Social Security Retirement Benefits Eddie Holland, CFP®, CPA, CKA®

Disclosures Trust and investment management accounts and services offered by the PlanFirst office of Ronald Blue Trust, a division of Thrivent Trust Company, are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, nor guaranteed by Thrivent Trust Company or its affiliates, and are subject to investment risk, including possible loss of the principal amount invested. The information provided in these materials is for informational purposes only. We believe the information provided herein is reliable but do not warrant its accuracy or completeness. The information does not take into consideration your personal financial information or circumstances. The material is general in nature and is not intended as individual investment or financial planning advice. Ronald Blue Trust and its employees and affiliates cannot provide legal or accounting or tax advice. Please consult with a professional advisor familiar with your particular situation for advice concerning specific investments, accounting, tax, legal, or other matters before taking any action. Ronald Blue Trust and its employees have general knowledge of the Social Security tenets; however, they do not have complete expertise to provide a full discussion of the details of your specific situation. For additional information, contact your local Social Security Administration office.

What is Social Security? A system designed to provide income to “older Americans, workers who become disabled, and families in which a spouse or parent dies.” (source www.ssa.gov) Social Security replaces roughly 40% of an average worker’s income in retirement. Most people will need roughly 70%-80% of pre-retirement earnings to live comfortably.

Types of benefits Your own benefits Spousal benefits Children benefits Caregiver benefits Survivor benefits Divorcee benefits Divorcee Survivor benefits

How do you qualify? A person must earn 40 “credits” to become eligible for Social Security retirement benefits on his/her own record. A credit is earned by working and paying into the Social Security system. In 2019, a person can earn one credit for each $1,360 earned (up to a maximum of 4 credits a year).

How are benefits calculated? Based on your lifetime earnings Earnings are indexed to account for changes in average wages Based on the highest 35 years of wages

How are benefits calculated? They are based on a formula applied on earnings to arrive at your basic benefit, or “primary insurance amount” (PIA). Your PIA is how much you would receive at your full retirement age.

What is full retirement age (FRA)? The age you are eligible to receive your “full” benefit Full Retirement Age Year of birth Full retirement age 1943-1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 or later 67

When can you begin drawing? As early as age 62 on your own/spousal benefit As early as age 60 on survivor benefit

Taking benefits before FRA If you elect to take your own benefit, a spousal benefit, or a survivor benefit prior to your FRA, you will be subject to a reduction. This reduction is based on the number of months you draw your benefit prior to your FRA. Note: FRA is different for own/spousal benefit compared to survivor benefit

Number of reduction monthsb Primary and Spousal Benefits Chart Primary and spousal benefits at age 62 (benefits based on a $1,000 primary insurance amount) Year of birth a Full Retirement Age Number of reduction monthsb Primary Spouse Amount Percent reductionc Percent reductiond 1943-1954 66 48 $750 25.00% $350 30.00% 1955 66 & 2 months 50 $741 25.83% $345 30.83% 1956 66 & 4 months 52 $733 26.67% $341 31.67% 1957 66 & 6 months 54 $725 27.50% $337 32.50% 1958 66 & 8 months 56 $716 28.33% $333 33.33% 1959 66 & 10 months 58 $708 29.17% $329 34.17% 1960 & later 67 60 $700 $325 35.00% a If you are born on January 1, use the prior year of birth. b Applies only if you are born on the 2nd of the month; otherwise the number of reduction months is one less than the number shown. c Reduction applied to primary insurance amount ($1,000 in this example). The percentage reduction is 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month. d Reduction applied to $500, which is 50% of the primary insurance amount in this example. The percentage reduction is 25/36 of 1% per month for the first 36 months and 5/12 of 1% for each additional month. Source: www.ssa.gov

Survivor Benefits Chart Birth Year a Full (survivors) Retirement Age b At age 62 c a $1000 survivors benefit would be reduced to Months between age 60 and full retirement age Monthly % reduction d 1945 - 1956 66 $810 72 .396 1957 66 & 2 months $807 74 .385 1958 66 & 4 months $805 76 .375 1959 66 & 6 months $803 78 .365 1960 66 & 8 months $801 80 .356 1961 66 & 10 months $798 82 .348 1962 & later 67 $796 84 .339 a If you are born on January 1, use the prior year of birth. b If someone was born on the 1st of the month, we figure the benefit (and the full retirement age) as if their birthday was in the previous month.  Note: The full retirement age may be different for retirement benefits. c The $1000 benefit would be reduced to $715 for anyone who started receiving survivors benefits at age 60. d Monthly reduction percentages are approximate due to rounding. The maximum benefit is limited to what the worker would receive if they were still alive. Survivors benefits that start at age 60 are always reduced by 28.50%. Source: www.ssa.gov

Delaying benefits past FRA If you elect to delay your SS benefit past FRA, you receive a “delayed retirement credit” (DRC) of 8% each year until age 70. In other words, your benefit increases 8% each year until age 70. So, your FRA benefit could be up to 32% higher by delaying until age 70 (assuming age 66 is FRA).

