social Security 360 Analyzer. SM tool • Identifies optimal filing methods and allows you to adjust parameters to compare different strategies • Provides instructions on how to file • Helps you integrate Social Security into your comprehensive retirement income plan 29
MAKING YOUR SOCIAL SECURITY DECISION Social Security Assessment This report is provided for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation to buy or sell any specific securities product. You should work closely with your financial professional to develop a plan that incorporates your investment objectives, goals, risk tolerance and time horizons based on your specific situation. This report relies upon the accuracy of the data you provide and is an estimate of the social security benefit you may receive which will differ from the actual benefit amount you receive at the time of application with the Social Security Administration. The information provided is based on current laws which are subject to change at any time. This report has not been reviewed or endorsed by any government agency. 30
MAKING YOUR SOCIAL SECURITY DECISION Social Security Assessment 31
MAKING YOUR SOCIAL SECURITY DECISION Compare filing strategies The client’s Social Security report shows cumulative benefits of an optimization strategy vs. early filing and alternative filing strategies Lifetime Benefits 32
MAKING YOUR SOCIAL SECURITY DECISION Analyze break-even points Illustrates which of the outlined strategies provides the best outcome at any given set of whole year death age combinations. Break Even Chart 33
MAKING YOUR SOCIAL SECURITY DECISION Your suggested Social Security Strategy The expected lifetime family benefit using this strategy is: $933, 120 Note that this illustration is for educational purposes only. Jim Linda • File a standard application for benefits at your age 66 year. • File a Restricted application for only your spousal benefit This will allow Linda to collect a spousal benefit under your earnings record. • Immediately request that benefits be suspended. This will allow you to claim delayed retirement credits during the time your benefit is suspended. • At age 70 years, request that your benefit be paid. based on Jim’s earnings record at your age 66 years. This allows you to continue to earn delayed retirement credits on your own benefit. Your approximate spousal benefit would be $1, 324. • File for your own benefit at age 70 years. Your approximate benefit on your own earnings record would be $2, 090. Your approximate monthly benefit would be: $3, 859. 34
MAKING YOUR SOCIAL SECURITY DECISION Identify income gaps The report illustrates annual Social Security cash flow for the suggested filing strategy vs. projected retirement income needs. Estimated vs. Desired Income 35
MAKING YOUR SOCIAL SECURITY DECISION Cashflow analysis helps identify income gaps Jim begins claiming at age 70; Linda begins her own increased benefit. After Jim passes away, Linda begins her survivor benefit. 36
MAKING YOUR SOCIAL SECURITY DECISION Social Security client questionnaire Helps gather relevant client information to prepare a filing strategy comparison • Marital status • Expected benefit amount • Life expectancy • Planned retirement date • Desired retirement income • Retirement goals, concerns, etc. 37
MAKING YOUR SOCIAL SECURITY DECISION The choice of a lifetime • When and how you file for Social Security is an important decision • Learn how to claim benefits for other family members and how to put the filing rules to work • Consider your filing decision in the big picture of your overall retirement income plan 38
MAKING YOUR SOCIAL SECURITY DECISION Three steps in Social Security planning • Get a good understanding of the basics of Social Security • Make an appointment to discuss your Social Security options • Complete a Social Security questionnaire in advance of the meeting 39
SOCIAL SECURITY BASICS How working impacts Social Security If under FRA for the full year • $1 withheld for every $2 above annual limit ($15, 720 or $1, 310/month) In the year of FRA (Up to FRA month) • $1 withheld for every $3 above annual limit ($41, 880 or $3, 490/month) At FRA and beyond • No limit on earnings • Withheld earnings are returned 40
SOCIAL SECURITY BASICS For same-sex couples • June 26, 2013 – Defense of Marriage Act (DOMA) ruled unconstitutional (applies at federal level only) • Social Security is paying claims “where due” (if marriage occurred in a state where same-sex marriage is legal) o SSA encourages same-sex couples to apply for benefits, even for residents of states that do not recognize same-sex marriage • More information at ssa. gov/same-sexcouples Information as of November 1, 2013 41
SOCIAL SECURITY BASICS For government employees Windfall elimination provision (WEP) • Reduces individual benefit to prevent higher benefits on top of pension income • Changes formula used to calculate PIA and reductions o As little as 40% of first $826 instead of 90%10 o Reduction cannot be more than ½ of pension amount o Maximum PIA reduction for WEP for 2015 is $413 10 Source: Social Security Administration. Based on 2013 formula 42
SOCIAL SECURITY BASICS Effect on spousal or survivor’s benefit Government Pension Offset (GPO) • Reduces a government employee’s Social Security spousal or survivor’s benefits • Benefits are reduced by 2/3 of their government pension • If government pension is large enough, spousal or survivor’s benefit may be eliminated 43
SOCIAL SECURITY BASICS How GPO reduces benefits Spouse 1 Spouse 2 • Worked in government throughout career • Worked in private sector • Receiving $2, 100 monthly pension • Paid FICA taxes • PIA: $2, 000/month • GPO = $1, 400 (2/3 of $2, 100) 44
MANAGING THE SOCIAL SECURITY DISCUSSION Client concern: Taxation Taxable retirement income Partially taxable retirement income Tax-free retirement income Pension Income Social Security – Up to 85% taxed Roth IRAs and 401(k)s Immediate annuity income Interest from municipal bonds Cash-value of life insurance Loans from life insurance policies Traditional Retirement accounts (401(k), IRA) Interest and dividend income Please note that Nationwide does not provide legal, tax, or accounting advice. You should consult with your accounting or tax professional for guidance regarding your specific financial situation. 45
MANAGING THE SOCIAL SECURITY DISCUSSION Client concern: Taxation Reduced benefits Maximum benefits Target pre-tax income $90, 000 Social Security benefits $24, 600 $43, 296 Traditional retirement income $65, 400 $46, 704 Provisional income $77, 700 $68, 352 Total taxable income $86, 310 $73, 403 AGI + income after Social Security income test Delayed filing increases Social Security by 76% Taxable income decreases by 15% 46
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