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Just. What Everyone Should Know About Retiring. [Presenter Name] [Presenter Title]. 0189638.

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  1. Just

  2. What Everyone Should Know About Retiring [Presenter Name] [Presenter Title] 0189638

  3. Created over 75 years ago, Social Security was originally designed to help senior citizens avoid poverty during the Great Depression. It was created as a self-financing program that would collect payroll taxes from workers which would immediately be paid out in benefits to retirees. Millions of Americans depend on Social Security as their primary source of retirement income. A Little History

  4. Major Benefits of Social Security Lifetime Income: Provides what every retiree wants: an income that never runs out. Predictable, Steady Income: After qualifying, the income you receive is set and does not change. Inflation-adjusted Income: Every year, Social Security benefits are increased for inflation purposes. These cost-of-living (COLAs) are a big help to seniors. Survivor Benefits: Even after a spouse dies, their benefits are paid to surviving spouses and dependents.

  5. When you turn 62, your exact amount is calculated. Annual earnings are indexed to account for wage inflation. After every year’s earnings are indexed, the government tallies your highest 35 years of earnings. If you worked less than 35 years, any missing years are counted as zeroes. Every year of earnings are totaled and divided by 35 which gives you your “indexed monthly earnings”; also known as AIME. How Are Benefits Calculated?

  6. Calculating Benefits Cont’d Every year, the maximum wages subject to Social Security Tax has increased. The government takes your inflation-adjusted indexed monthly number (AIME) and applies a 3-part formula to arrive at your primary insurance amount or PIA calculation. This PIA is your guaranteed monthly benefit. There are tools available online to determine PIA at the government’s Social Security web site.

  7. Full retirement age for people born between 1943 and 1954 is 66 – the age you can begin receiving your full, unreduced primary insurance amount (PIA) Early eligibility begins at 62 but reduces benefits Timing is one of the most crucial aspects of Social Security planning “The bread winner will delay” is an important concept that means the longer the primary earner (individual or married) delays, the larger the monthly income will be but it depends on every client’s situation. Receiving Benefits

  8. You become eligible for Social Security by working in a Social Security-covered job for at least 10 years To be more precise, you need 40 credits You can earn up to 4 credits per year by earning a certain minimum dollar amount If you earn 4 credits every year for 10 years, you accumulate the 40 credits needed Social Security Eligibility

  9. Benefits can increase approximately 8% “guaranteed” for each year you wait. Timing depends on each client, each situation and the client’s retirement plans. If one is not working and has limited funds, they may have to take Social Security. Everyone’s situation is different. First, it is important to understand the impact of what Social Security terms Full Retirement Age (FRA). Receiving Benefits Cont’d

  10. FRA is based on your birth year, and can gradually move from age 65 to 67. Full Retirement Age

  11. If you apply when you first become eligible at 62, your benefit will equal 75% of your PIA. • So if “Boomer Bill” has a calculated PIA of $2,466 for example, and applies in 2012 when he turns 62, his monthly benefit would be 75% of his PIA or approximately $1,850.* • This is the amount he would receive for the rest of his life, only increased by COLAs annually. *To understand how to calculate PIA, visit www.ssa.gov Applying Early for Benefits

  12. At age 66, you obtain your full retirement age. Now you can start receiving your full, unreduced PIA. However, if you delay the onset of benefits past age 66, you will earn what are called delayed actuarial credits. Delayed credits are the first step to increasing your income in order to maximize retirement planning. For each year you delay the start of your benefits, your benefit will increase by 8% per year up to age 70. So if Boomer Bill waits until age 70 to apply, his $2,466 PIA will increase by 32% to $3,255 (excluding COLAs) The Power of Timing: Applying After FRA

  13. This is the key area for retirement planning Leveraging the delayed credit system allows you to optimize spousal benefits through two key “switch strategies” By using these two strategies, pre-retirees can maximize benefits and then redirect these additional funds into a tax-deferred annuity as one valuable option. Delayed Credits and Spousal Benefits

  14. Working While Receiving Early SS Benefits Maximum earnings (wages) between age 62 and normal Social Security Retirement age before Social Security benefits are reduced $1 for every additional $2 earned: $15,120

  15. Depending on your earnings, you are responsible for paying income taxes on a portion of your benefits. The IRS adds half of an individual's Social Security benefits plus all other income (such as pensions, CD/bond interest or capital gains) to calculate the income taxes owed In fact, up to 85% of your benefits could be taxed… Social Security Taxation

  16. Social Security Taxation

  17. Interest and Capital Gains from these types of investments all add to your income, which triggers the taxation of your Social Security. Certificates of Deposit Mutual Funds Bonds (Even Tax Free Muni’s) Stocks Rental Income These All Count!

