Consumer Aquisition Presentation

1. Social Security Surprising Claiming Rules and Unique Circumstance with Real Case Studies

2. 2 Learning Objectives 1. Identify claiming strategy options for widow(er)s 2. Specify qualifications and amounts for dependent benefits 3. Recall financial impacts of non-covered pension rules

3. 3 Presentation Overview • Review of Social Security Basics • Common Client Considerations • Social Security Taxation • Tying it all Together • Future of Social Security • Staying informed

4. 4 Importance of Social Security Value to Clients • Different circumstances • Majority of retirement income • Claiming age - only one consideration • Few resources available Clients will come to you $111K lost by average American household 96% of people get less than they should

5. Review of Social Security Basics

6. 6 Survey of Social Security Basics True = Blue False = Orange

7. 7 Social Security Terminology Full Retirement Age FRA Primary Insurance Amount PIA Average Indexed Monthly Earnings AIME Cost of Living Adjustment COLA Primary and Secondary Wage Earners

8. 8 Full Retirement Age (FRA) BirthYear* Full RetirementAge 1943-54 66 1955 66, 2 months 1956 66, 4 months 1957 66, 6 months 1958 66, 8 months 1959 66, 10 months 1960 &higher 67 *If birthday is on the 1st, assumeborn the prior month. If birthday is January 1st , refer to previous year.

9. 9 Calculating Retirement Benefits Qualification 40 Quarters of Coverage (2022 credit = $1,510) Average Indexed Monthly Earnings All covered annualearningsare indexed. The highest 35 years are used to determine the average indexed monthly earnings.

10. 10 Calculating Retirement Benefits $0 $2,000 $4,000 $6,000 $8,000 Calculating PIA $1,024 $6,172 $ AIME 32% 0.90 x 1024 =$922 15% AIME = $7,000 90% 0.32 x 5,148 =$1,647 0.15 x 828 = $124 PIA = $2,693 Primary Insurance Amount

11. 11 Social Security Reductions and Credits ClaimingAge Monthly Benefits % of PIA 62 $1,885 70 Benefit is Reduced 63 $2,020 75 64 $2,154 80 65 $2,334 87 66 $2,513 93 67 (FRA) $2,693* 100 PIA Amount 68 $2,908 108 Benefit is Increased 69 $3,124 116 70 $3,339 124

12. 12 Earnings Test Pitfalls *Exempt amountsfor 2022 Collecting While Working • $1 for every $2 earned above $19,560* • $1 for every $3 you earn above $51,960* • No earnings limits FRA+ FirstYear Rule - Overpayment- Recalculation

13. Withdraw Application • 12 months only • Pay back benefits received Voluntary Suspension • At or after FRA • Benefits increase again • Reinstateafter FRA, up to 70 Disability benefits • Becomes retirement benefit at FRA • Voluntarysuspension available 13 Already Collecting Benefits?

14. Common Client Considerations

15. 15 Survey of Client Considerations True = Blue False = Orange

16. 16 Covered vs. Non-Covered Pensions Covered Pensions Non-Covered Pensions Payroll contributions to Social Security Not subject to Social Security reductions Work at private or public companies No payroll contributions to Social Security Subject to Social Security reductions Work at federal, state, or local agencies

17. 17 Windfall Elimination Provision (WEP) Important Considerations: • Cannot zero out the retirement benefit • Dependent benefits are also reduced • Cannot reduce the benefit amount by more than half of the pension amount WEP modifies the PIA calculation Applies if collecting both: 1. A non-covered pension 2. Retirement or disabilitybenefits

18. WEP PIA Calculation 18 Substantial Earnings Thresholdof earnings defined yearly by the SSA. 2022 amount: $27,300. ?%

19. 19 WEP Case Example Mike has non-covered pension earned during 17 years as a teacher. He also worked 18 years as an engineer (with substantial earnings). His AIME is $7,000. ?% 40%

20. 20 WEP Case Example

21. 21 Government Pension Offset (GPO) GPO reduces benefits by 2/3 of the pension Applies if collecting both: 1. A non-covered pension 2. Spousal or survivor benefits Important Considerations: • Can eliminatethe benefit • If pension is taken as lump-sum, GPO is calculatedas if taken monthly

22. 22 Foreign Pension Reductions Windfall EliminationProvision Retirement and Disability • May reduce in the same way as a U.S. pension • Calculate substantial earnings to adjust PIA • There are exceptions - Screening tool at SSA Government Pension Offset Spousal & Survivor • Does not apply to foreign pensions

23. 23 Maximum Life Expectancy At 65, Likelihood of Maximum Life 71% 31% 3% 60% 20% 2% 88% 45% 4% 80 Years 90 Years 100 Years Women Men Couple (at least one)

24. 24 Dependent Types Spousal Disabled Children Survivors Divorced Minor Children and Child-in-Care Spousal

