Securing Your Retirement Transforming Social Security Into a

Securing Your Retirement Transforming Social Security Into a Winning Retirement Strategy

Living Longer Life Expectancy Upon Retirement at Age 65 50% chance of living to 85 Male Age 65 25% chance of living to 92 50% chance of living to 88 Female Age 65 25% chance of living to 94 at least 1 person has a 50% chance of living to 92 Couples Age 65 at least 1 person has a 25% chance of living to 97 65 70 75 80 85 90 95 100 Age A healthy 65 -year-old female has a 50% chance of living until age 88 (23 more years). Source: Annuity 2000 Mortality table, Society of Actuaries. Figures assume you are in good health. 2

But Still Collecting Early Full or Increased Benefit 26% Reduced Benefit Collected Early 74% Source: Social Security Administration’s Annual statistical supplement, 2012. 3

Rules of Retirement Benefits Individual Benefits

Individual Benefits Best 35 Years Online Statements or Retirement Estimator www. ssa. gov Source: Social Security Administration (www. ssa. gov). 5

The Tradeoff for Individual Benefits Full Retirement Age 62 Reduced Benefits Age 70 Increased Benefits Primary Insurance Amount (PIA) Full Retirement Age (FRA) 65 66 67 1937 or earlier 1943 -1954 1960 and later Source: Social Security Administration (www. ssa. gov). 6

Collecting Early: The Cost of Collecting Early 100% Percentage of FRA Benefits 100% 93% 87% 80% 75% 50% Collect at Age Collect at Age 62 63 64 65 66 (FRA) Source: Social Security Administration (www. ssa. gov). Assumes full retirement age of 66. 7

Collecting Early: Consider These Questions Working Are you actually retiring? Will you work, even part-time, before FRA? Longevity How is your health? Is there a expectation of longevity? Spouse Are you married? What is the age difference between spouses? Whose benefits can the spouse collect? 8

Collecting Early: Continuing to Work 2013 Retirement Earnings Limit Your Age 2013 limit What Happens Above the Limit Under FRA $15, 120/year $1 of benefits withheld per $2 of earnings above limit Year reach FRA $40, 080/year $1 of benefits withheld per $3 in earnings above limit for months prior to reaching FRA Month reach FRA and beyond None Nothing Applies to any retirement benefits collected before FRA. Earnings limit looks at wages only. Source: Social Security Administration (www. ssa. gov). 9

Changing Your Mind Source: Social Security Administration (www. ssa. gov). 10

Collecting Late: The Guaranteed Increases for Collecting Late Percentage of FRA Benefits 150% 132% 124% 125% 116% 108% 100% 75% Collect at Age Collect at Age 66 (FRA) 67 68 69 70 Source: Social Security Administration (www. ssa. gov). Assumes full retirement age of 66 and individual born in 1943 or later. 11

A Question of Longevity Break Even Analysis Age 82. 5 Age 78 60 62 75% of PIA 66 100% of PIA 70 132% of PIA 80 90 100 Age 12

Rules of Retirement Benefits Spousal and Survivor Benefits

Spousal Benefits John Jane PIA: $2, 200 PIA: $0 50% x $2, 200 $1, 100 Filing and Suspending Age 62 FRA Age 70 Collect File Suspend Collect File Source: Social Security Administration (www. ssa. gov). 14

Spousal Benefits Percentage of FRA Spousal Benefits Maximum Spousal Benefit Amount 150% 100% 75% 83% 92% 100% 100% 50% 0% Age 62 Age 63 Age 64 Age 65 Age 66 Age 67 Age 68 Age 69 Age 70 (FRA) Source: Social Security Administration (www. ssa. gov). 15

Survivor Benefits Women Are Collecting Their Husband’s Benefits Husband's Benefits Only 26% Own and Husband's Benefits 29% John Jane PIA: $2, 200 PIA: $600 John’s Benefits (63, 6 months) $1, 833 Survivor Benefits $1, 833 John’s Benefits (70) $2, 904 Survivor Benefits $2, 904 Own Benefits Only 45% Source: Social Security Administration’s Annual statistical supplement, 2012. Assumes full retirement age of 66 and primary insurance amount of $2, 200. 16

Collection Strategies

Married Couple – Collect at Age 62 Jane PIA: $2, 200 Lives through age 75 PIA: $600 Lives through age 82 Age 62 66 (FRA) John Collect Individual Benefits - $1, 650 74 70 Jane Collect Individual Benefits - $450 Collect Adjusted Spousal Benefits - $350 John’s Benefits $277, 200 Jane’s Benefits Spousal Benefits Survivor Benefits Total $1, 815 x 84 months = $1, 650 $75, 600 x 168 months = $450 $58, 800 x 168 months = $350 $152, 460 x 168= months $564, 060 18

Married Couple – Collect at Age 66 (FRA) John Jane PIA: $2, 200 Lives through age 75 PIA: $600 Lives through age 82 66 (FRA) 70 John Age 62 74 Collect Individual Benefits - $2, 200 Jane Collect Individual Benefits - $600 Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA $564, 060 $580, 800 19

