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Discover the value of Social Security, how to estimate benefits, spousal and survivor benefits, solvency issues, and strategies for maximizing benefits.
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Social SecurityGetting the most out of your benefits Date / Place
Social Security • Understanding the Value • Solvency • When to Begin Talking Benefits • Working and Receiving Benefits • Maximizing Benefits
Social Security: Understanding the Value • Social Security Value: • Provides income you can’t outlive • Provides income that is inflation adjusted • Provides survivorship benefits • Provides more income than you may think: 2015 Max Monthly Benefit: $2,663 10 Years: $386,298* 20 Years: $864,999* 30 Years: $1,508,377* *Assumes an average 3% increase each year for inflation.
Example: • AIME = $5,420 • 90% ($826) = $743.40 • 32% ($4,154) = $1,329.28 • 15% ($440) = $66 • $2,138.68 Primary Insurance Amount (PIA) $4,154 Social Security: How it Works • Formula based on highest 35 years • Earnings indexed to inflation • Average Indexed Monthly Earnings (AIME) Source: Social Security Administration
Social Security: Estimating Benefits • Estimate Social Security Benefits with: • Annual Social Security Statement • www.socialsecurity.gov • www.ssa.gov • Click on Estimate Your Retirement Benefits for online calculators
A spouse can get 50% of primary worker’s benefits A spouse will get the higher of their own benefit or the spousal benefit Former spouses may be entitled to spousal benefits, but they must have been married for at least 10 years Example: Bob and Sally Bob’s Benefit: $2,200 Sally’s Benefit: $700 Sally’s Spousal Benefit: $1,100 Sally will get $1,100 Social Security: Spousal Benefits
Social Security: Survivor Benefits • A surviving spouse will receive the higher of either their own benefit or their deceased spouse’s benefit Example: Bob and Sally • Bob’s Benefit: $2,200 • Sally’s Benefit: $1,400 • Bob passes away. • Sally’s benefit will increase to $2,200. • Requirements: • The surviving spouse must be at least 60 years old. • The surviving spouse must be at least 50 years old if disabled. • You must be married for at least 9 months prior to your spouse’s death. • There are exceptions for accidents.
2011: SSA pays more than it collects 2020: SSA taps principal 2033: Trust fund exhausted Collections continue Projected 25% decrease in benefits after 2033 Social Security: Solvency SSA Collection and Payment Comparison Source: Social Security Report to Congress, 2013
Social Security: Solvency • Fixing Social Security • Raise the retirement age. • Increase the cap on taxable earnings. • Lower benefit payments for future retirees. • Reduce Cost of Living Adjustments (COLAs) for all retirees.
Social Security: When to Start • Rethink conventional wisdom: Age 62 • Permanent reduction of nearly 25% • Increased longevity • Normal retirement age = 100% of benefit • Age 70: nearly 130% • Determine the break even age
Social Security: Working While Receiving Benefits • Before Normal Retirement Age • 2015 Limit: $15,720 • Loss of $1 in benefit for every $2 over the limit • Triggered only by earned income Normal Retirement Age 62
Social Security: Working While Receiving Benefits • Before Normal Retirement Age • Bob is 63 and will semi-retire in 2015. • His normal retirement age (NRA) is 66. • He elects to receive benefits immediately. • His monthly benefit is $1,600 or $19,200 annually. • He will earn $25,000 in wages during 2015 and will have $10,000 in investment income.
Before Normal Retirement Age $25,000 -$15,720 $9,280 $9,280 ÷2 $4,640 Earned Income Earnings Limit Amount Over Limit Amount Over Limit $1 Benefit Reduction for Each $2 Over Limit Reduction in annual benefit ________ ________ Social Security: Working While Receiving Benefits
Social Security: Working While Receiving Benefits • Before Normal Retirement Age • The Good News! • Benefits are not lost, only deferred. At normal retirement age, Bob’s benefits will be recalculated to recoup lost benefits prior to age 66. • The Bottom Line. • If you want or need income, early benefits = OK!
Social Security: Increasing Benefits • Maximizing Benefits for Spouses • The Challenge: • Women live 5 to 6 years longer than men1 • The majority of men are two or more years older than their wives1 • Women age 65 and over were three times as likely as men of the same age to be widowed2 ¹ Source: US Bureau of Census, 2008 ² Source: Agingstats.gov US Census Bureau 2010
What is a Variable Annuity? A variable deferred annuity is a long-term financial product designed for retirement. Simply stated, an annuity is a contract between you and an insurance company that lets you pursue the accumulation of assets through asset allocation and customized investment portfolios, and an optional guarantee. Asset allocation helps spread your investment dollars across different asset classes, to help manage risk and enhance returns. Through customization you choose according to your risk tolerance. The goal is to select a mix of asset classes that will help you meet your long-term investment goals. Your portfolio is professional managed and closely monitored, including your portfolio’s performance and remains consistent with your investment goals. Ultimately, you pay an insurance company and in turn, the company agrees to provide lifetime income or a lump sum from your accumulated assets.
