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©2015, College for Financial Planning, all rights reserved. Session 2 Fundamentals of Social Security CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL.

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Presentation on theme: "©2015, College for Financial Planning, all rights reserved. Session 2 Fundamentals of Social Security CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL."— Presentation transcript:

1 ©2015, College for Financial Planning, all rights reserved. Session 2 Fundamentals of Social Security CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits

2 Session Details Module1 Chapter(s)4 LOs1-5 Identify and categorize basic provisions of an OASDI program: retirement, survivorship, and disability. 1-7 Analyze a given situation to calculate the taxation of Social Security benefits. 2-2

3 OASDI Old Age, Survivors, and Disability Insurance has three main components: 1. Retirement (old age) 2. Disability (disability of wage earner) 3. Survivorship (death of wage earner) 2-3

4 Key Terms in OASDI Programs Quarter of coverage ($1,220 in 2015) Currently insured/Fully insured Average Indexed Monthly Earnings (AIME) Full retirement age (FRA) Primary Insurance Amount (PIA) Spousal benefit Benefit reductions due to age Benefit reductions due to earnings Events that trigger the end of benefits Divorced spouse coverage (married 10 years) 2-4

5 Full Retirement Age BornFull Retirement AgeAge 62 Benefit Before 19386580% 1938-194265 plus monthly adjustment75-80% 1943-19546675% 1955-195966 plus monthly adjustment70-75% After 19606770% 2-5

6 Benefit Reductions Due to Earnings AgeYou will loseAmount (2015) 62 to year of FRA $1 in benefits for every $2 of earnings above $15,720 Year you reach FRA $1 in benefits for every $3 of earnings above $41,880 After reaching FRANo benefit reductionUnlimited 2-6

7 Retirement Earnings Test Example ItemAmount Total Social Security benefits (75% of maximum FRA amount) $23,967 Earnings$41,560 Social Security earnings limit (2015)$15,720 Excess earnings$25,840 Reduction in Social Security benefits (50% of excess earnings) $12,920 Net Social Security benefits$ 11,047 2-7

8 Qualifying for Social Security Disability Benefits 1. Disabled worker must be fully insured (at least 40 quarters) and 2. Have worked for at least 20 of the last 40 quarters 2-8

9 Qualifying for Social Security Survivor Benefits 1. Deceased worker must have been either fully insured (40 quarters) or 2. Currently insured (at least 6 of last 13 quarters) 2-9

10 Social Security Benefit Review Benefits will be paid to: RetirementDisabilityDeath Worker, Under FRAReduced* PIA100% of PIAN/A Worker, FRA & Over100% of PIADisability benefits cease; retirement benefits begin N/A Spouse, age 60 or 61No benefit 100% of PIA, reduced Spouse, age 62 to FRA50% of PIA, reduced 100% of PIA, reduced Spouse, FRA or older 50% of PIA 100% of PIA Spouse, any age, caring for child under age 16 or disabled 50% of PIA75% of PIA, reduced (worker was currently insured) Unmarried child under age 18 (19 if in high school) or any age if disabled 50% of PIA (subject to family maximum) 75% of PIA, reduced (worker was currently insured) 2-10

11 Johnson Family Example Robert Johnson died at age 35. Survivors are: o Wife, Jane (age 35). o Daughter, Juli (age 6). o Son, Bobby (age 3). His PIA is $1,200. Maximum family benefit is $2,250. 2-11

12 Family Limits Juli’s Benefit, 75% of PIA Reduced to $750 Bobby’s Benefit, 75% of PIA Reduced to $750 Jane’s Benefit, 75% of PIA, Reduced to $750 Widow(er)’s Blackout Period* Jane’s SS = 71.5% † PIA *If widow(er) is disabled within seven years of spouse’s death. Social Security payments may begin at age 50. † If benefits begin at 60. 71.5% PIA; at 62.75% PIA: at 65, 100% PIA. $1,200 PIA X 75% =$900 $2,700 $2,250family max. $450reduction 35 40454748 50 55606566 Jane’s Age 2-12

13 Income Tax on Social Security Benefits Threshold income: joint filers Threshold income: single filers Percent of Social Security retirement benefit subject to income tax Less than $32,000Less than $25,000None $32,000 to $44,000$25,000 to $34,000Up to 50% Greater than $44,000Greater than $34,000Up to 85% 2-13

14 Income Tax on Social Security Benefits Thresholds are arrived at by using “provisional income.” The main components of provisional income are: AGI Tax-exempt interest income (muni bonds) One-half of OASDI benefits 2-14

15 ©2015, College for Financial Planning, all rights reserved. Session 2 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits


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