Maximizing Social Security with Retirement
- 1. Getting the Most from Social Security The Brantley Group Simple. Relevant. Impactful.
- 2. Agenda Know Your Benefit Understand Your Options Maximize Your Benefit
- 3. Know Your Benefit Sources for retirement income for average income earners to sustain 80% – 100% of pre-retirement income Employer-Sponsored Retirement Plan and Personal Savings Social Security Source: Social Security Administration, Office of Policy. Office of Research, Evaluation Statistics, Fast Facts and Figures About Social Security, 2010.
- 5. Source: 2010 Social Security Administration, ssa.gov/retire4/retirechart.htm. Know Your Benefit Full Retirement Age 67 1960 and later 66 + 10 months 1959 66 + 8 months 1958 66 + 6 months 1957 66 + 4 months 1956 66 + 2 months 1955 66 1943-1954 Full Retirement Age Birth Year Social Security Full Retirement Age
- 6. Receive benefits earlier Higher monthly check No penalty for employment Highest monthly paycheck No penalty for employment Smallest monthly check Potential reduction penalty for employment No interim benefits Receive benefits later 62 70 AGE PROS CONS Full Retirement Age Know Your Benefit Your Age and Your Benefit
- 7. Electing your benefit — early vs. late Working while collecting your benefit Examining your tax situation Considering your spouse’s benefit Understand Your Options
- 8. Understand Your Options Early vs. Late 130% 120% 110% 90% 80% 70% Early vs. Late Benefit Election Assuming Full Retirement Age at 66. Source: Social Security Administration. 100% 62 63 64 65 67 68 69 70 Take Benefits Earlier Take Benefits Later Retire at age 66 with full monthly benefit
- 9. Working While Collecting Understand Your Options * Adjusted Gross Income (AGI). ** At FRA your benefit amount is adjusted to accommodate for the earlier reduction. None For every $3 over the limit, $1 is withheld from benefits until the month in which full retirement age is reached For every $2 over the limit, $1 is withheld from benefits Considerations No limits on earnings At Full Retirement Age or older** $37,680 In the year Full Retirement Age is reached $14,160 Under Full Retirement Age 2011 Income* Limits Age
- 10. Examining Your Tax Situation Understand Your Options Note: State and local taxes may differ. * Provisional Income is Adjusted Gross Income including any tax-exempt interest plus 50% of Social Security benefits . Source: 2010 Social Security Administration, http://www.ssa.gov/pubs/10035.html . Up to 85% Over $34,000 Up to 50% $25,000 - $34,000 0% Under $25,000 Taxed Benefits Provisional* Income Single Filing Up to 85% Over $44,000 Up to 50% $32,000 - $44,000 0% Under $32,000 Taxed Benefits Provisional* Income Married Filing Jointly
- 11. Consider Spouse’s Benefit Understand Your Options A widowed spouse may collect survivor benefits (up to 100% of their deceased spouse’s benefit) Option 3 Survivor Benefit Lower-earning spouse may collect a higher spousal benefit (up to 50% of their spouse’s full benefit) if the spouse has filed Lower-earning spouse collects his or her own individual benefit Option 2 Spousal Benefit Option 1 Individual Benefit
- 12. Consider Spouse’s Benefit Understand Your Options Sam and Ann, both age 62 Full Retirement Age: 66 $1,035 $1,035 $724 Spousal Benefit $2,733 $1,180 Age 70 $2,071 $900 Age 66 $1,562 $675 Age 62 Sam Ann Name Social Security Benefits