Married Couple – Collect at Age 70 John Jane PIA: $2, 200 Lives through age 75 PIA: $600 Lives through age 82 66 (FRA) 74 70 John Age 62 $2, 904 Jane $792 $308 Both Age 62 Both FRA Both Age 70 $564, 060 $580, 800 $532, 224 20

Married Couple – Large Difference in Benefits John Jane PIA: $2, 200 Lives through age 75 PIA: $600 Lives through age 82 John Age 62 66 (FRA) 74 70 File & Suspend $2, 904 Jane Collect Individual Benefits - $450 Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA Both Age 70 Strategy $564, 060 $580, 800 $532, 224 $588, 624 21

Married Couple – Large Difference in Benefits John Jane PIA: $2, 200 Lives through age 85 PIA: $600 Lives through age 92 John Age 62 66 (FRA) 74 70 File & Suspend $2, 904 Jane Collect Individual Benefits - $450 Collect Adjusted Spousal Benefits - $500 Both Age 62 Both FRA Both Age 70 Strategy $858, 060 $976, 800 $1, 012, 704 $1, 051, 104 22

Social Security Tool Output 23

Married Couple – Small Difference in Benefits John Jane PIA: $2, 200 Lives through age 85 PIA: $1, 400 Lives through age 92 66 (FRA) 74 John 70 File & Suspend $2, 904 Jane Age 62 Collect Spousal - $1, 100 $1, 848 Both Age 62 Both FRA Both Age 70 Strategy $930, 060 $1, 048, 800 $1, 156, 320 $1, 209, 120 24

Widow – Significant Individual Benefits Wendy PIA: $2, 200 Survivor: $2, 500 Lives through age 92 Age 60 62 66 (FRA) 70 Survivor Benefits - $1, 788 74 $2, 904 Age 62 FRA Age 70 Strategy $753, 300 $810, 000 $801, 504 $1, 016, 004 25

Additional Beneficiaries – Divorced Spouse Spousal Benefits 10 Survivor Benefits Married to ex-spouse for 10+ years Unmarried or married after age 60 Both are at least age 62 At least age 60 Divorced for at least 2 years* Unmarried 62 *2 years does not apply if the individual was eligible for spousal benefits at the time of divorce. Source: Social Security Administration (www. ssa. gov). 26

Taxation of Social Security benefits Provisional Income = ½ Social Security Benefits + Modified Adjusted Gross Income Married, Filing Jointly $0 Single $0 0% of Benefits are Taxable $32, 000 $25, 000 0 -50% of Benefits are Taxable $44, 000 $34, 000 7 -85% of Benefits are Taxable Source: Social Security Administration (www. ssa. gov). 27

Next steps 1. Understand the fundamental rules 2. Recognize the options and benefits available 3. Work with your financial professional to make the best collection decision for your retirement plan 28

Important Notes This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. Black. Rock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice. BLACKROCK is a registered trademark of Black. Rock, Inc. or its subsidiaries in the United States and elsewhere. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE © 2012 Black. Rock, Inc. 12/12 USR-1163 29

Government Pension Offset (GPO) Your pension could reduce your spousal or survivor benefits Pension $1, 500 X 2/3 = Offset $1, 000 Spousal Benefits Survivor Benefits $1, 100 $2, 200 $1, 200 31

Windfall Elimination Provision (WEP) Your pension could reduce your own benefits Age 22 Age 32 Age 42 Teacher PIA = Age 52 Age 62 Lockheed Martin 90% of the first $767* of AIME WEP PIAPIA = 40% of the first 15% $791* of AIME + 32% of the next $3, 857* of AIME 15% + 32% of the next $3, 977* of AIME 15% + of the next $4, 624* of AIME + of the next $4, 768* of AIME * Changed annually by changes in the national indexing average wage. Numbers for 2013. Source: Social Security Administration (www. ssa. gov). 32

Additional Beneficiaries Your Retirement Age Spouse Your Unmarried Child 50% of your PIA* Your Younger Spouse 50% of your PIA* Under age 18 (19 if in high school) Caring for your child who is under age 16 or disabled before age 22 Any age if disabled before age 22 *Subject to family maximum. Source: Social Security Administration (www. ssa. gov). 33

Married Couple – Intermediate Difference in Benefits John Jane PIA: $2, 200 Lives through age 75 PIA: $1, 000 Lives through age 82 John Age 62 66 (FRA) 74 70 Collect Spousal - $500 $2, 904 Jane Collect Individual Benefits - $750 $100 Both Age 62 Both FRA Both Age 70 Strategy $863, 820 $976, 800 $1, 054, 944 $1, 060, 704 34

Widow – Lower Individual Benefits Wendy PIA: $1, 000 Survivor: $2, 500 Lives through age 92 Age 60 62 66 (FRA) Individual - $750 70 72 Collect Survivor Benefits - $2, 500 Age 62 FRA Age 70 Strategy $753, 300 $810, 000 $690, 000 $846, 000 35