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Maximizing Social SecurityKnowing what you can do,So you can know what you should do!??????????????????????????????????????????????????????????????????????????????????????? Fifth Edition562927548323500Copyright ? 2018 David P. Vick. All rights reserved.This workbook was prepared to provide the reader with accurate and reliable information about the subject matter covered. The advice and strategies contained herein may not be suitable for your situation. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, tax, or other professional services. If you require legal advice or other expert services, you should pursue the help of a competent professional. Maximizing Social SecurityContentsPage4???????????????????????????? What is Full Retirement Age (FRA)?5???????????????????????????? By the Numbers6???????????????????????????? Yesterday & Today7???????????????????????????? Qualifying for Social Security Benefits8???????????????????????????????????????????? Benefits for Spouses9???????????????????????????????????????????? Benefits for Divorced Spouses10?????????????????????????????????????????? Benefits for Widows and Widowers11?????????????????????????? Working While You Receive Benefits12?????????????????????????? Calculating Your Retirement Benefits14?????????????????????????? How to Find Your Social Security Benefit Amount15?????????????????????????? Taking Benefits Before Full Retirement Age 18?????????????????????????? How COLAs Affect Benefits20?????????????????????????? Taxation of Benefits21?????????????????????????? Windfall Elimination Provision & Government Pension Offsets22?????????????????????????? Medicare & Social Security23?????????????????????????? The Future of Social Security: Solvency Issues and Reform Proposals25?????????????????????????? Strategies for Maximizing Your Social Security26?????????????????????????? Principles of Retirement Planning28?????????????????????????? Challenges to Creating Retirement Income29?????????????????????????? Six Pillars of Retirement Income37?????????????????????????? Endnotes38?????????????????????????? Answer KeyWhat is Full Retirement Age or FRA?FRA - Full Retirement Age or Normal Retirement Age - age eligible to receive full or unreduced benefits. Benefits as early as age 62 and as late as age 70.Born after 1937, FRA later than age 65Born after 1937, greater reduction in benefits taken before Full Retirement Age.Age To Receive Full Social Security Benefits (FRA)1937 or earlier65?193865 and 2 months?193965 and 4 months?194065 and 6 months?194165 and 8 months?194265 and 10 months?1943 to 195466?195566 and 2 months?195666 and 4 months?195766 and 6 months?195866 and 8 months?195966 and 10 months?1960 and later67?By the Numbers_____ – August 14, President Franklin D. Roosevelt signed into law the Social Security Act. Originally, only primary workers were to receive benefits, but the code changed in 1939 to include survivors’ benefits and benefits for the retiree’s spouse and children. (1)_____ – Taxes (Federal Insurance Contributions Act or FICA) began to be collected for the Social Security Act. The first person to receive regular monthly benefits was Ida May Fuller, from Ludlow, Vermont. (2)_____ – Regular monthly benefit payments began. (3)1956 – Disability benefits were added. (4)_____ – Cost of Living Adjustments (COLA) were written into the code and first paid in 1975. Prior to that Congress created increases for benefits on an irregular basis. (5) 453.7 Million – Social Security numbers issued since November 1936. (6) 222,488 – Number of Americans receiving Social Security benefits in 1940, less than 1% of the total population. (7)61 Million – Number of those receiving Social Security Benefits in 2017, about 20% of the population. (8)$22.71 – The average monthly benefit for a retired worker in 1940, the first year that benefits were paid monthly. (9)______ – The average monthly benefit for a retired worker in January 2018. (10)_____ to 1 – The ratio of workers paying into the system for every beneficiary in 1940. (11) _____ to 1 – The ratio of workers paying into the system for every beneficiary in 2017. (12)_____ to 1 – The ratio of workers estimated to be paying into the system for every beneficiary in 2035. (13)_____ – The year it is estimated that the Social Security Trust Fund will run out of money. (14)Social Security: Yesterday & Today355092054229000When people refer to Social Security, what they really are referring to is _____________________________________________________________________________, which provides retirement benefits when someone retires, or benefits to survivors when someone passes away who has paid into the OASDI fund or benefits to someone who becomes disabled. Franklin D. Roosevelt signed the Social Security Act of 1935 on August 14th of that year and began the tradition of regular monthly benefits to retirees, which started in 1940. -177803746500First monthly check to Ida May Fuller, January 1940, ?????????????????????????????????????????????? then 65, of Ludlow, Vermont for the amount