Webinar Slides Flashcards
Your client works for Beta Corp and earns $150,000. The Social Security taxable wage base for the year is $100,000. How much Social Security and Medicare tax will your client pay in the current year? A. $11,475 B. $9,300 C. $8,375 D. $6,200
150000x 1.45 plus 100,000 x 6.2 = 8375
Understand 6.2 = Taxable Base….(SS)
1.45 = All Earnings…. (Medicare)
All the following statements concerning Social Security are correct EXCEPT: A. There are two Social Security and two Medicare trust funds B. Earn $10,000 for the current year and you will earn four coverage credits. C. A worker with 35 coverage credits is eligible for retirement benefits at age 62. D. Approximately 96% of working-age Americans are covered by the Social Security system
C. A worker with 35 coverage credits is eligible for retirement benefits at age 62 (40 Coverage Credits)
A : 2 SS Funds. Old age and survivor / Disability
2 Med Funds Part A and Part B B: True D: True
• The PIA for those who first become eligible in 2016 – 90 percent of the first $856 of his/her average indexed monthly earnings, plus – 32 percent of his/her average indexed monthly earnings over $856 and through $5,157, plus – 15 percent of his/her average indexed monthly earnings over $5,157
Provides a safety net –
Social Security benefits discriminate in favor of […] paid workers
– The more […] the lower the percentage of final salary that is replaced by Social Security.
– Illustration:
Single person at full retirement age earning $18,800 in 2013 receives benefit replacing 55% of income, earn the taxable wage base each year ($113,700 in 2013) and replace 25% of income.
Calculation will not be tested.
Understand Concept : Replacement Ratio:
– Social Security benefits discriminate in favor of lower paid workers –
The more affluent the lower the percentage of final salary that is replaced by Social Security.
Other Retirement Benefits • Workers with fully insured status once they claim, then –
Nonworking spouses 62 or older –
Spouse of any age if caring for child under 16 –
Dependent, unmarried children under 18 (under 20 if in secondary school) –
18 or older and disabled from a disability that started before age 22. –
Family maximum may apply if 3 or more benefits –
Unmarried divorced spouse if marriage lasted 10 years
spouses 62 or older
any age if caring for child under 16
unmarried children under 18
Family maximum may apply if 3 or more benefits taken
- Unmarried divorced spouse if marriage lasted 10 years*
- Does not impact the Family Maximum*
- Worker does not have to file first.*
- Will lose benefits if remarried -*
Social Security Statement • Paper statements –
Stopped sending out statements in 2011 –
Restated annual statements at age 60 –
Now send every five years from age 25—unless enroll for online statements •
Online benefit statement – “My Social Security” – Same information as paper statement
SS Tried to get people online …
Need to check every 2-3 years …
Same info as paper
Annual Statements if over 60
Statement information –
Full retirement age –
Earnings record –
Benefit estimates at 62,
Full retirement, 70 •
Links to information on – Windfall elimination/government offset – Future of Social Security – Considerations when making choices
Benefits at FRA
Benefits at 62 …earliest
Benefits at 70… latest
LINKS…Windfall Elimination / Gov;t offset
• Social Security
– For 1 in 5 retirees SS is only source of income
– For 1 in 3 retirees SS is 90% of income
– For 2 in 3 retirees SS is more than 50% of income.
– Ratios not expected to change over time
– As retirees age they become more dependent
– Widows very dependent on SS
• Social Security
– For 1 in 5 retirees SS is only source of income
– For 1 in 3 retirees SS is 90% of income
– For 2 in 3 retirees SS is more than 50% of income.
– Ratios not expected to change over time - no change in trends are currently noticed
– As retirees age they become more dependent - Assets are being spent down …decumulation
– Widows very dependent on SS…Surviving spouse often seem to have tougher financial times.
Theories of why people claim early
– Financial ignorance
– Social norms
– Those with DB plans claim when they retire—those with a DC plan can choose larger
withdrawals to support deferral
– Fear of Social Security failing
– Break-even, concerned about dying young
Theories of why people claim early
– Financial ignorance - More literate tend to wait longer
– Social norms - Anchor points —Seems like the thing to do..duh I’m 65!!!
– Those with DB plans claim when they retire—those with a DC plan can choose larger withdrawals to support deferral
–Less flexibility with DB Plans than DC plans…DB doesn’t start til 65 for example.