- 13. Maximize Your Benefit 1 Benefit will be reduced if not at Full Retirement Age. Both individuals must have filed for Social Security benefits. 2 Effective December 8, 2010, Social Security Administration published new rules regarding the withdrawal policy and will make a final ruling in 2011. Provides flexibility to cease taking benefits if life situation changes. Individuals are allowed to change their earlier claiming decision. 2 Do-Over Can earn delayed credits and then claim their higher personal benefit at a later age or may help spouse to receive greater survivor benefit. Allows spouse to claim spousal benefit. Can increase the overall lifetime benefits, specifically considering survivor planning. Benefit A Full Retirement Age individual may claim one-half of their spouse’s benefit, delay taking their own benefit. 1 Claim Now, Claim More Later Individuals at FRA or later who have claimed benefits then suspend the benefits. When benefits are reinstated down the road, they will receive a higher benefit amount. Claim and Suspend Definition Social Security Strategy
- 14. Calculate expected Social Security benefit Determine your plan to maximize your benefit Apply for retirement benefits Getting Started Maximize Your Benefit
- 15. Most recent Social Security statement Most recent tax return Most recent pay statement from employer Latest statements from all retirement plans Latest statement from mutual funds Life and disability insurance policies Annuity contracts Wills and trust document(s) Bring Getting Started Maximize Your Benefit
- 17. Things to Consider Shortfall – gap between your retirement income needs Longevity – outliving your assets and running out of money Market Risk – relying on your portfolio to provide income, subject to market's ups and downs Inflation – ability to maintain purchasing power Retirement Risks
- 18. Things to Consider When you are considering when to collect retirement benefits, one important factor to take into account is how long you might live. According to data compiled by the Social Security Administration: A man reaching age 65 today can expect to live, on average, until age 83. A woman turning age 65 today can expect to live, on average, until age 85. And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. Life Expectancy
- 19. Receive benefits earlier Higher monthly check No penalty for employment Highest monthly paycheck No penalty for employment Smallest monthly check Potential reduction penalty for employment No interim benefits Receive benefits later 62 70 AGE PROS CONS Full Retirement Age Know Your Benefit Your Age and Your Benefit
- 20. Preparing Your Portfolio Past Performance is no guarantee of future results. Asset allocation/diversification does not guarantee a profit or protect against a loss. Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. X X Preferred Securities Fund 5 X X Income Fund 4 X X High Yield Fund 4,5 X X Shortfall X X Global Diversified Income Fund 3,5 X X Inflation Market X Equity Income Fund 2 X Diversified Real Asset Fund 1 Longevity Potential Solutions from Principal Funds
- 21. Disclosures Preparing Your Portfolio 1 Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. Investments concentrated in natural resources industries can be affected significantly by events relating to those industries, such as variations in the commodities markets, weather, disease, embargoes, international, political, and economic developments, the success of exploration projects, tax and other government regulations, and other factors. Investing in derivatives entails specific risks relating to liquidity, leverage, and credit that may reduce returns and/or increase volatility. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. An MLP that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors. 2 REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. 3 International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. These risks are magnified in emerging markets. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. 4 Lower-rated securities are subject to additional credit and default risks. 5 Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt.