of $______ She had retired in November of 1939. She received her first increase in benefits in 1950. She passed away in 1975 at age 100.Social Security taxes (FICA) paid by companies and their employees aren’t deposited into individual accounts, gaining interest until retirement as many believe. Rather taxes are used to pay the benefits for those currently in retirement and for beneficiaries and workers who become disabled or the families of deceased workers. The excess tax after paying for those obligations goes into the Social Security Trust Fund and receives interest.Initially, the Full Retirement Age (FRA) was 65, yet in 1983, the code changed to make the FRA between ages 65-67, which phased in around 2003. Qualifying for Social Security BenefitsBenefits Tied to Your Work Record????? Social Security uses “credits” in relation to your work record. Must have a minimum amount of credits to qualify for each type of Social Security benefit. Credits stay on recordIf you don’t have enough credits, you don’t receive benefits.Social Security taxes (FICA) Earn up to a maximum of four “credits” each year. Crediting system changed in 1978. One credit in one year as of 2018 is $1,320. $5,280 of income in a year to earn the maximum four credits. Dollar amounts counted toward “earned income” cannot be pension payments, interest, or dividends on savings and investments.To qualify you need to have a minimum of ______ credits, which is ______ years of work. Highest 35 years of indexed earnings determines the amount of monthly benefit. This formula was built to give every covered person about the same amount of benefits proportionately over their retirement. Low average lifetime earnings in Social Security-covered employment would receive a benefit that is a larger proportion of their earnings than workers with high average lifetime earnings.Benefits for SpousesA nonworking spouse will receive ____ % of their spouse’s benefit if they apply at full retirement age.If the spouse applies at age 62, their benefit is reduced by as much as ____ % depending on their FRA.Spousal benefits are gender neutral. Spousal benefits don’t earn delayed credit.left1524000If a wife applies before full retirement age, she’ll receive her own reduced benefit first.? If the spousal benefit is higher than her own benefit, an amount will be added to her own benefit so the combined benefits equal the spousal benefits. left1333500If her spousal benefit is not higher than her personal benefit, she will not be paid a spousal benefit, but receive her own higher benefit.left3048000If application is made after full retirement age, a spouse has the option to choose to receive their own benefit or to receive their spousal benefit.? For example, if the spouse selects their spousal benefits, then their own benefits can build delayed credits, for more? income at a later date and through retirement, IF THEY WERE AGE 62 AS OF 1/1/16!?left7747000Between a husband and wife, one or the other has to file for and receive benefits in order for the other to receive spousal benefits.? For example, the husband must file for and receive benefits in order for the wife to receive spousal benefits. Both spouses cannot claim spousal benefits, it must be one or the other.-304804635500It’s important to remember, spousal benefits don’t earn delayed credits. If a spouse’s benefit is higher than her personal benefit it is not to her advantage to delay claiming the spousal benefit past full retirement age. Yet, if the husband is younger, sometimes it is ??????? necessary for the wife to file for her spousal benefit after the husband’s full retirement ???????? age, because she would not be eligible for the higher spousal benefits prior to her ??????????? husband claiming his at full retirement age.-152405461000Considering when to receive spousal benefits can be complicated when accounting for all factors such as age, health, and other income sources. ?Benefits for Divorced SpousesThe benefits as a divorced spouse are the same as the spouse if:Currently ______________.At least age ____.Had been married at least ______________.Worker (ex-spouse) is receiving a retirement or disability benefit if divorced for ___ years or less**(If divorced for greater than 2 years, the worker does not have to be receiving a SS benefit.)The divorced spouse must provide identifying information about the ex-husband and documentation showing the dates of the marriage and divorce. The ex-husband doesn’t need to know the divorced spouse has filed for benefits or be involved in any way for the divorced spouse to claim benefits and his own benefits are not affected. Divorced spouse can maximize her benefits by:Receiving the divorced spouse benefits from ages __________.Letting her own benefit receive delayed credits until age ____.Benefits for Widows and WidowersA spouse may switch to her husband’s higher benefit at his death or vice versa. Survivor benefit will be based on the high earning husband’s benefits, including any delayed credits.The husband need not have already applied for the widow to receive the higher benefit. A