25. 25 Spousal Benefits Claiming Age % of PIA 62 32.5 Benefit is Reduced 63 35 64 37.5 65 41.66 66 45.83 67 (FRA) 50 Maximum Spousal Benefit • Maximum at FRA • Reduced before FRA • Married at least 12 mo. • Spouse must be collecting retirement benefit

26. BothClaim at 62 Amount Paul claims retirement benefits at 62 $2,100 Alice claims spousal benefits at 62 $ 975 Total Monthly Benefit at 62 $3,075 26 Couple with PIA Difference Paul and Alice • Age 62 • FRA 67 • LE 85 • Paul’s PIA $3,000 • Alice’s PIA $1,000 BothClaim at FRA Amount Paul claims retirement benefits at 67 $3,000 Alice claims spousalbenefits at 67 $1,500 Total Monthly Benefitat 67 $4,500

27. 27 Couple with PIA Difference Maximized Strategy Amount Paul claims retirement benefits at 70 $3,720 Alice claims spousalbenefits at 67 $1,500 Total Monthly Benefitat 70 $5,220 *Alice claim $1,000 RBat FRA, $1,500 SBat 70

28. 28 Minor Children Qualifications: 1. Child under age 18 (or 19 if still in high school) 2. Parent collecting retirement or disability Benefit Amount: 1. Up to 50% of parent’s PIA 2. Limited by family maximum benefit 3. Subject to earnings test

29. 29 Disabled Children Qualifications: 1. Child disabled before age 22 2. Child unmarried 3. Child must not have substantial income 4. Parent collecting retirement or disability Benefit Amount: 1. Up to 50% of parent’s PIA 2. Limited by family maximum benefit 3. Subject to earnings test

30. 30 Child-in-Care Spousal Qualifications: 1. Caring for child who qualifies for benefits Benefit Amount: 1. Up to 50% of spouse’s PIA 2. Limited by family maximum benefit 3. Subject to earnings test

31. 31 Children Case Study George, 62 Jill,54 LE: 90 90 FRA: 67 67 PIA: $2,200 $500 Sammy, 13 Graduates at 18 File at 62 Combined Benefits Over Time 1,540 1,540 1,540 1,540 500 880 600 880 1,100 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 Sammy is 16 (Lose child- in-care spousal) $2,640/mo . Claim at 62 (Receive child and child-in- care spousal) $3,300/mo. 2 years Sammy is 18 (Lose child benefit) $1,540/mo. 9 years Jill files at 67 (Her max benefit) $2,640/mo. 15years

32. 32 Children Case Study Considerations • Age difference • Survivor benefits • Lifetime benefits $0 $250,000 $500,000 $750,000 $1,000,000 George at 62 Jill at 67 (with child benefits) $958,320 Both at 67 (No child benefits) $1,016,400 George at 70 Jill at 67 (No child benefits) $1,075,000 Lifetime CombinedBenefits

33. 33 Survivor benefits: Married & Divorced MarriedRequirements • Married for 9 months or more DivorcedRequirements • Married for 10 or more years • Not re-married before age 60 Filing Age Survivor Benefit Reduction% 60 71.50 61 75.58 62 79.65 63 83.72 64 87.79 65 91.86 66 95.93 67 (FRA) 100 68 100 69 100 70 100

34. Survivor Benefits: Dependents 34 Child-in-Care Widow(er) • Caring for child under 16 • Caring for disabledchild if disabled before age 22 75% of PIA Children • Under 18 (19 if in high school) • Disabledchild if disabled before age 22 Parents • Relied on child for majority of income

35. 35 Survivor Benefits: Additional Facts • 82.5% Rule Benefit not less than 82.5% of deceased’s PIA • Survivor FRA Varies from other benefits if born 1954 - 1962 • Lump-Sum Death Payment $255.00 paid to eligible spouse or dependents Survivor Benefits All Other Benefits 1945-1956 66 1943-1954 66 1957 66 and 2 months 1955 66 and 2 months 1958 66 and 4 months 1956 66 and 4 months 1959 66 and 6 months 1957 66 and 6 months 1960 66 and 8 months 1958 66 and 8 months 1961 66 and 10 months 1959 66 and 10 months 1962 and later 67 1960 and later 67 Full Retirement Age by Birth Year

36. 36 Survivor Benefits: LGBTQ+ Historically denied, now available Who is eligible? If not married, may prove eligibility through discussion and providing documents.