- 22. Income Strategies Fixed-income investment options, including those that invest in mortgage securities, are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. Lower-rated securities are subject to additional credit and default risks. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt. Income from municipal bond holdings may be subject to state and/or local taxes, and it may be subject to federal alternative minimum tax (AMT) for certain investors. An MLP that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors. Seeking Preservation Short Duration High Quality Core Bond Spread Yield Alpha Non Core Striving to Maintain Value Enhancing Alpha Potential 1-3 Year Duration AAA/AA Rated Bonds Cash Equivalents Investment-Grade Corporate Bonds Municipal Bonds Agency Securities Mortgage-Backed Securities Multi-Sector/Strategic Bond Funds High-Yield Bonds Preferred Securities Real Estate Investment Trusts Master Limited Partnerships (MLPs) Emerging Market Debt
- 23. Income Strategies Glossary of Terms: AAA/AA Rated Bonds: A ratings grade given to bonds indicating their credit quality. AAA and AA-rated bonds are considered “high-quality investment grade” by Standard & Poor’s. Agency Securities : Debt securities issued by U.S. government-sponsored entities and federally related institutions. Alpha: The excess return of an investment relative to that of its benchmark index. Corporate Bonds: Debt securities issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. Emerging Market Debt: Debt securities issued by governments or corporations in developing countries. High-Yield Bonds: High paying bonds with lower credit ratings than investment-grade corporate bonds, Treasury bonds, and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment-grade bonds. Investment Grade: A rating given to a bond indicating that it has a relatively low risk of default. Master Limited Partnerships: Publicly traded securities in partnership engaged in the production and transportation of natural resources, such as oil and gas. Mortgage-Backed Securities: A type of asset-backed security that is secured by a mortgage or collection of mortgages. Multi-Sector/Strategic Bond Funds: Fixed-income funds that invest in different types of bonds, such as corporates and municipals, or that seek to invest in multiple fixed-income sectors. Municipal Bonds: Debt securities issued by a state or local government entity to finance capital expenditures. Preferred Securities: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred securities generally have dividends that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. Real Estate Investment Trusts (REITs): Securities that sell like stocks on the major exchanges and invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. Short Duration: Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Short-duration securities are typically investments that have duration of less than three years.
- 24. Before investing, you should carefully consider a fund’s investment objectives, risks, charges, and expenses. Contact your financial professional, visit principalfunds.com, or call 800-222-5852 to obtain a prospectus containing this and other information. Read the prospectus carefully before investing. A mutual fund’s share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost. The content of this presentation is based upon reliable source material and is believed to be correct as of the time of creation; however is subject to change at any time without warning. Investors should consider consulting with their tax professionals prior to making decisions due to their unique circumstances. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal ® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc., member of the Principal Financial Group ® . Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation and its affiliates, and Principal Funds, Inc. are collectively referred to as Principal Funds. MM4787H | 11/2010 | t1010270409 ©2010 Principal Financial Services, Inc. WE’LL GIVE YOU AN EDGE ® Disclaimers
Editor's Notes
- #2: Welcome. My name is ___, and I’m going to talk to you today about how to maximize your Social Security benefit.
- #3: We will start with a quick definition of Social Security and discuss how to identify your Social Security benefit. Then, we’ll focus on the options available to you, and discuss ways to maximize your Social Security benefit... and how to get started.
- #4: What is Social Security? Put simply, it’s a retirement benefit that replaces approximately 40% of the income you will need in retirement, if you are an average earner trying to sustain 80% -1 00% of your pre - retirement income. What you already know is that you have been paying into Social Security all of your working years. Now it is time for you to reap those benefits.
- #5: To learn the details of your Social Security benefit, the best thing to do is consult your Social Security statement. You may have seen this document before, which arrives in the mail approximately 3 months prior to your birthday each year. The statement provides you with important information, including: • Confirmation of your eligibility to receive a Social Security benefit • A record of your year -b y -y ear earnings • Your estimated benefit When reviewing your Social Security statement, be sure to verify your year -by- year earnings. This determines your Social Security payments. INTERESTING FACT: The first recipient of monthly Social Security benefits was a woman named Ida May Fuller – from Ludlow, Vermont. The payment amount was $22.54 and dated January 31, 1940. She paid for 3 years a total of $24.75, lived to be 100 and collected $22,888.92 in benefits.
- #6: One important factor in determining your Social Security benefit is your “Full Retirement Age.” This age is based on the year you were born, and determines when you can begin collecting full Social Security benefit payments. Find your birth year on this chart. Were you aware of your Full Retirement Age?
- #7: While your Full Retirement Age must be reached to collect your full retirement benefit, you can begin collecting Social Security benefit payments as early as age 62. It is important to know that if you elect to begin receiving your benefit at age 62, you will be collecting a reduced amount – which could be even less if you continue working. Electing before Full Retirement Age may reduce your benefit by 20 -3 0%, while electing after Full Retirement Age may increase your annual benefit by 7 -8 %. INTERESTING FACT: In 2009, 74% of Americans (nearly 32.3 million people) received reduced benefits because they elected to begin taking their benefit payments before Full Retirement Age. Source: Social Security Administration Annual Statistics Supplement, 2009.