widow may claim benefits as early as age 60, or 50 if they are disabled. Normal reduction for receiving benefits early will apply. If a widow remarries before claiming at age 60, the survivor benefit is disallowed, unless that marriage ends. If a widow was married at least ten years and their spouse dies, whether they were still married or divorced at the time of the death, they may be entitled for a survivor benefit. If the survivor remarries before age 60, there will be no survivor benefit unless that marriage ends.Widows and widowers who qualify for benefits based on their own work credits may want to take advantage of delayed credits on their benefits until age 70 while receiving survivor benefits at age 60. Earnings Test still applies prior to full retirement age. Coordinating the survivor benefits and their own earned benefits in this manner can also maximize benefits for a divorced spouse. Working While You Receive BenefitsUntil you reach full retirement age, month working may __________ your benefit amount. Once you reach FRA, your benefits are recalculated to leave out the months that were withheld because of your excess earnings.It’s important to remember:Excess earnings adjustments end once you reach full retirement age and month. Only wages from employment or self-employment earned income count toward the adjustment. Interest, dividends, withdrawals from IRAs, pensions and capital gains are not included.Social Security uses a formula to determine how much your benefit must be reduced:If you are under FRA for the entire year, they deduct $1 from your benefit payments for every $2 you earn above the annual limit ($17,040 in 2018). In the year you reach FRA, Social Security will deduct $1 in benefits for every $3 you earn above a different limit, but they only count earnings before the month you reach your full retirement age ($45,360 in 2018).You can get your benefits with no limit on your earnings starting with the month you reach FRA, even if you are not already receiving benefits prior to FRA, it would be wise to contact Social Security at the beginning of the year you reach FRA as you may be able to receive more benefits for the months before you reach FRA. Calculating Your Retirement BenefitsFRA: ___________________________________ You may start taking benefits as early as age ____ and as late as age ____Born after ________ your full retirement age will be later than age 65.Born after 1937 will have a greater reduction in benefits taken before their FRA.Age To Receive Full Social Security Benefits (FRA)1937 or earlier65?193865 and 2 months?193965 and 4 months?194065 and 6 months?194165 and 8 months?194265 and 10 months?1943 to 195466?195566 and 2 months?195666 and 4 months?195766 and 6 months?195866 and 8 months?195966 and 10 months?1960 and later67?PIA: _______________________________________ Tally each year’s earning on which Social Security taxes were paid and apply an index factor to each year.Total your ____ highest earnings years. Social Security Table - Maximum Taxable EarningsBoth self-employed income and regular wages that are covered by Social Security are subject to taxes each year up to a maximum amount.Maximum Taxable Earnings Each Year 1937 - 50 $ 3,000?1951 - 54 3,600?1955 - 58 4,200?1959 - 65 4,800?1966 - 67 6,600?1968 - 71 7,800?19729,000?197310,800?1974 13,200?197514,100?197615,300?197716,500?197817,700?197922,900?198025,900?1982$32,400?198335,700?198437,800?198539,600?198642,000?198743,800?198845,000?198948,000?199051,300?199153,400?199255,500?199357,600?199460,600?199561,200?1996 62,700?199765,400?1998$68,400?199972,600?2000?76,200?200180,400?200284,900?200387,000?200487,900?200590,000?200694,200?200797,500?2008102,000?2009106,800?2010106,800?2011106,800?2012110,100?20132014?113,700?117,0002015-16118,50020172018127,200128,400How to Find Your Social Security Benefit AmountSocial Security Website CalculatorsSocial Security online calculators to estimate how much your benefit may be. There are two calculators on the Social Security website that use your personal information () The Online Calculator - uses specific wage information you provide from your work record and applies the Social Security formula to give you your estimate. The Retirement Estimator- uses a combination of your personal information and estimates you provide regarding current and future income and Social Security wages they have on record for you and then applies the formula producing your estimate.Social Security Quick Calculator ( )Estimates benefits based on your input, the calculation is a “rough” estimate.367347515621000Using Your Online Statement to Estimate BenefitsThe “My Social Security” online account system can help you view your personal Social Security Statement and be a wealth of information during your wage earning years and after you retire. Simply go to myaccount and click on Create an Account (pictured above) to open an account and view your Social Security Statement. You’ll have to provide some information about yourself and answer a few privacyquestions, create a username and password. The site will