Joe Cowling Managing Director of Partnerships 1 Agenda

Joe Cowling, Managing Director of Partnerships 1

Agenda Social Security Basics Primary Insurance Amount Social Security benefit Retirement benefit Spousal benefit Survival benefit Child benefit Other social security components Annual earning test • Family Max adjustment • Government Pension Offset • Windfall Elimination Case study 2

SOCIAL SECURITY BASICS

Primary Insurance Amount Indexed earning Historical earning adjusted by inflation index Maximum earning $127, 200 for 2017 AIME (Averaged Indexed Monthly Earning) 35 highest earning year up to age 60 Bend Point Three bend points applying on AIME: 90% of first $885 32% of $885 to $5, 336 15% of $, 5336 + PIA is an monthly amount Inflation adjustment on PIA Annual inflation adjustment to increase PIA Automatic PIA recomputation Work after age 60 may increase PIA 4

Understand Social Security Log Onto Social Security Website Minimum 40 Credits Review Historical Earnings Get an estimated PIA from SSA L 40 credits be eligible for retirement benefit. Earn max of 4 credit per year 35 highest earning year up to age 60 5

SOCIAL SECURITY BENEFIT TYPES

Review a few important benefit types Retirement Benefit Spousal Benefit Survivor Benefit Child Benefit 7

RETIREMENT BENEFIT BASICS Eligibility Age Normal Retirement Age Benefit Amount Early Withdrawal Penalty 62 67 for 1960+; 65 for 1937 and earlier PIA, Full Retirement Benefit 5. 0% to 6. 7% per year Delay Credit 8. 00% per year for DOB after 1943, 7. 5% per year for DOB between 1941 and 1943 ……… Delay credit is up to age 70 8

SPOUSAL BENEFIT BASICS Eligibility Age Normal Retirement Age Benefit Amount Early Withdrawal Penalty 62 Same As Retirement Benefit 50% of Spouse’s PIA 5. 0% to 8% per year (35% max) Delay Credit Government Pension Offset Windfall Elimination None As much as 67% reduction of spousal benefit Reduced benefit if you work for an employer who does not withhold Social Security taxes from your salary — such as a government agency. 9

SURVIVOR BENEFIT BASICS Eligibility Age 60 Normal Retirement Age Benefit Amount Early Withdrawal Penalty 66 Max (82. 5% deceased spouse PIA, his/her monthly retirement benefit) 4% to 6% per year (28. 5% max) Delay Credit None 10

CHILD BENEFIT BASICS Eligibility Age 1. Child age under 18 and you are receiving retirement benefit 2. Child age under 18 and you are receiving survival benefit Benefit Amount 1. 50% of your PIA 2. 75% of deceased person’s PIA 11

Summary of Social Security Benefit Basics Retirement Spousal Survivor Eligibility Age 62 62 60 Full Retirement Age 65 to 67 Same as Retirement 66 Benefit amount Primary Insurance Amount (PIA) 50% of spouse’s PIA Max (82. 5% of deceased PIA, monthly retirement income) Early Withdrawal Penalty 5. 0% to 6. 7% per year 4% to 6% per year Delayed Retirement Credit 7. 5% to 8% per year None 12

OTHER SOCIAL SECURITY COMPONENTS

Windfall Elimination and Government Pension Offset Windfall Elimination Government Pension Offset Trigger You work for an employer who doesn’t withhold Social Security taxes from your salary, such as a government agency You receive a pension from a government job in which you did not pay Social Security taxes Benefit Impact 65 to 67 Spousal Benefit Reduction Amount Primary Insurance Amount (PIA) 2/3 of pension amount 14

Annual Earning Test Social Security withholds benefits if your earnings exceed a certain level if you are under NRA. Exemption Amount Benefits Withheld Amount • A lower amount in years before the year you attain NRA $16, 920 for 2017 • Withhold $1 for every $2 of earnings in excess of the lower exempt amount. • A higher amount in the year you attain NRA — $44, 880 for 2017) • Withhold $1 in benefits for every $3 of earnings in excess of the higher exempt amount 15

CASE STUDY

3 Questions On When To Begin Social Security How much income do you need in retirement? How long will you live? Because you can’t be sure how long you’ll live, what makes you feel more secure; a smaller benefit sooner or a bigger benefit later? 17

Meet the Bradys Mike and Amanda — married Current Ages — 56/54 Life Expectancy — 90/90 Salary — $200 K/$100 K Social Security — ? ? Monthly Expenses in Retirement — $10 K Invested Assets — $1. 5 MM qualified $100 K non-qualified 18

What are the Bradys’ options? 62 67 70 Take As Early As Possible At Age 62. Wait until Full Retirement Age Wait Until Age 70 Start receiving benefits as early as possible, incurring early start penalties No penalty nor delay credit Delay as long as possible to maximize the delay credit 19

How Big Is The Difference? Total Benefit Difference Take as early as possible at age 62 $2, 384, 201 Wait until Full Retirement Age $2, 718, 649 +$334, 448 Wait until age 70 $3, 051, 951 +$667, 750 Assumes life expectancy of age 90 for both Bradys and 2. 5% annual Social Security COLA. 20

Comparison Between “Wait To 70” And “Start Early” “Wait to age 70” results in much higher payment in later years “Start early” results in more payments in earlier years $667, 750 total savings with a life expectancy of 90 years 21

Take-Aways Social Security planning represents great opportunity to deliver more value to clients and prospects Understand the type of benefit and various adjustment items is the important first step. Right. Capital’s social security optimization helps advisors to do planning efficiently. 22