Social Security Piecing together the Puzzle SECURITIES OFFERED THROUGH LPL FINANCIAL MEMBER FINRA/SIPC PRESENTED BY BLACKROCK FUNDS

Securing Your Retirement Transforming Social Security into a Winning Retirement Strategy

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4 Life Expectancy Upon Retirement at Age 65 Social Security basics A healthy 65-year-old female has a 50% chance of living until age 88 (23 more years). 50% chance of living to 25% chance of living to 50% chance of living to 25% chance of living to at least 1 person has a 50% chance of living to at least 1 person has a 25% chance of living to Source: Annuity 2000 Mortality table, Society of Actuaries. Figures assume you are in good health.

5 Social Security basics 74% of those collecting Social Security retirement benefits are receiving reduced amounts 76% of all women 71% of all men 14% increase over the past 5 years in those over age 85 collecting benefits 4.9 million In ,689,000 age 90 or older 376,566 recipients age 95 or older 46,000 recipients 100 or older –Women: 39,000 –Men: 7,000 Source: Social Security Administration’s Annual statistical supplement, 2009.

6 Whose benefits are women collecting? Source: Social Security Administration’s Annual statistical supplement, 2009.

7 Social Security eligibility To be fully insured, a worker needs 40 credits. A maximum of 4 credits can be earned per year It takes approximately 10 years of working to become fully insured Three months before your birthday, you should receive a Social Security Statement estimating what your retirement benefits will be You should verify the earnings record to ensure its accuracy since your benefits are based on that Source: Social Security Administration (

8 Beginning benefits Source: Social Security Administration ( Once you are fully insured, you can elect to receive: Reduced benefits as early as the first full month you attain age 62 Full benefits at full retirement age -or- Increased benefits, if benefits are delayed beyond full retirement age to as late as age 70

9 Full retirement age Full retirement age (FRA) is the age you are entitled to your full primary insurance amount (PIA) The full retirement age has increased Depending on your year of birth, your full retirement age can be anywhere between age 65 and 67 Full Retirement Age (FRA) Year of BirthFRA 1937 or earlier – months for every year after 1937 until – – months for every year after 1954 until and later67 Source: Social Security Administration (

10 Early retirement benefits What is the cost if you elect to collect benefits at age 62? If you collect benefits anytime prior to your full retirement age, your primary insurance amount will be permanently reduced. Reduced Benefits at Age 62 Full Retirement AgeMonthly Benefits Reduction 6520% 6625% 6730% Source: Social Security Administration (

11 Considerations Before commencing benefits you should coordinate your decision with your overall retirement strategy that among other things considers the following: Do you need the supplemental income? Are you actually retiring? What’s the expectation of working even part-time before full retirement age? How is your health? Do you have a history/expectation of longevity? Are you married? Is there a big age difference between you and your spouse? Does your spouse have a history/expectation of longevity? Whose benefits will your spouse collect?

12 Working during retirement Only wages are considered. Spouse’s wages are not considered limit Under full retirement age $1 of benefits withheld for every $2 in earnings above the limit $14,160/year Year individual reaches full retirement age $1 of benefits withheld for every $3 in earnings above the limit for months prior to attaining full retirement age $37,680/year Month individual reached full retirement age and beyond Reduction no longer applies Unlimited Source: Social Security Administration ( If you earn wages while collecting benefits prior to full retirement age, part of your benefits may be withheld.

13 Request for Withdrawal of Application Complete Withdrawal of Application form –Indicate reason for withdrawal request Wait for SSA approval Repay all benefits, including spousal benefits, paid to date Reapply when ready to begin collecting benefits Source: Social Security Administration (

14 Delaying benefits If you delay collecting benefits beyond your Full Retirement Age, you will receive an increase in your Primary Insurance Amount. This DRC is in addition to the cost of living adjustment COLA: 0.0%. Delayed Retirement Credits Year of Birth Yearly Increase to Age – % 1941– % 1943 or later8.0% Source: Social Security Administration (