Impact of working while drawing SS benefits If you continue to work while drawing SS benefits, you may be subject to a reduction in benefits. If you are younger than FRA, your benefit will be reduced $1 for each $2 earned above $17,640 for 2019.

Impact of working while drawing SS benefits The year you reach FRA, your benefit is reduced $1 for each $3 earned above $46,920 for 2019. These earnings limits are applied monthly ($1,470/mo; $3,910/mo). There is NO earnings limit once you reach FRA. Reduced benefits due to working are not lost forever.

Taxability of SS Benefits Depending on your income level, your SS benefits may be subject to income tax.

Taxability of SS Benefits Taxable Portion of Benefits Single Filer Combined Income* Married Joint Filer Combined Income* Up to 50% $25,000-$34,000 $32,000-$44,000 Up to 85% Over $34,000 Over $44,000 *Combined income is considered to be adjusted gross income plus nontaxable interest plus one-half of Social Security benefits

Spousal Benefits

Spousal Benefits A person may be eligible for a benefit based on a spouse’s record. To qualify, you must: Be at least 62 years of age (or caring for an eligible child) Be married to a person receiving benefits Be aware of the earnings threshold limit ($17,640 or $46,920) if younger than FRA.

Spousal Benefits The maximum benefit is half of spouse’s FRA benefit. If you have your own benefit, SSA will force you to take the higher of your own benefit or your spousal benefit assuming you are eligible for a spousal benefit. Note: Possible exception to this rule is a restricted claim Spousal benefits do not receive DRCs.

Spousal Benefits – Example 1 Sally, age 62 (born in 1957), has a FRA monthly benefit of $600. Sally’s husband, Ron (age 66) has a FRA monthly benefit of $1,500. Ron began drawing his $1,500 monthly benefit when he turned 66.

Spousal Benefits – Example 1 If Sally elects to begin drawing a benefit, SSA will force her to take her spousal benefit because: It is larger than her own benefits ($750 vs. $600) and She is eligible for a spousal benefit since Ron is drawing and She is not eligible for a Restricted Claim Sally’s benefit at age 62 would be subject to a reduction because she is drawing before her FRA.

Spousal Benefits – Example 2 April, age 62 (born 1957), has a $600 FRA monthly benefit. Joe, April’s husband, is 62 (born 1957) and has a FRA monthly benefit of $1,500.

Spousal Benefits – Example 2 Joe plans to wait until age 66 ½ (FRA) to begin drawing his own SS benefit. If April elects to begin drawing a benefit, she will receive $435/month (her own benefit of $600 reduced by 27.5%).

Spousal Benefits – Example 2 Once Joe begins drawing his own benefit at age 66 ½, April’s benefit will increase from $435/month to $585/month. This is because SSA looks at April’s spousal benefit as two parts: Own benefit is $600 (at FRA) Spousal benefit is $150 (Joe’s benefit of $1,500 X 50% = $750)

Spousal Benefits – Restricted Claim What is a Restricted Claim? A claiming strategy that allows you to “restrict” your claim to spousal only benefits at FRA. You will receive half of claiming spouse’s FRA benefit. You will switch to your own benefit at age 70 which could be up to 32% higher because of DRCs.

Spousal Benefits – Restricted Claim To be eligible for a restricted claim, you must: Have turned age 62 (or older) by January 1, 2016 Be Full Retirement Age Be married to a person receiving benefits

Children Benefits

Children Benefits A child may qualify for benefits on a parent’s record. To qualify, the child must: Be unmarried Be under age 18 (or high school student 19 or younger) Be 18 or older and disabled (if disabled before age 22) Be aware of the earnings threshold limit ($17,640 or $46,920)

Children Benefits Each qualified child may receive a monthly payment up to 50% of the parent’s FRA benefit. There is a limit to the amount SSA will pay each family. This amount is usually 150%-180% of the FRA benefit and is prorated among all eligible recipients, if applicable.

Caregiver Benefits Spouse can qualify for “caregiver” benefits if “caring” for minor child under age 16 (or disabled). The limit is 50% of FRA benefit of claiming spouse subject to maximum family benefits. Be aware of the earnings threshold limit ($17,640 or $46,920).