show you your Estimated Benefit at Full Retirement Age and your Last Reported Earnings on the initial screen. You can download or print your Social Security Statement from here.Taking Benefits Before Full Retirement AgeYou can start receiving benefits as early as age 62, but you will receive a reduced benefit. The chart below illustrates age 62 percentage reduction amounts by year of birth. (15)Full Retirement and Age 62 Benefits by Year of Birth Percentage Reduction?????????????????????????????????????????????????????????????????????????????????????????????????????????????????? ??????????? At Age 62Year of birthFull Retirement AgeRetirement benefit reduced by this percentSpousal benefit is reduced by this percent1937 or earlier6520%25%193865 and 2 months20.83%25.83%193965 and 4 months21.67%26.67%194065 and 6 months22.50%27.50%194165 and 8 months23.33%28.33% 194265 and 10 months24.17% 29.17% 1943 to 19546625.00% 30.00% 195566 and 2 months25.83% 30.83% 195666 and 4 months26.67% 31.67% 195766 and 6 months27.50%32.50% 195866 and 8 months28.33% 33.33% 195966 and 10 months29.17% 34.17% 1960 and later6730%35%When would I breakeven?In considering whether to claim Social Security benefits early or wait until full retirement age or later, you would calculate benefits under two different scenarios.? First, you would look at the cumulative amount of taking benefits at a younger age, and then the cumulative amount of taking benefits at a later age.? Doing so will show you the age at which the cumulative amount of taking benefits at an older age “catches up” with the younger age scenario.? When you claim at a younger age you receive more checks over your retirement, but they will be at a reduced amount. Conversely, when claiming at a later age you receive fewer checks over the course of your retirement, but higher benefits each month. So, to do a break-even analysis you want to know how long you will need to live under the later claiming scenario to exceed the benefits claimed under the younger claiming scenario. Claim early = lower payments, longer period of timeClaim later = higher payments, shorter period of timeBreakeven = life expectancy at which amount received claiming later will exceed amount received claiming early Example: A male born 6/15/1955, who earned $84,000 in the current year (2018), using inflated dollars at the Social Security Trust Fund estimate of 2.7%.(16) Benefit amounts are estimates based on information from the Social Security Quick Calculator:AgeEarly MonthlyEarly AnnualEarly CumulativeFRA MonthlyFRA AnnualFRA CumulativeLate MonthlyLate AnnualLate Cumulative62$1,539$18,468$18,46863$1,581$18,967$37,43564$1,623$19,479$56,91365$1,667$20,005$76,91866$1,712$20,545$97,463$2,467$29,604$29,60467$1,758$21,099$118,562$2,534$30,403$60,01268$1,806$21,669$140,231$2,602$31,224$91,23669$1,855$22,254$162,486$2,672$32,067$123,30370$1,905$22,855$185,341$2,744$32,933$156,236$3,724$44,688$44,68871$1,956$23,472$208,813$2,819$33,822$190,058$3,825$45,895$90,58372$2,009$24,106$232,919$2,895$34,735$224,793$3,928$47,134$137,71673$2,063$24,757$257,676$2,973$35,673$260,466$4,034$48,406$186,12374$2,119$25,425$283,101$3,053$36,636$297,102$4,143$49,713$235,83675$2,176$26,112$309,213$3,135$37,626$334,728$4,255$51,056$286,89276$2,235$26,817$336,030$3,220$38,642$373,370$4,370$52,434$339,32677$2,295$27,541$363,570$3,307$39,685$413,055$4,487$53,850$393,17578$2,357$28,284$391,855$3,396$40,756$453,811$4,609$55,304$448,47979$2,421$29,048$420,903$3,488$41,857$495,668$4,733$56,797$505,27680$2,486$29,832$450,735$3,582$42,987$538,655$4,861$58,330$563,60781$2,553$30,638$481,373$3,679$44,148$582,803$4,992$59,905$623,51282$2,622$31,465$512,838$3,778$45,340$628,143$5,127$61,523$685,03583$2,693$32,315$545,153$3,880$46,564$674,707$5,265$63,184$748,21984$2,766$33,187$578,340$3,985$47,821$722,528$5,407$64,890$813,10985$2,840$34,083$612,423$4,093$49,112$771,640$5,553$66,642$879,75086$2,917$35,003$647,426$4,203$50,438$822,078$5,703$68,441$948,19287$2,996$35,949$683,375$4,317$51,800$873,878$5,857$70,289$1,018,481This person “breaks even” at age 75, if they claimed benefits at FRA rather than age 62. They break even at age 76, rather than age 62, and 78 compared to FRA.? In other words, if they take benefits at FRA, the cumulative total of benefits at age 75 is greater than the cumulative total if taken at age 62. The cumulative benefits claimed at age 70 are greater starting at age 76 than they are for the cumulative benefits if taken at age 62, and at age 78 versus taking benefits taken at FRA. Surviving Spouse ConsiderationsAnother consideration for the analysis of breakeven points is survivor income. Frequently, SS is considered to be a joint lifetime benefit. Surviving spouse is eligible to receive the SS benefit that the deceased was receiving or eligible to receive at death. Assuming a high- income earner and continued to work beyond age 62, surviving spouse benefits will be dependent upon when the deceased began SS benefits. Additionally, the benefit amount may be higher due to COLA adjustments.Life expectancy age 84????????????????? Benefits claimed at age 