- #8: Awareness of key decisions is a critical first step to maximizing your Social Security benefit. So, just being here today can help ensure that you get the most from your benefit. Let’s take a look at the potential impacts of 1) electing benefits early versus late, 2) working while collecting your benefit, 3) examining your tax situation, and 4) considering your spouse’s Social Security benefit.
- #9: When it comes to collecting your Social Security payments, you have three basic options: 1.) Begin collecting a reduced benefit as early as age 62. A reduced benefit means lower monthly payments. In general, the earlier you begin collecting, the lower your monthly payments will be. 2.) Collect your full benefit at your Full Retirement Age. 3.) Delay receiving your benefit up to age 70 and receive higher monthly payments.
- #10: Another key consideration is whether or not to continue working after you have elected to receive your benefit. If you are collecting the benefit while working, and you have not yet reached your Full Retirement Age, your benefit may be reduced. Once you reach your Full Retirement Age, you can work with no reduction to your Social Security benefit. If you do have benefits withheld, your benefit at Full Retirement Age will be adjusted to compensate for the reduction.
- #11: Your tax situation is another important factor to consider. A portion of your Social Security benefit may be taxed, depending on your Provisional Income. Provisional Income is Adjusted Gross Income plus tax exempt income plus 50% of Social Security benefits, so you should talk with someone to determine your Provisional Income amount. This chart provides general tax rates by income level. Because taxes vary based on your earnings and location, you will want to consult with <me/your financial professional/your tax advisor> about this.
- #12: If you are married, and both eligible to collect Social Security benefits, it is important to assess your age and benefits together. A lower -e arning spouse may be eligible for up to 50% of the higher -e arning spouse’s benefit. Understanding your options can help you to maximize your household Social Security benefit. Review chart.
- #13: The &quot;Spousal Benefit&quot; provision enables a married person to take his or her own benefit, or 1/2 of their spouse’s benefit, whichever is higher. For the spouse to be eligible for 50% benefit, the other spouse must have filed for their personal retirement benefit. Spousal benefits are based upon the spouse’s Full Retirement Age, but will be reduced if the spouse elects benefits early. This provision provides a flexible option to help couples generate income. The benefits of both spouses should be considered before electing this provision. In this example of married couple Sam and Ann: at age 66, Ann can claim a higher benefit by electing her spousal benefit ($1,035) rather than her individual benefit ($900). Be sure to consider age and benefit amounts for both you and your spouse to determine maximum benefit. INTERESTING FACT: The smallest Social Security payment ever made was for 5 cents.
- #14: Social Security offers several provisions that can have a big impact on your overall financial plan for retirement. Understanding these provisions may help you increase your benefit. Claim and Suspend Some retirement-age individuals may decide to work longer or to re-enter the work force. A married couple over the Full Retirement Age, where the higher wage earner elects to continue working, has the option to increase their Social Security benefits using the Claim and Suspend strategy. The Claim and Suspend provision allows individuals (typically the higher wage earner or one-earner couples) who have claimed benefits to suspend their benefits. This allows the spouse to receive half of the working spouses ’ suspended benefit. When full benefits are reinstated down the road, the couple will receive a higher benefit amount, potentially enhancing the value of their lifetime benefit. Claim Now/Claim More Later allows married couples at Full Retirement Age to claim one -h alf of their spouse’s benefit, delay taking their own benefit so it earns delayed retirement credits, and then claim their higher personal benefit at a later age. This provision only applies to married couples, and you both must have an earning history. Depending on longevity and the age each spouse elects to receive benefits, the Claim Now, Claim more Later provision may provide the highest level of lifetime payments. In addition, if one spouse becomes eligible to receive a survivor benefit, it automatically increases to the highest benefit being paid between the spouses. Do -O ver allows individuals to change their earlier claiming decision. For example, if you claim your Social Security benefit at age 62 but now, at age 70, wish you had a higher benefit, you can use the do -o ver option but must pay back the benefits you’ve received and start receiving the higher amount. Social Security is typically adjusted each year to rise with inflation; however, there was no Cost of Living Adjustment for Social Security in 2010 and an adjustment is not likely for 2011. This hasn't happened in 35 years. Cost Of Living Adjustment is tied to inflation, and is not guaranteed.
