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Planning for Retirement Needs

Planning for Retirement Needs. Social Security – Chapter 19. 2/3 of elderly – Social Security Major Source of Income 1/3 of elderly – Social Security Only Source of Income. Breadth of Coverage. FICA (6.2% x TWB) + (1.45% x all income) SECA (12.4% x TWB) + (2.9% x all income). Funding.

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Planning for Retirement Needs

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  1. Planning for Retirement Needs Social Security – Chapter 19

  2. 2/3 of elderly – Social Security Major Source of Income 1/3 of elderly – Social Security Only Source of Income Breadth of Coverage

  3. FICA (6.2% x TWB) + (1.45% x all income) SECA (12.4% x TWB) + (2.9% x all income) Funding

  4. Old Age and Survivors Disability Medicare Part A Medicare Part B Four Trust Funds

  5. 4 per year (even if work one day) if over the income threshold (4 x $1,000 in 2007) 40 quarters needed to be fully insured Quarter of Coverage

  6. Age 62 is the earliest age (a percent reduction applies) Age 65 and 8 months – 1941 Age 65 and 10 months – 1942 Age 66 (1943 – 1954) Age 67 if born after 1960 When are Retirement Benefits Paid?

  7. Workers with fully insured status Nonworking spouses 62 or older Unmarried divorced spouse if marriage lasted 10 years Who gets Retirement Benefits?

  8. Step 1: List Earnings Step 2: Index Earnings Step 3: Determine the number of years to be included in the calculation (35) Step4: Exclude lowest indexed years (if client has 40) Step 5: Add years / divide by number of ` months in these years AIME

  9. “The amount a worker will receive if he or she retires at full retirement age” 90% x initial amount 32% x next level 15% x top level PIA

  10. 5/9 x 1% for the first 36 months 5/12 x 1% for the next 24 months Early Retirement

  11. If client’s normal retirement age is 66 and he retires at 62 then the benefit is 75% (reduced 25%) of the PIA 5/9 x 36 = 20% 5/12 x 12 = 5% = 25% Example

  12. For those born in 1943 or later there is an 8% increase There is no increase after age 70 Delayed Retirement

  13. Benefits are reduced $2 for every $1 over the threshold Special rule for year of retirement if post 65 full retirement age Earnings Test

  14. Automatically mailed to clients over 25 Contains estimate in current dollars Check to see if lifetime earnings are correct Benefits Statement

  15. Apply 3 months in advance Benefits can be paid up to 6 months retroactively Applying for Benefits

  16. Step One = Calculate Provisional Income AGI + tax exempt interest + ½ of Social Security Benefit Provisional Income Taxation of Social Security Benefits

  17. Step Two: Determine the applicable base Single: $25,000 $34,000 MFJ: $32,000 $44,000 Taxation of Social Security Benefits

  18. Single Under $25,000 0% $25,000 – $34,000 50% Over $34,000 85% Married filing jointly Under $32,000 0% $32,000 – $44,000 50% Over $44,000 85% Taxation of Social Security BenefitsPossible Amount Taxed

  19. Age at retirement Need Likelihood of returning to work Longevity When to Start Benefits Threshold Issues

  20. “Does the present value of the additional benefits received before full retirement age exceed the present value of the higher benefits forgone after full retirement age?” When to Start BenefitsBreakeven Analysis

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