15 Husband’s Earnings History Age Monthly Benefits Spousal Benefits Adjusted Spousal Benefits Survivor Benefits 62$1,614$406$1,862 66$2,257$1,129$577$2,257 70$3,042$400$3,042 Spousal and survivor benefits Your spouse is eligible to receive the higher of whatever benefits he/she may have earned on his/her own record or half of your primary insurance amount. Spouse cannot collect on your record until you file for benefits. (You can file and elect to suspend benefits.) A surviving spouse will receive 100% of your benefits at full retirement age. However, reduced benefits can begin as early as age 60. Wife’s Earnings History Age Monthly Benefits 62$416 66$552 70$729 Source: Social Security Administration ( Benefits based on Social Security Statements issued by the SSA.

16 Both Age 62Both Age 66Both Age 70 Wife Age 62, Husband Age 70 Wife’s Benefits$69,888$66,240$52,488$69,888 Spousal Benefits$68,203$69,180$28,764$69,180 Husband’s Benefits$271,152$270,840$219,024 Survivor Benefits$156,410$189,588$255,528 Total Benefits Received$565,653$595,848$555,804$613,620 Both Age 62Both Age 66Both Age 70 Wife Age 62, Husband Age 70 Wife’s Benefits$69,888$66,240$52,488$69,888 Spousal Benefits$68,203$69,180$28,764$69,180 Husband’s Benefits$271,152$270,840$219,024 Survivor Benefits$156,410$189,588$255,528 Total Benefits Received$565,653$595,848$555,804$613,620 Both Age 62Both Age 66Both Age 70 Wife Age 62, Husband Age 70 Wife’s Benefits$69,888$66,240$52,488$69,888 Spousal Benefits$68,203$69,180$28,764$69,180 Husband’s Benefits$271,152$270,840$219,024 Survivor Benefits$156,410$189,588$255,528 Total Benefits Received$565,653$595,848$555,804$613,620 Both Age 62Both Age 66Both Age 70 Wife Age 62, Husband Age 70 Wife’s Benefits$69,888$66,240$52,488$69,888 Spousal Benefits$68,203$69,180$28,764$69,180 Husband’s Benefits$271,152$270,840$219,024 Survivor Benefits$156,410$189,588$255,528 Total Benefits Received$565,653$595,848$555,804$613,620 Strategies for collecting benefits Assumes both are the same age and husband lives through age 75, and wife through age 82, and does not incorporate cost-of-living adjustments Wife’s Earnings History Age Monthly Benefits 62$416 66$552 70$729 Husband’s Earnings History Age Monthly Benefits Spousal Benefits Adjusted Spousal Benefits Survivor Benefits 62$1,614$406$1,862 66$2,257$1,129$577$2,257 70$3,042$400$3,042 Benefits based on Social Security Statements issued by the SSA. Total benefits paid calculated by BlackRock, based on stated assumptions and benefit amounts.

17 Both Age 62Both Age 66Both Age 70 Wife Age 62, Husband Age 70 Wife’s Benefits$119,808$132,480$139,968$119,808 Spousal Benefits$116,920$138,360$76,704$138,360 Husband’s Benefits$464,832$541,680$584,064 Survivor Benefits$156,410$189,588$255,528 Total Benefits Received$857,970$1,002,108$1,056,264$1,097,760 Strategies for collecting benefits Assumes both are the same age and husband lives through age 85, and wife through age 92, and does not incorporate cost-of-living adjustments Wife’s Earnings History Age Monthly Benefits 62$416 66$552 70$729 Benefits based on Social Security Statements issued by the SSA. Total benefits paid calculated by BlackRock, based on stated assumptions and benefit amounts. Husband’s Earnings History Age Monthly Benefits Spousal Benefits Adjusted Spousal Benefits Survivor Benefits 62$1,614$406$1,862 66$2,257$1,129$577$2,257 70$3,042$400$3,042

18 Alternative strategies Two high wage earners If the wife waits until FRA to collect benefits, she can file for spousal benefits only and allow her own to continue to grow. She would receive $1,139. Then at age 70, she would apply to start collecting her own benefits in lieu of spousal, and receive $1,786. Wife’s Earnings History Retirement Age Monthly Benefits 62$1,065 66$1,353 70$1,786 Husband’s Earnings History Retirement Age Monthly Benefits Spousal Benefits Adjusted Spousal Benefits 62$1,682$1,879 66$2,277$1,139$2,277 70$3,048 Benefits based on Social Security Statements issued by the SSA.