What You Should Know about Variable Annuities • There are fees and charges associated with variable annuities, which include mortality and expense risk charges, administrative fees, investment management fees, withdrawal charges and charges for optional benefits. In addition, annuity contracts have exclusions and limitations. • Withdrawals are subject to ordinary income tax treatment. Early withdrawals may be subject to withdrawal charges, and, if taken prior to age 59½, a 10% federal income tax penalty may apply. • Withdrawals will reduce the death benefit, living benefits and cash surrender value. Withdrawals will come from any gain in the contract first for federal income tax purposes. • Variable annuities are subject to investment risks, including the possible loss of principal invested. • Guarantees described herein are subject to the claims-paying ability of the issuing company and do not apply to the subaccount investment options.
Guaranteed Minimum Income Benefits What is a Guaranteed Minimum Income Benefit? It is an annuity feature available for an additional cost that can provide the annuity owner with a predictable future income* regardless of investment performance. *Generally 4-6% of benefit base (The benefit base generally starts as the initial account value. As the contract allows, if the Benefit Base can roll up the allotted percentage (4-6%) on each contract anniversary date if elected by the contract owner. ) Why use a Guaranteed MinimumIncome Benefit? It may provide some assurance that Tom will be able to make the withdrawals and withstand a potentially negative market performance. These are optional features available for an additional cost to that of the Variable Annuity and is subject to certain age and income restrictions and limitations
Social Security: Increasing Benefits • Maximizing Benefits for Spouses • Leveraging A Wrinkle: • Maximizing income and survivorship benefits when both spouses are covered under Social Security • A husband, at normal retirement age, can elect to receive 50% of his wife’s benefit and defer taking his own – he gets higher income benefit and wife gets higher survivorship benefit
Social Security: Increasing Benefits Example: Sally, age 57, and Bob, age 61, are married and plan on taking Social Security in 5 years: Bob decides to take 50% of Sally’s benefit and defer taking his own until age 70 Bob may need a strategy to replace income while he is delaying his SS benefit At age 70, Bob begins taking his full benefit, approximately $2,600 His break-even age is 79-80 Sally’s survivorship benefit will be much higher because it’s based on the higher benefit received by Bob at age 70 Sally Age 62 $1,200 Benefit (reduced) $2,000 Benefit at age 66 Bob Age 66 OR $750 50% of Sally’s normal retirement age benefit
Social Security Taxation • Will my Social Security benefit be taxable? • If Provisional Income is over base amount, a portion of your benefit will be taxable • You have the ability to reposition assets to reduce tax liability
Social Security Taxation • Provisional Income Calculation MAGI + Tax-Exempt Income + ½ Social Security Benefits Provisional Income
Social Security Taxation • Opportunity to reposition assets • Can reposition unproductive taxable assets • Tax-deferred investments not part of provisional income calculation
Important Point About Medicare • If clients elect to delay Social Security benefits you still need to file for Medicare at 65 • Medicare is a federal health insurance program • There is no early option for Medicare
Social Security: Leveraging Benefits • You can’t look at Social Security in a vacuum • You need a comprehensive retirement income plan • You need to coordinate and integrate: • Social Security • Pensions • Personal Savings • Investments • Taxes • Succession and Estate Planning
Social Security: Summary • Understanding Value • Solvency • When to Begin Taking Benefits • Working and Receiving Benefits • Maximizing Benefits
Important Information A deferred variable annuity is a long-term financial product designed for retirement purposes. In essence an annuity is a contractual agreement in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. Typically, variable annuities have mortality and expense charges, account fees, investment management fees, administrative fees and charges for special contract features. In addition, annuity contracts have exclusions and limitations. Early withdrawals may be subject to surrender charges. All guarantees including optional benefits are based on the claims-paying ability of the issuing insurance company and do not apply to the subaccount investment options. Variable annuities are sold by prospectus only which contains more complete information, including investment objectives, risks, charges and expenses. Investors should read the prospectus carefully before investing or sending money. Contact your financial professional for a copy of the current prospectus. Amounts in the annuity’s variable investment options are subject to fluctuation in value and market risk, including loss of principal. Withdrawals may be taxable as ordinary income and, if taken prior to age 59 ½, an additional 10% federal income tax penalty may apply. Withdrawals reduce annuity contract benefits and values. If you are purchasing an annuity contract as an Individual Retirement Annuity (IRA) or Tax Sheltered Annuity (TSA), or to fund an employer retirement plan (QP or Qualified Plan), you should be aware that such annuities do not provide tax deferral benefits beyond those already provided by the Internal Revenue Code. Before purchasing one of these annuities, you should consider whether its features and benefits beyond tax deferral meet your needs and goals. You may also want to consider the relative features, benefits and costs of these annuities with any other investment that you may use in connection with your retirement plan or arrangement. Please be advised that this presentation is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and clients should seek advice based on their particular circumstances from an independent tax advisor. Representatives of AXA Distributors, LLC do not act as investment advisors to your variable annuity under the terms of your contract, unless there is a separate client agreement between you specifically assuming that role. These representatives are not responsible for giving ongoing investment advice, including but not limited to reallocation and rebalancing, in the absence of a separate agreement. Variable annuity products are issued by AXA Equitable Life Insurance Company, and are co-distributed by AXA Advisors, LLC, and AXA Distributors, LLC located at 1290 Avenue of the Americas, New York, NY, 10104. Variable Annuities: Are Not Deposits of Any Bank Are Not FDIC Insured Are Not Insured by Any Federal Government Agency Are Not Bank Guaranteed May Go Down in Value.