- #15: As we wrap up our time together, I want to be sure you understand that the key to success is to plan carefully – and that there are actions you can take right now to help ensure that you maximize your Social Security benefit. <I/Your financial professional> can provide guidance as you: • Calculate what you expect to receive from Social Security • Determine your plan to maximize your benefit • Apply for retirement benefits Working through this process with <me/your advisor> is a great way to ensure that you consider all of your options. I’d like to meet with each of you to help get you started, and will be in touch to schedule a meeting time that works for you. OPTIONAL (depending on availability of approved resource): I have provided several tools to help you get started. The Social Security Investor Guide is a tool you can take with you that provides information similar to what we covered during this session. I encourage you to review it and call me if you have questions or when you are ready to start planning. Within the guide is a worksheet to help you outline monthly retirement income calculations and scenarios. I can help you complete this worksheet as a first step in your planning process. It can be very helpful to review different scenarios. Please turn to the back page of the Investor Guide. You’ll find a tear -o ut sheet that requests some basic information. I’d like you to tear this out, complete it... and then hand it to me as you exit.
- #16: When we meet, please bring these items to our appointment: Most recent Social Security statement Most recent tax return Most recent pay statement from employer Latest statements from all retirement plans Latest statement from mutual funds Life and disability insurance policies Annuity contracts Wills and trust document(s)
- #18: During your working years, your focus was saving for retirement. In retirement, your focus shifts to creating a plan to withdraw income from savings to support your spending needs. You may reduce your risk of running out of savings during retirement by understanding and planning for key retirement income risks. Read slide.
- #19: During your working years, your focus was saving for retirement. In retirement, your focus shifts to creating a plan to withdraw income from savings to support your spending needs. You may reduce your risk of running out of savings during retirement by understanding and planning for key retirement income risks. Read slide.
- #20: While your Full Retirement Age must be reached to collect your full retirement benefit, you can begin collecting Social Security benefit payments as early as age 62. It is important to know that if you elect to begin receiving your benefit at age 62, you will be collecting a reduced amount – which could be even less if you continue working. Electing before Full Retirement Age may reduce your benefit by 20 -3 0%, while electing after Full Retirement Age may increase your annual benefit by 7 -8 %. INTERESTING FACT: In 2009, 74% of Americans (nearly 32.3 million people) received reduced benefits because they elected to begin taking their benefit payments before Full Retirement Age. Source: Social Security Administration Annual Statistics Supplement, 2009.
- #21: I can help you consider products that may help prepare your portfolio to maximize your retirement income. This matrix provides a general idea of the potential benefits of each product.
- #22: Read from slide.
- #23: Historic/Traditional Fixed-Income Solutions You may be trying to figure out your income strategy based on your needs with your financial professional. Short Duration What purpose do short duration solutions provide us in a portfolio? If you're seeking preservation, you may be looking at cash or short-term investment options. Core What purpose do core holdings usually serve in a portfolio? You may be discussing the options with your financial professional if you're striving to maintain value and generate some yield. Spread Yield Alpha Now, based on our Social Security conversation today, you may be thinking about discussing some investment options that may have the potential to generate a higher yield. Investments with potential for higher yield also have increased risk, including possible loss of principal. For example, – High Yield, Preferreds, REITs, MLPs, EM Debt, Dividend-paying stocks
- #24: Read from slide.
- #25: Read from slide.