62:???????????????????????????????????????? $,2148 month??????????????????? $25,776/yearBenefits claimed at age 66 & 4 months: $2,949/month?????????????????? $35,388 /year??????????????????? ____ % more benefits??? Benefits claimed at age 70:???????????????????????????????????????? $3,845 /month????????????????? $46,140 /year??????????????????? ____ % more benefitsIt is important, when considering the breakeven and survivor benefit calculations that you take into consideration all factors such as family health history, life expectancy, standard of living, current health conditions, etc. How COLAs Affect BenefitsCOLA – ____________________________________Designed to keep up with inflationCOLAs announced in October - affects benefits starting in January.? COLAs are tied to the CPI-W Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Bureau of Labor and Statistics monthlySSA will compare each month of the third quarter with the same period the previous year to compute COLA adjustments.COLA for 2018 is ____ %. The Social Security Trustees use the inflation rate of ____ % for long term planning. Below is a graph showing the increases in Social Security benefits from 1950 to 2016. (18) Social Security Benefit Increases 1950-2018Effective DatePercent IncreaseEffective DatePercent IncreaseSep-5077.00%Dec-923.00%Sep-5212.50%Dec-932.30%Jan-657.00%Dec-942.80%Feb-6813.00%Dec-952.60%Jan-7015.00%Dec-962.90%Jan-7110.00%Dec-972.10%Sep-7220.00%Dec-981.30%Mar-747.00%Dec-992.50%Jun-7411.00%Dec-003.50%Jun-758.00%Dec-012.60%Jun-766.40%Dec-021.40%Jun-775.90%Dec-032.10%Jun-786.50%Dec-042.70%Jun-799.90%Dec-054.10%Jun-8014.30%Dec-063.30%Jun-8111.20%Dec-072.30%Jun-827.40%Dec-085.80%Dec-833.50%Dec-09NoneDec-843.50%Dec-10NoneDec-853.10%Dec-113.60%Dec-861.30%Dec-121.70%Dec-874.20%Dec-131.70%Dec-884.00%Dec-141.50%Dec-894.70%Dec-15? 1.70%Dec-905.40%Dec-16????? .30%Dec-913.70%Dec-17??? 2.0%Dec-18??? ??Taxation of Benefits_________________ Income is used to determine whether you will pay taxes on your Social Security benefits. Adjusted Gross Income – SS benefits + Municipal interest income= Modified Adjusted Gross Income (MAGI) + half of SS Benefits= Provisional Income (PI)Filing StatusProvisional IncomeAmount of Social Security benefits subject to taxMarried filing jointlyUnder $32,000$32,000 to $44,000Over $44,0000%50%85%Single, head of household, widow, widower, married filing separately and living apart from spouseUnder $25,000$25,000 to $34,000Over $34,0000%50%85%Married filing separately and living with spouseOver $085%For maximizing Social Security benefits, it may be beneficial to delay claiming until later while using your qualified accounts first. Since many believe taxes will be increasing over time, taking money first from your qualified accounts and letting Social Security gain a guaranteed 8% per year in delayed credits will maximize your benefits. Then couple your Social Security benefits and withdrawals from your non-qualified investments may make the best tax sense over time. A complete tax analysis may be the best way to determine this strategy for high-income earners.Windfall Elimination Provision & Government Pension OffsetIn the 1983 Amendments, Congress changed the way Social Security looked at those who worked both in a Social Security covered job and a job outside the system. Many hospitals, school systems, and county agencies opted out of the Social Security system as a part of their collective bargaining agreements. Many nurses, teachers, firefighters, and police officers derive pensions from their own retirement systems.The Windfall Elimination Provision created in the 1983 Amendments affected those who were “double dipping” into both the Social Security system and their own retirement systems. In other words, they had received both a pension from a non-covered job and their full benefits from a job they had worked at which was covered by Social Security. Someone could have worked ten years in a covered job, becoming eligible to receive benefits from Social Security and then gone on to a non-covered job and received a pension from that job.The Windfall Elimination Provision says that if you receive a pension from a non-Social Security covered job, your Social Security benefit will be reduced. Yet, the longer you work in the Social Security covered job, the less the reduction will be. There will be no WEP reduction if you have what is termed “substantial earnings” in a Social Security covered job for 30 years or more.Similar to the WEP is the Government Pension Offsetting (GPO). In the GPO, the spousal or survivor benefits are reduced by two-thirds the amount of the pension received by the person who worked in the non-Social Security covered job. So, if a wife entitled to her spousal benefit under her husband’s claim is receiving a pension from a non-covered Social Security job, then the Social Security benefits will be reduced by two-thirds the amount of the pension she is receiving.For example, if a wife was a nurse and is now receiving $2,100 a month from her non-covered hospital job, then any spousal benefit would be reduced