Survivor Benefits

Survivor Benefits A person may be eligible for a benefit based on deceased spouse’s record. To qualify, you must: Be married at time of death and at least 9 months prior to death (some exceptions like accidental death) Be unmarried (or married after age 60) at time of filing Be age 60 or older (survivor benefits at age 60 not 62) Be aware of the earnings threshold limit ($17,640 or $46,920) if younger than FRA.

Survivor Benefits If FRA, surviving spouse will receive 100% of what deceased worker was collecting at time of death (or was entitled to collect at time of death). Survivor benefits are separate “bucket” that can be accessed anytime between age 60 and FRA. Survivor benefits do not receive DRCs.

Survivor Benefits – Example 1 Sally, age 62 (born 1957) and retired, lost her husband, Ron, last year. Ron, age 66, at the time of his death was not drawing SS benefits. Sally’s FRA benefit is $1,000/month and Ron’s FRA benefit was $2,000.

Survivor Benefits – Example 1 Sally could elect to begin drawing her own benefit at age 62 of $725/month (subject to 27.5% reduction) and switch to a survivor benefit of $2,000 at FRA (age 66 and 2 mo.).

Survivor Benefits – Example 2 Alice, age 59 (born 1960) and retired, lost her husband, Jerry, last year. Jerry, age 66, at the time of his death was not drawing SS benefits. Alice’s FRA benefit is $1,700/month and Jerry’s FRA benefit was $2,000.

Survivor Benefits – Example 2 Alice could elect to begin drawing her survivor benefit at age 60 of $1,430/month ($2,000 survivor benefit subject to 28.5% reduction) At age 70, she can switch to her own benefit and receive $2,108 ($1,700 FRA benefit X 8% DRCs for 3 years or 24% total).

Children Survivor Benefits A child may qualify for benefits on a deceased parent’s record. To qualify, the child must: Be unmarried Be under age 18 (or high school student 19 or younger) Be 18 or older and disabled (if disabled before age 22) Be aware of the earnings threshold limit ($17,640 or $46,920)

Children Survivor Benefits Each qualified child may receive a monthly payment up to 75% of the deceased parent’s FRA benefit. There is a limit to the amount SSA will pay each family. This amount is usually 150%-180% of the FRA benefit and is prorated among all eligible recipients, if applicable.

Caregiver Survivor Benefits Surviving spouse can qualify if unmarried and caring for a minor child under age 16 (or a disabled child). The limit is 75% of deceased spouse’s FRA benefit. Subject to maximum family benefits (150%-180%) Subject to earnings limit ($17,640 or $46,920). Financial Planning Tip: This may be useful for young families when calculating life insurance needs.

Divorcee and Divorcee Survivor Benefits

Divorcee Benefits A person may be eligible to draw spousal benefits from ex-spouse’s record. To qualify, you must: Have a marriage that lasted 10 years or longer (even if ex-spouse has remarried) Be unmarried Be age 62 or older Be aware of the earnings threshold limit ($17,640 or $46,920) Take the higher of your benefit or spousal benefit if younger than FRA

Divorcee Benefits Your benefit as a divorced spouse is equal to 50% of your ex-spouse's full retirement amount if you start receiving benefits at your FRA. If your ex-spouse has not applied for retirement benefits, but can qualify for them, you can receive benefits on his or her record if you have been divorced for at least two years.

Divorcee Survivor Benefits A person may be eligible to draw a survivor benefit from a late ex-spouse. To qualify, you must: Have a marriage that lasted 10 years or longer (even if ex-spouse remarried) Be unmarried (or married after age 60) Be age 60 or older (survivor benefits at age 60 not 62) Be aware of the earnings threshold limit ($17,640 or $46,920) if younger than FRA.

Factors to Consider Before Claiming Benefits Retirement Age Cash Flow Needs and Current Income Breakeven Analysis (average age is late 70s/early 80s) Inheritance/Legacy Goals Beneficiaries (spousal benefit, child benefit, survivor benefit, etc.)

Factors to Consider Before Claiming Benefits Taxes Health Need for other assets (e.g. Long-Term Care Insurance, Annuities, etc.) Solvency of Social Security

Disclaimer We believe the information provided here is reliable but do not warrant its accuracy or completeness. This material has been prepared for informational purposes only and is not intended to provide (and should not be relied on for) accounting, legal, or tax advice. The figures provided reflect 2019 numbers issued by the Social Security Administration and can vary from year-to-year.

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