37. 37 Age and PIA Differences Couple considerations • Sharon collects spousal at age 75 • Mark determines survivor benefit • What is increase for Sharon? • Comparison of total survivor benefits Mark, 65 LE: 85 FRA: 67 PIA: $3000 Sharon, 55 LE: 90 FRA: 67 PIA: $ 500 Sharon’s Claiming Age 62 65 FRA 67 Sharon Spousal Benefits $1,500 $625 $488

38. 38 Survivor Benefit Case Study Sharon’s survivor benefits 15 years • Mark at 65 - $468,000 • Mark at FRA - $540,000 • Mark at 70 - $669,600 Mark, 65 LE: 85 FRA: 67 PIA: $3000 Sharon, 55 LE: 90 FRA: 67 PIA: $ 500 Sharon Survivor Benefits $2,600 $3,000 $3,720 Mark’s Claiming Age 65 FRA 66 70

39. Social Security Taxation

40. 40 Survey of Social Security Taxation True = Blue False = Orange

41. • Other retirement income taxed • 1983 & 1993 Amendments • Combined Income thresholds • SS and Medicare Trust Funds When the Social Security program began, the U.S. Treasury ruled benefit payments would NOT be subject to taxation. 41 Taxation of Social Security Benefits

42. Adjusted Gross Income* + ½ Social Security Income + Tax-Exempt Interest = Combined Income Combined Income Formula Combined Income Thresholds 42 How Much is Taxed

43. Easier way, you pay the smallest of the “three-part test”… #1 – 85% of your SS benefits #2 – 50% of your SS benefits +85% of CI > 2nd threshold #3 – 50% of CI > 1st threshold +35% of CI > 2nd threshold 43 Taxable Benefit Calculation

44. Combined Income $36K AGI + $20K ½ SS $56K #3 of 3-part test: 50% of $24,000** = $12,000 35% of $ 12,000*** = $ 4,200 $16,200 #2 of 3-part test: 50% of SS = $20,000 85% of $12,000* = $10,200 $30,200 #1 of 3-part test: 85% of SS benefits = $34,000 Taxable Social Security = $16,200 Annual Income $36K AGI + $40K SS $76K *CI > 2nd threshold, ** CI > 1stthreshold, ***CI > 2nd threshold 44 Couple Case Study

45. Retirement Income, Represented by NAWI ($ thousands) 0 10 20 30 40 50 60 1983 1994 2005 2015 Combined income threshold amounts for singles $34K $25K Taxation Over Time $55,629 2020 NAWI 45 Who is Affected by This Tax?

46. Tying It All Together

47. 47 Survey of Retirement Planning True = Blue False = Orange

48. Achieving Highest Net Income • Shift from accumulation to decumulation • Professional team to review, evaluate • Income and assets • Taxes, legal, and legacy planning • Medical, insurance, long-term care • Lifestyle goals and expectations 48 Retirement Planning 101 “Decumulation,”or use of savings in retirement is “the nastiest, hardestproblem in finance.” NobelLaureate William Sharpe

49. Pensions Social Security Savings 49 Original Retirement Stability Stool

50. Life Insurance, Annuities Personal Savings, Investments Individual Retirement Plans, IRAs Employer Retirement Plans, 401k & 457 Social Security, DB Pensions, Reliable Income 50 Retirement Stability Pyramid

51. Social Security, Pensions Essential Expenses IRAs, 401(k), 403(b) Investments, Savings Discretionary Expenses 51 Income Streams in Retirement

52. Social Security Decision Asset Allocation Withdrawal Order Social Security Taxation Financial Decisions Standard of Living Required Minimum Distributions 52 Retirement Planning Decisions

53. Shifting Taxable Investmentsfrom Income to Growth 53 Managing Asset Allocation Retirementadvice…

54. Future of Social Security

55. 55 Survey of Future of Social Security True = Blue False = Orange

56. OASDI Trust Funds • Pandemic effects • “Pay as you go” system • Trust fund reserves depleted 2034 • Still pay 78% of scheduled benefits • Broad continuum policy options Highlights Trustees 2021 Report

57. Increases Benefits, Strengthens Trust Fund • 2% increase all beneficiaries • Improved COLA formula • Repeals WEP & GPO • Improved widow(er) benefits • Caregiver credits • FICA paid on over $400,000 57 Social Security 2100 Act: A Sacred Trust

58. Fully Repeal • Larson (D-CT) SS 2100 Act, funding • Davis (R-IL) H.R. 82, no funding Modify WEP Only • Brady (R-TX) H.R. 5834 • Neal (D-MA) H.R. 2337 58 Proposed Changes to WEP & GPO

59. • Survivor benefits • Not always best to wait until 70 • Earnings test pitfalls • Be a Social Security Advocate 59 Review of Topics

60. Staying Informed

61. 61 NARSSA.ORG NationalAssociationof Registered Social Security Analysts RSSA.COM Official Registered Social Security Analystwebsite Social Security: AnswersFrom The Experts Podcast RSSA Newsletter 61 Resources

62. Step 1: Sign Up for RSSA Program Step 2: Complete Self-Study Modules Step 3: Pass RSSA Final Exam 62 Become a Social Security Expert

63. Thank you

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