by $1,400, which is two-thirds of $2,100. Most spousal benefits would be completely wiped out by such a reduction. To maximize your Social Security, you need to be aware of any reduction in your benefits due to WEP and GPO so you won’t overestimate your Social Security benefits when making an income plan for retirement.Medicare & Social SecurityThough Medicare is a different government entitlement program than Social Security, a basic knowledge of Medicare is helpful.Key items about Medicare to be aware:Medicare begins at age 65.If receiving benefits at age 65 from Social Security you will automatically be enrolled. If not receiving Social Security at age 65, you will not be automatically enrolled: if delaying benefits, enroll in Medicare three months before your 65th birthday or you will be penalized on your Part B premium for failure to enroll within 4 months after your 65th birthdayException to rule: still working and have insurance coverage through your employer’s plan or by a spouse’s group planMedicare is not free and does not cover all your healthcare costs. It has deductibles and copayments for hospital, doctors’ visits, prescription drugs, and more. Medicare has a very limited amount of nursing home benefits and does not cover typical long-term care needs.To maximize your Social Security benefits, it would be wise to gain some basic knowledge about how to avoid penalties for late enrollment, how to take advantage of benefits, and how to purchase additional coverage, if needed.The Future of Social Security: Solvency Issues and Reform ProposalsSocial Security is not like a 401(k) or IRA in which your funds are put on deposit for your retirement.It is a government run insurance program in which current wage earners support those receiving benefits in retirementMedicare and Social Security accounted for ____ % of the federal program expenditures 2016The OASDI trust fund currently holds about $ ________________. Social Security’s total expenditures have exceeded the amount of funds coming in through taxes since _______.The deficit is being covered by interest income from treasury securitiesAfter 2021, the Treasury will start to redeem trust fund asset reserves to pay for expenditures over the tax income and interest incomePredicts the total depletion of trust fund assets in 2034 Tax income will be able to cover about ____% of scheduled benefits through 2091In a Message to the Public on the Social Security website the following quote describes the current situation with funding benefits long term: “Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.” (18) Social Security reforms may include:Raising payroll taxes on high-income workersRaising the retirement ageRevising the formulas for future benefitsYou should not make decisions like delaying benefits based on the fear of Social Security going bankrupt. Strategies for Maximizing Your Social SecurityDelay claiming until later while using your _______________ accounts first. Social Security gains a guaranteed ____ % per year in delayed credits. Couple your Social Security benefits and withdrawals from your ___________________ investments at age ____.Get competent – experienced help FIRST!Factors to consider:Your retirement goalsCurrent healthFamily health historyRetirement assets such as 401(k), and IRA accountsFactors which will impact your longevity, needs and budgetDo you know how ALL your assets fit together with your SSB to fund your quality of life in retirement?The Equation is SimpleSSB + OIS = RISSB (Social Security Benefits)OIS (__________________________)RI (Retirement Income)Now for a Little ComplexitySSB + OIS(PI+AI+WDI+DI+II+RMD) = RIPI (_____________ Income)AI (_____________ Income)WDI (Withdrawal Income)DI (_____________ Income)II (_____________ Income)RMD (Required Minimum Distributions)Let’s not forget the complexity of taxation!(SSB-TOB) + (OIS*NET) = RITOB (Tax On Benefits)NET (________________________________)The Equation is Simple…or is it?What’s Not Simple?When?Age 62?FRA?Age 70?Spouse?How?Which assets to use first?Percent of guaranteed income?Percent of income from Market assets?Withdrawals?RMDs?Working after retirement?Why?Funding a budget?Or funding a quality of life in retirement?What does your dream retirement look like? Let’s make a list:????????????Challenges to Creating Retirement IncomeThere are a myriad of challenges to creating stable income in a constantly changing retirement landscape:_______________________________________________Inadequate savingsInflation_______________________________________________Uncertainty in the marketsRising healthcare costsUnrealistic expectations_______________________________________________It surely seems a daunting task considering the difficulties listed above. Yet, there are definite ways to overcome and, in fact, conquer these obstacles, creating a well-funded retirement lifestyle. Six Pillars of Retirement IncomeThere are six pillars to retirement income. Each pillar represents a foundation point for generating a secure income in retirement. They are:____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________One