Fear of Social Security failing - Stupid. Will change but not be gone
– Break-even, concerned about dying young - Failure to understand Insurance against longevity concept.
Benefit Calculation
- Use PIA formula in year attain age 62
- Formula uses AIME (average indexed monthly earnings)
– Earnings prior to age 60 are indexed for inflation
– Earnings are capped at the taxable wage base
– Considers the highest 35 years of earnings
(less than 35 years of work—zero’s in calculation of average earnings
Benefit Calculation
- Use PIA formula in year attain age 62 regardless of when claimed
- Formula uses AIME (average indexed monthly earnings)
– Earnings prior to age 60 are indexed for inflation
– Earnings are capped at the taxable wage base
– Considers the highest 35 years of earnings
(less than 35 years of work—zero’s in calculation of average earnings
Full Retirement Age - determined by Birth Date
• 1943 – 1954 66
• 1955 to 1959 +2 months each year
• 1960 and later 67
Full Retirement Age
- 1943 – 1954 66 (1943 plus 11 = 1954)
- 1955 to 1959 +2 months each year6
- 1960 and later 67 (Sixty - Sixty Seven)
What is your client’s full retirement age if she was born August 11, 1957?
A. 66
B. 66
C. 66 and 6 months
D. 66 and 10 months
What is your client’s full retirement age (Get FULL PIA) if she was born August 11, 1957? 1960 = 67 1954 66 +
1955 2/ mo
1956 4/ mo
1957 6/ mo
A. 66
B. 66
C. 66 and 6 months
D. 66 and 10 months
Claiming Workers Benefits
- Must apply to Social Security Administration
- Earliest claiming age is 62
- Actuarial reduction prior to full retirement age
- Actuarial increase after full retirement but only to age 70
- Wages for continued work always affects benefit calculations
- Withdrawal of application
– Can undo claiming decision for worker’s benefits (not survivors)
– Only can request once
– Must pay back all workers and any other benefits (no interest)
– Must pay back within 12 months of the first month for which the retiree is entitled to
benefits
Claiming Workers Benefits
- Must apply to Social Security Administration
- Earliest claiming age is 62
- Actuarial reduction prior to full retirement age
- Actuarial increase after full retirement but only to age 70
- Wages for continued work always affects benefit calculations
• Withdrawal of application
– Can undo claiming decision for worker’s benefits (not survivors)
– Only can request once
– Must pay back all workers and any other benefits (no interest)
– Must pay back within 12 months of the first month for which the retiree is entitled to benefits
• Reduction factor
– Benefit is reduced 5/9 of one percent of PIA for each month of retirement before full retirement age up to 36 months
– If number exceeds 36 the benefit is further reduced 5/12 of one percent of the PIA per month
• Example
– Julie claims benefits four years early. She will have a 25% reduction in her PIA.
– (5/9 x 36 = 20) + (5/12 x 12 = 5) (total 25%)
– PIA of $1,500 would be $1,125 at age 62
• Reduction factor
– Benefit is reduced 5/9 of one percent of PIA for each month of retirement before full retirement age up to 36 months
– If number exceeds 36 the benefit is further reduced 5/12 of one percent of the PIA ====20% Reduction per month
18mo’s = 10%
• Example
– Julie claims benefits four years early. She will have a 25% reduction in her PIA.
– (5/9 x 36 = 20) + (5/12 x 12 = 5) (total 25%)
– PIA of $1,500 would be $1,125 at age 62
18 = 10
18 = 10
12 = 5
12 = 5
Max is 70% Reduction
Your single client Nina has a full retirement age of 67. Her PIA is $2,500. She loses her job and is forced to claim benefits at age 63 and 3 months. Her monthly benefit will be:
A. $1,750
B. $1,875
C. $1,906
D. $2,500
Your single client Nina has a full retirement age of 67. Her PIA is $2,500. She loses her
job and is forced to claim benefits at age 63 and 3 months. Her monthly benefit will be:
A. $1,750
B. $1,875
C. $1,906
D. $2,500
5/9 36mo = 20
5/12 9mo = 3.75
76.25% of 2500 = 1906
66.12 minus 63.3 equals 3yrs 9 months
Delayed Claiming
- Claiming after full retirement age increases benefits by 2/3 of 1% for each month of deferral up to age 70 (8% a year)
- Example: With a full retirement age of 66, an individual waiting until age 70 to claim earns 132 percent of the PIA
- There is no advantage to further delay benefits beyond age 70!