19 Alternative strategies High wage earner unmarried with deceased spouse Wife could file and collect survivor benefits at age 60. They would be reduced by 28.5%. She would continue to allow her own benefits to grow and file at age 70 to start collecting her own benefits of $3,048. Deceased Husband’s Benefits Monthly Benefits $2,481 Wife’s Earnings History Age Own Monthly Benefits Survivor Benefits 60$0$1,774 62$1,682 66$2,277$2,481 70$3,048 Benefits based on Social Security Statements issued by the SSA.

20 What if the individual has younger children? What if you have younger children? Who can collect benefits when you retire? YouYour SpouseYour Unmarried Child Age 62 or olderAge 62 or over Any age if caring for your child who is under age 16 or disabled before age 22 Under age 18, up to age 19 if in high school, or any age if disabled before age 22 Source: Social Security Administration (

21 Divorced spouse A divorced spouse can apply for benefits on a worker’s record if: Had been married to worker for at least 10 years Has been divorced for at least two years 1 Is at least age 62 Is unmarried -and- Is not eligible for equal or higher benefits on his or her own record, or on someone else’s record The ex-spouse has to be at least age 62, but not required to have filed. 1.Two years does not apply if the individual was eligible for spousal benefits at the time of divorce. Source: Social Security Administration (

22 Taxation of Social Security benefits Formula: ½ Social Security retirement benefits plus Modified Adjusted Gross Income (MAGI). This is often called “Provisional Income.” If this amount exceeds limits below, benefits become taxable. Single or Head of HouseholdMarried, Filing Jointly Base amount $25,000Base amount $32,000 $25,000–$34,000 = up to 50% taxable$32,000–$44,000 = up to 50% taxable Above $34,000 = up to 85% taxableAbove $44,000 = up to 85% taxable Source: Social Security Administration (

23 Modified adjusted gross income MAGI includes reportable income increased by certain tax-exempt amounts, such as: Tax-exempt interest Qualified US savings bonds interest that may otherwise be excluded (Form 8815) Adoption benefits Foreign earned income or housing Allowable IRA deduction Source: Social Security Administration (

24 Summary With careful planning, a strategy can be developed to improve potential lifetime benefits of Social Security by structuring the benefits to begin at optimal times based on your financial plan

25 Additional resources Social Security Administration Internal Revenue Service

26 Important notes This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice. BlackRock is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Prepared by BlackRock Investments, LLC, member FINRA. © 2011 BlackRock, Inc. All Rights Reserved. 01/11

28 Government Pension Offset (GPO) If you are covered by a pension under the civil retirement system rather than Social security, your spousal and/or survivor benefits will be reduced through a Government Pension Offset Spousal benefits and survivor benefits will be reduced by 2/3 of the amount of your pension Wife’s Pension Monthly Pension $1,500 Gov’t Pension Offset $1,000 Husband’s Earnings History Age Monthly Benefits Spousal Benefits Adjusted Spousal Benefits Adjusted Survivor Benefits 62$1,614$862 66$2,257$1,129$129$1,257 70$3,042$2,042 Benefits based on Social Security Statements issued by the SSA.

29 Windfall Elimination Provision (WEP) If you are covered by a pension under the civil retirement system and also qualify for Social Security retirement benefits, your PIA will be reduced through WEP PIA formula 90% of the first $749 1 of AIME, plus 32% of the next $3,768 1 of AIME, plus 15% of AIME in excess of $4,517 1 If WEP applies, reduce the 90% factor to 40% WEP is phased out for individuals who have substantial earnings covered by Social Security between 20–30 years 1.Changed annually by changes in the national indexing average wage. Numbers for Source: Social Security Administration (

30 SSA-1099 Source: IRS Publication 915.