of the keys to success in retirement planning is the balance of guarantees and risk in both a portfolio of assets and an income plan.In other words, how much risk do you want in your retirement portfolio and income stream? In order to understand the level of risk, and the amount of liquidity and protection you want in your portfolio, you might consider the ABC Planning Model created by financial planner, author, and speaker, David P. Vick. The ABC Planning Model will help you determine how much liquidity, protection, and risk you currently have in your portfolio and how much you desire. It will also help you determine how to structure the mix of guaranteed income and risk oriented income for your retirement. For further reading on this subject, please read Mr. Vick’s Bat-Socks, Vegas & Conservative Investing, which highlights the simple-to-understand ABC Planning Model.The following section is taken from the course workbook Foundations of Retirement Planning by Mr. Vick and will help you understand the ABC Planning Model.The ABC Planning ModelThe challenge in retirement is to make your money last as long as you do. All of the challenges listed in the previous chapter strike at the heart of the issue: Will you have enough money to last 30-40 years in retirement? In order to answer that question, you must decide on your priorities when investing for retirement. There are typically three general priorities that people have: liquidity, protection, and returns. You must decide which of these are your greatest priorities and know how to develop a plan that gives you the right amount of each in your portfolio.The ABC Planning Model allows you to determine your liquidity, the amount of market risk you want in order to pursue higher gains and the protection of a certain percentage of retirement assets from exposure to market losses. Priorities are generally found in what you are willing to give up to in order to gain what you want. In other words, if you chase higher gains in the market, you give up protection. If you want more liquidity, you give up higher gains. Finally, if you want protection, you will have to give up some liquidity. Which is the greatest priority for you, liquidity, protection, or returns? The ABC Planning Model will allow you to develop a portfolio that will help you conserve your assets over the long haul in retirement. So, let’s take a look at how to “ABC” your portfolio.Category A are assets that earn low interest, are liquid and generally taxable, though they can be set up in tax-deferred accounts such as IRAs. This category holds your cash assets, so they are typically bank assets, CDs, savings accounts, checking accounts, and money market funds. They are protected by FDIC. Category A is short-term money: money you need for auto and home repairs, and vacations. Cash is king in category A.Category B - or green money assets - has returned roughly 3% to 7% over a five to ten-year period. They are tax-deferred and moderately liquid. This category holds protected principal assets. Generally, only ten percent of this column is initially liquid, but can develop more liquidity over time. Category B is long-term money, saved for retirement purpose: typically insurance products like Fixed Indexed Annuities (FIA) or Life Insurance. In this column, you can add an Income Benefit to your FIA to guarantee the income generated in this category. Category C is your growth, or red money. The market can give you higher returns over time, yet the challenge is managing the risk. This is your stock or bond type risk and you can invest in a world full of securities. Most of the money in America in this category is in retirement accounts like 401(k) and IRA accounts. Category C is the column where you give up protection to pursue higher returns. Three Green Money RulesRule #1: Protect your ______________Rule #2: Protect your ______________Rule #3: Protect your ______________What percent of your income do you want guaranteed?One of the most important decisions you will have to make in planning for 30-40 years of income in retirement is the sources you will take income from. Over the years, the general practice has been to develop a conservative portfolio of stocks and bonds and withdraw a certain percent from those assets each year. The standard for withdrawals has been ___ % in the industry, meaning that if you take ___% out of your retirement plans you should be able to make your money last a lifetime.Recent studies have shown that the 4% rule in today’s economy is definitely in question. If the 4% rule is flawed, then what are the alternatives? This is where the ABC Planning Model comes into play. Choosing a percent of assets to allocate to category B will allow you to guarantee the income for that portion of your portfolio. You can guarantee a portion of your income using Category B strategies and take withdrawals on your Category C assets. Doing so doesn’t put such a strain on your assets in the market in the event of a severe downturn, or continued or revisited low interest rates.One strategy is using a