Delayed Claiming Fast Dirty 8% per Year
Claiming after full retirement age increases benefits by 2/3 of 1% for each month of deferral up to age 70 (8% a year)
- Example: With a full retirement age of 66, an individual waiting until age 70 to claim earns 132 percent of the PIA
- There is no advantage to further delay benefits beyond age 70!
Your married client Mick delays claiming Social Security 18 months beyond his full retirement age. If his monthly PIA was $2,000 he will receive an adjusted PIA of:
•
A. $2,000
B. $2,160
C. $2,240
D. $2,320
Your married client Mick delays claiming Social Security 18 months beyond his full retirement age. If his monthly PIA was $2,000 he will receive an adjusted PIA of:
•
A. $2,000
B. $2,160
C. $2,240
D. $2,320
8% per year = 12 months and 6 month = 4% = 12% more
2000 x 1.12 =
$2240
• COLAs
– COLAS are based on the 3rd quarter to 3rd quarter change in the average CPI-W
– Effective in December and paid in January
– PIA formula used for the year in which an individual attains age 62—deferring past
age 62 means receiving COLA for each year of deferral.
• Medicare premiums and SS COLA
– The Medicare premium increase cannot be greater than the COLA that a client
receives
– No SS COLA no increase allowed for Medicare premiums
– Defer SS and you do not get that protection (2016 premium is $121.80—if on SS in
2015 pay $104.90
• COLAs
– COLAS are based on the 3rd quarter to 3rd quarter change in the average CPI-W
– Effective in December and paid in January
– PIA formula used for the year in which an individual attains age 62—deferring past age 62 means receiving COLA for each year of deferral.
• Medicare premiums and SS COLA
– The Medicare premium increase cannot be greater than the COLA that a client receives
– No SS COLA no increase allowed for Medicare premiums
– Defer SS and you do not get that protection (2016 premium is $121.80—if on SS in
2015 pay $104.90
CPI - E Better for seniors in future….currently would increase across the board because of Health Care……
Impact of Deferring Past 62
- Each year of delay means approximately a 7 to 8 percent increase
- A 4-year delay increases monthly benefits by about one-third
- An 8-year delay (age 62 to age 70) increases monthly
benefits by 76 percent
• When spousal benefits paid replacement ratio is drastic
– Over 30% replacement at age 62 and over 60% replacement at 70
• Benefits also receive COLA and increase for additional wages
Impact of Deferring Past 62
- Each year of delay means approximately a 7 to 8 percent increase
- A 4-year delay increases monthly benefits by about one-third
- An 8-year delay (age 62 to age 70) increases monthly
benefits by 76 percent
• When spousal benefits paid replacement ratio is drastic
– Over 30% replacement at age 62 and over 60% replacement at 70
• Benefits also receive COLA and increase for additional wages
DO NOT MEMORIZE
Maximum Benefit 2015
- $1,997 a month ($23,967 a year) at 62
- $2,663 ($31,965 a year) at age 66
- $3,515 ($42,182 a year) at age 70
- Couple both earning maximum benefit
Maximum Benefit 2015
- $1,997 a month ($23,967 a year) at 62
- $2,663 ($31,965 a year) at age 66
- $3,515 ($42,182 a year) at age 70
- Couple both earning maximum benefit
Windfall Elimination
• Social Security PIA provides a 90% on the lowest wage—intended to provide a safety
net
• Individual who has a working career with 25 years of noncovered employment and 10
years of covered employment will appear to be low income
• Formula is adjusted if noncovered employment
– 90 percent drops to 40 percent if less than 20 years of covered service
– No reduction if 30 years of covered service
– Modified formula if 20 to 30 years of service
Windfall Elimination – WORKERS BENEFITS
FORMULA IS NOT NECESSARY FOR THE EXAM
- Social Security PIA provides a 90% on the lowest wage—intended to provide a safety net
- Individual who has a working career with 25 years of noncovered employment and 10 years of covered employment will appear to be low income
- Formula is adjusted if noncovered employment
– 90 percent drops to 40 percent if less than 20 years of covered service
– No reduction if 30 years of covered service
– Modified formula if 20 to 30 years of service