Social security timing

3/19/2014

1

For advisor use only — not intended for general distribution

The Top 3 Mistakes to Avoid with Spousal and Survivor Benefits

© 2014 Social Security Timing®. All Rights Reserved.

Agenda

• Spousal and Survivor Benefits Primer

• Common Claiming Mistakes with Case Studies

• Take-Away Materials

• Q&A

3/19/2014

2


Common Claiming Mistakes

Both elect after FRABoth elect after FRA

Higher earner files

early

Higher earner files

early

Improper coordination of benefits



Spousal and Survivor benefits primer

3/19/2014

3


Spousal Benefits

• Maximum Benefits of up to 50% of your spouse’s PIA (Not benefit amount)

• To Qualify

– Married at least 1 year– Primary worker must have filed– Generally must not qualify for a

benefit of your own that is equal to or greater than ½ of the primary workers Primary Insurance Amount (PIA)

John’s primary insurance

amount at full retirement age

is $2000.

Jane would be eligible for ½ at her full retirement

age - $1000!


Why “Up To?”

• Reduced for early claiming

• Reduced by the greater of the Spouse’s Retirement Benefit amount or the PIA

3/19/2014

4


Filing for spousal Early/Late

• Reduced on a faster schedule if filing early

• No delayed retirement credits on spousal benefits

RIB SPOUSAL

62 75 70

63 80 75

64 86 2/3 83 1/3

65 93 1/3 91 2/3

66 100 100

67 108 100

68 116 100

69 124 100

70 132 100


Top-Up

$750$990

$1,250

$500$260 $0

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Age 66 Age 70 Age 66

Spouse's Retirement Benefit Spousal Benefit

Primary Wage Earner PIA - $2,500

3/19/2014

5


• Before FRA– File for own

• Reductions apply

– File for spousal (if available)• Even greater reduction for taking spousal early

• You cannot take a spousal only before FRA*

• Strategies available

File Before FRA? Deeming Applies

* Unless you don’t qualify for a retirement benefit


• At death of first spouse, surviving spouse receives highest of:– His or her own benefit– Benefit of the deceased– 82.5% of the FRA benefit

of the deceased

• The lesser benefit disappears

Survivor’s Benefits

Once John passes, Jane will receive a higher benefit

of $2000*

*Assuming John elected at FRA and Jane Claims Widow Benefits at or after her Widow FRA.

3/19/2014

6


Survivor’s Benefits

Widow benefit is based on when the Deceasedfiled, and when the Survivor files.

Deceased at 62 Deceased at FRA Deceased at 70

60 61 62 63 64 65 66 67 68 69 700

500

1000

1500

2000

2500

3000


• Prior to FRA “Deeming” applies

• After FRA, can pick and choose

• “Switch Strategy” is filing for a limited benefit and then later “Switching” to a larger benefit

Switch Strategies ®

3/19/2014

7


What makes Switch Strategies ® possible?

File & Suspend

Restricted Application

Switch Strategy Enablers

Allows an individual to file, then request checks be stopped. During

the period in which no checks are received, will earn delayed

retirement credits.

Allows an individual to limit an application to only one benefit,

which may allow another benefit to receive delayed credits.

Each spouse gets both –spousal and solo…


• John and Jane are both 66 today – John’s benefit is $2400 and Jane’s full retirement age benefit is $1100 per month

• Their advisor suggested that John take at 70 and Jane take immediately

Married Case Study

What are the possible Switch

Strategies?

3/19/2014

8


• John Files & Suspends, making the spousal benefit available to Jane

• John files a Restricted Application for spousal benefits

• John Files & Suspends, Jane files a Restricted Application for spousal only benefits, then switches to her own benefit at 70

Several Switch Possibilities

If no “Switch Strategy” is employed, this couple is leaving at least $26,400 on the table


Watch Out!

No cross-claim for married couples,

even though you may read about it…

3/19/2014

9




Higher earner files

early

Higher earner files

early




• Jeff is 64 yrs old, Lorraine is 60 yrs old

• Jeff is the high wage earner - $2,000 Social Security benefit at 66

• Lorraine is the lower wage earner - $500 Social Security benefit at 66

• Life Expectancies – 85 and 90

Case Study

3/19/2014

10


$191,280

What’s at Stake?


Earliest StrategyTotal Benefit: $756,072

Jeff• File a standard application for benefits at age 62 years. Your approximate

benefit on your own earnings record would be $1,453

Lorraine• File a standard application for benefits at age 62 years. Your approximate

monthly benefit would be $725. This represents a benefit of $375on your earnings record plus an additional spousal benefit of $350.

3/19/2014

11


Jeff’s PIA - $2,00075% - $1,500

Lorraine’s PIA - $50075% - $375

Less real COLA


Suggested StrategyTotal Benefit: $947,352

Jeff

• File a Restricted application for only your spousal benefit based on Lorraine's earnings record at your age66 years. This allows you to continue to earn delayed retirement credits on your own benefit. Your approximate spousal benefit would be$250

• File for your own benefit at age70 years. Your approximate benefit on your own earnings record would be$2,639.