  18. It’s important to know that deferred annuity & life insurance interest is not included in the year it is earned. It is only included in the year it is withdrawn. By repositioning your assets into annuities & life insurance you can defer the interest earnings until you choose to withdraw them, you could save thousands and thousands of dollars in taxes. You’ll be able to defer income taxes on your interest earnings and reduce or eliminate income taxes on your Social Security benefits – a double win. Avoid the Social Security Tax Trap

  19. Meet The Triplets Earl Stan Del

  20. Monthly Benefit Amounts Differ Based on the Age You Decided to Start Receiving Benefits This example assumes a benefit of $1,000 at a full retirement age of 66. Del Earl Stan

  21. The Social Security Gamble

  22. Earl • Believes taking out SS benefits early will be most lucrative. • Plans to bank each check and let it accumulate. Earl • Thinks his money will outgrow either of his brothers’

  23. Earl’s Social Security Payments Reduced by To 25% $750/month

  24. Early • $750/month • $9,000 in annual savings • $36,000 over four years Earl

  25. Standard • Waiting until age 66 to start taking SS. • He would receive $1,000 instead of $750. • Looking to outpace the amount Earl would receive Stan

  26. Earl Must tap savings to supplement income How many years would this $36,000 be able to provide the extra $250/month? $250/month from savings. 12 Years 16 Years 3% interest rate

  27. Delayed • Delaying receiving SS until age 70, -EIGHT years later than Earl. • He would receive $1,320/month. • Would be $570 more than Earl and $320 more than Stan. Del

  28. Who Wins? Earl Stan Del

  29. Del better live a long time! • Waited until age 70 • $1,320/month • $570 more than Earl • Would have to live until age 84 to receive more benefits. Del

  30. Who Wins? It’s a virtual Tie! Earl Stan

  31. Social Security Period Life Table Earl would win by dying before age 81.4 Stan would win by living beyond age 82.4 MALE FEMALE

  32. Important Factors • What if interest rates rise? • Length of life makes a difference! • You Need To Plan!

  33. HOW IMPORTANT IS TAX DEFERRAL? Triple Compounding Interest Interest on your principal (simple interest) Interest on your interest (compounding interest) Interest on deferred taxes (triple compounding)

  34. THE MAGIC DOUBLING DOLLAR $1 $2 $4 $8 $16 $32 How much do we have after the 20th double? $1,048,000.00

  35. THE MAGIC TAXABLE DOUBLING DOLLAR How much money would we have if each time we doubled the dollar we withheld 25% for taxes? I.E. – C.D., Mutual Funds, Stocks Just over $74,000

  36. THE STOCK MARKET Stocks Bonds Commodities Mutual Funds

  37. THE STOCK MARKET CASINO Trillions Lost in Retirement Accounts

  38. THE STOCK MARKET Fact or Fiction? “Over a long period of time, the stock market will always go up.”

  39. The Stock Market 1970 - 2000 Between 1970 – 2000, this has been generally true – the stock market has gone up 1970 1975 1980 1985 1990 1995 2000 * Source: Google Finance

  40. THE STOCK MARKET 1970 - 2000 Between 1970 – 2000, this has been generally true – the stock market has gone up 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 * Source: Google Finance

  41. THE STOCK MARKET Cons Pros • High potential losses • Research integrity • Taxable dividends • Corporate fraud • Many fees • Commissions • Management • Maintenance • High potential returns • Dividends • Long-term capital gains tax may be lower than income tax level

  42. WHAT ABOUT BONDS? Even Municipal Bonds? When interest rates go up, bond values go down! Interest Rates Bond Values

  43. BONDS Cons Pros • Still some risk (do you want to buy a bond issued by L.A. County?) • Interest may affect tax on social security income • Time Commitments • More Conservative • Tax-Free Muni-Bonds • Guaranteed Interest • Historical Data

  44. WHAT ABOUT THE BANK? Savings Checking Money Market CDs

  45. BANKS Pros Cons • Liquidity • FDIC insured • Local branches • Taxable interest • Low rates • Bank instabilities

  46. COMMODITIES Silver Oil Currencies Gold

  47. COMMODITIES Cons Pros • Diversification • Inflation Hedge • Tangibles • Non Correlation to the stock market • Risk • Knowledge Base • Accessibility • Liquidity

  48. Types of Annuities Immediate Annuities (your pensions) This is your grandfather’s annuity. This is the oldest form of annuity. Matter of fact annuities date back all the way to 1720 and the Presbyterian Church. The purpose was to provide a secure retirement to aging ministers and their families, and was later expanded to assist widows and orphans. Deferred Fixed Annuities (5-year 3% fixed) Then in the early 1970’s the first fixed annuities started being offered. The problem is, a fixed annuity earnings, doesn’t waiver with inflation and this created a problem!

  49. Variable Annuities Variable annuities came to be more attractive after regulatory agencies got on board in the 1970s and 1980s, and because of increased fear of inflation (possibly tied to the high inflation during parts of these decades).

  50. Fixed Index Annuities

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