Fixed Indexed Annuity’s Guaranteed Withdrawal Benefit rider, which can guarantee income over the course of your retirement years. The example below shows an investment amount of $300,000 for a person age 59 looking to start guaranteed withdrawals at age 67. The annuity receives an 8% bonus and a roll-up rate (LIBR%) of 7%. At age 67 the Annual Income for Life is guaranteed to be $27,835. For any other asset, what would the after-tax return have to be, guaranteed now and for the rest of the person’s life? The answer is 6.91%. What other asset today would guarantee an after-tax return of 6.91% for the rest of this person’s life? The answer is simple: none.Disclaimer: This information is not intended to give tax, legal, or investment advice. Please seek advice from a qualified professional on these matters. Annuity Contracts are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC. When purchasing a fixed indexed annuity, you own an annuity contract backed by the insurance company, you are not purchasing shares of stocks or indexes. Product features such as interest rates, caps, and participation rates may vary by product and state and may be subject to change. Surrender charges may apply for early withdrawals. Be sure to review the specific product disclosure for more details. Guarantees are based on the financial strength and claims paying ability of the insurance company.Lifetime income benefit riders are used to calculate lifetime payments only. The income account value is not available for cash surrender or in a death benefit. Excess withdrawals may reduce lifetime income and may incur surrender charges. Fees may apply. Guarantees based on the financial strength and claims paying ability of the insurance company. See specific product disclosure for more details.What is your greatest priority?______________?? ______________?? ______________?Here are five simple steps to ABC your portfolio:Step One:???????????? Determine your Social Security Benefits? Step Two: ?????????? Determine the amount you want ________ in column AStep Three:????????? Determine the amount you want ________ in column CStep Four:??????????? Add A plus C and subtract from 100 to get your protected category B amountStep Five:???????????? Combine Your _____________ with your Social Security Benefits for your ________________________.It’s our hope that after taking a tour through these issues you’ll be ready to move forward with confidence in creating a plan for retirement income.? Yes, the landscape is changing, but it’s our belief that with the right tools and information you can easily stay ahead and prosper, living a well-funded retirement. Your tuition entitles you to a one-hour strategy session with your instructor in which you may receive a report on how to maximize your Social Security by integrating it with your assets to fund the quality of life you desire in retirement.Endnotes“Social Security Frequently Asked Questions” IbidIbidIbidIbid“By the Numbers: Social Security” ? 8/17/2012“Who gets Social Security?” National Academy of Social Science? ? June 2017“Average Monthly Social Security Benefits, 1940-2015” 12/30/2015“Fact Sheet: Social Security, 2018 Social Security Changes” “Ratio of Covered Workers to Beneficiaries”? 12/30/2015“Fact Sheet, Social Security Administration 2017” ?Ibid“2017 Trustees Report Summary” National Social Security Association Nov. 2017 news/press/factsheets/basicfact-alt.pdf “Retirement Planner: Benefits by Year of Birth”? ?“A Summary of the 2015 Annual Reports” 12/30/2015 “Life Expectancy Calculator” ?“History of Automatic Cost-of-Living- Adjustments” Answer KeyPage ??5?????????????????????????? 1935; 1937; 1940; 1972; $1,404;159 to 1; 2.8 to 1; 2.2 to 1; 2034 ??6?????????????????????????? Old Age, Survivor, and Disability Insurance; $22.54? 7?????????????????????????? Forty; Ten? 8?????????????????????????? 50%; 30%? 9?????????????????????????? unmarried; 62; ten years; 2 years; 66-70; 7011?????????????????????????? reduce12?????????????????????????? Full Retirement Age; 62; 70; 1937; Primary Insurance Amount; 3517?????????????????????????? 37%; 80%18?????????????????????????? Cost of Living Allowances; 2%; 2.7%20?????????????????????????? Provisional; 23?????????????????????????? 42%; $2.7 Trillion; 2010; 77%25?????????????????????????? qualified; 8%; non-qualified; 7026?????????????????????????? Other Income Source; Pension; Annuity; Dividend; Interest; Net Effective Tax28?????????????????????????? Life expectancy; Inadequate savings; Inflation; Taxation; Uncertainty in the markets; Rising healthcare costs; Unrealistic Expectations; Bad Advice29?????????????????????????? Pre-tax or qualified retirement accounts; Defined benefit plans: Corporate pension plans; Defined benefit plans; Personal pension plans; After tax or non-qualified savings; Tax-free accounts; Social Security and Medicare32?????????????????????????? Principle; Gains; Income; 4%; 4%34?????????????????????????? Gains; Liquidity; Protection; liquid; at risk; B Money; guaranteed income ................
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