Lorraine

• File a standard application for benefits at age62 years. Your approximate monthly benefit would be$375.

• When Jeff files for his own benefit, you will become entitled to an additional spousal benefit of approximately$499, This should be applied automatically, but if it is not, contact your local Social Security office.

3/19/2014

12


Suggested Strategy


What happens when the Higher Wage Earner

dies early?

3/19/2014

13


Husband Dies at 70 - EarliestTotal Benefit: $653,326

Jeff

• File a standard application for benefits at age62 years. Your approximate benefit on your own earnings record would be$1,453

Lorraine

• File a standard application for benefits at age62 years. Your approximate monthly benefit would be$725. This represents a benefit of$375on your earnings record plus an additional spousal benefit of $350.


Husband Dies at 70 - Earliest

3/19/2014

14


Husband Dies at 70 - Earliest


Husband Dies at 70 - Suggested

Total Benefit: $795,508

Jeff

• File a standard application for benefits at age66 years

• Immediately request that your benefit payments be suspended. This allows you to continue building delayed retirement credits on your record, but makes Lorraine eligible to claim spousal benefits on your earnings record.

• When you reach age70 years, request your benefits be paid. At this point, your approximate benefit would be:$2,639

Lorraine

• File a standard application for benefits at62 years. Your monthly benefit on your own record would be approximately$375. Your monthly spousal benefit would be approximately$349. Your total benefit would be approximately$724.

(Earliest was $653,326 )

3/19/2014

15





3/19/2014

16


Break-Even


Summary – Mistake #1

• It rarely makes sense for the Higher wage earner to file for early benefits.

• If anyone needs to file early it should be the lower wage earner

• The Spousal Benefit is based on the PIA, not the benefit of the person under whose record you are claiming.

3/19/2014

17




Higher earner files

early

Higher earner files

early




Both File at 70

Total Benefit: $891,900

Jeff


Lorraine

• File a standard application for benefits at age70 years. Your approximate monthly benefit would be$999. This represents a benefit of$660on your earnings record plus an additional spousal benefit of $339.

3/19/2014

18


Comparing StrategiesTotal Benefit: $891,900

Jeff


Lorraine

• File a standard application for benefits at age70 years. Your approximate monthly benefit would be$999. This represents a benefit of$660on your earnings record plus an additional spousal benefit of$339.


Comparing Strategies

Jeff

• File a Restricted application for only your spousal benefit based on Lorraine's earnings record at your age66 years. This allows you to continue to earn delayed retirement credits on your own benefit. Your approximate spousal benefit would be$250

• File for your own benefit at age70 years. Your approximate benefit on your own earnings record would be$2,639.

Lorraine

• File a standard application for benefits at age62 years. Your approximate monthly benefit would be$375.

• When Jeff files for his own benefit, you will become entitled to an additional spousal benefit of approximately$499, This should be applied automatically, but if it is not, contact your local Social Security office.

Total Benefit: $947,352 (Both at 70 was $891,900 )

3/19/2014

19


Both File at 70



• It rarely makes sense for both people to delay until 70.

• One person should take a spousal benefit at FRA or as soon as possible thereafter.

• If the Retirement benefit with DRCs will still be less than the spousal benefit, do not delay the retirement benefit past FRA.

3/19/2014

20




Higher earner files

early

Higher earner files

early




• Jeff is 64 yrs old, Lorraine is 60 yrs old

• Jeff is the high wage earner - $2,000 Social Security benefit at 66

• Lorraine is the lower wage earner - $500 Social Security benefit at 66

Case Study

3/19/2014

21


Early Filing for Retirement and Spousal

Jeff PIA $2,000

Lorraine Maximum spousal $1,000

½ of the PIA

Lorraine PIA $500

x 75%(reduction factor for early filing)

Lorraine’s reduced

benefit $375

Lorraine’s spousal

excess $500



excess $350

Lorraine’s total benefit

$725

“Deeming” Situation


Early Filing for Retirement and Spousal

Jeff PIA $2,000

Lorraine Maximum spousal $1,000

½ of the PIA

Lorraine PIA $500



benefit $375


excess $500

No reduction for Early Filing


excess $500

Lorraine’s total benefit

$875

Non “Deeming” SituationExcess applied at FRA

3/19/2014

22


Late Filing for Retirement, Spousal at FRA

Jeff PIA $2,000

Lorraine spousal $1,000

½ of the PIA

Lorraine PIA $500

x 1.32(Four years of

DRCs)

Lorraine’s Retirement

benefit $660


excess $340

Total benefit$1000

Retirement and Spousal at 70



• Know when “Deeming” applies

• Each benefit is “Independently Reduced” based on when that benefit is claimed

• A lower earner “adds on” the spousal excess. They do not “switch to” the spousal benefit.

Education

Social security timing