1. What You Need to Know MAXIMIZING SOCIAL SECURITY BENEFITS

2. A Little History Created over 75 years ago, Social Security was originally designed to help senior citizens avoid poverty during the Great Depression. It was created as a self-financing program that would collect payroll taxes from workers which would immediately be paid out in benefits to retirees. Millions of Americans depend on Social Security as their primary source of retirement income.

3. Major Benefits of Social Security Lifetime Income: Provides what every retiree wants: an income that never runs out. Predictable, Steady Income: After qualifying, the income you receive is set and does not change. Inflation-adjusted Income: Every year, Social Security benefits are increased for inflation purposes. These cost- of-living (COLAs) are a big help to seniors. Survivor Benefits: Even after a spouse dies, their benefits are paid to surviving spouses and dependents.

4. Social Security Eligibility You become eligible for Social Security by working in a Social Security-covered job for at least 10 years To be more precise, you need 40 credits You can earn up to 4 credits per year by earning a certain minimum dollar amount If you earn 4 credits every year for 10 years, you accumulate the 40 credits needed

5. How Are Benefits Calculated? When you turn 62, your exact amount is calculated. Annual earnings are indexed to account for wage inflation. After every year’s earnings are indexed, the government tallies your highest 35 years of earnings. If you worked less than 35 years, any missing years are counted as zeroes. Every year of earnings are totaled and divided by 35 which gives you your “indexed monthly earnings”; also known as AIME.

6. Calculating Benefits Cont’d Every year, the maximum wages subject to Social Security Tax has increased. The government takes your inflation-adjusted indexed monthly number (AIME) and applies a 3-part formula to arrive at your primary insurance amount or PIA calculation. This PIA is your guaranteed monthly benefit. There are tools available online to determine PIA at the government’s Social Security web site.

7. Receiving Benefits Full retirement age for people born between 1943 and 1954 is 66 – the age you can begin receiving your full, unreduced primary insurance amount (PIA) Early eligibility begins at 62 but reduces benefits Timing is one of the most crucial aspects of Social Security planning “The bread winner will delay” is an important concept that means the longer the primary earner (individual or married) delays, the larger the monthly income will be but it depends on every client’s situation.

8. Receiving Benefits Cont’d Benefits can increase approximately 8% “guaranteed” for each year you wait. Timing depends on each client, each situation and the client’s retirement plans. If one is not working and has limited funds, they may have to take Social Security. Everyone’s situation is different. First, it is important to understand the impact of what Social Security terms Full Retirement Age (FRA).

9. Full Retirement Age FRA is based on your birth year, and can gradually move from age 65 to 67.

10. Applying Early for Benefits If you apply when you first become eligible at 62, your benefit will equal 75% of your PIA. So if “Boomer Bill” has a calculated PIA of $2,466 for example, and applies in 2012 when he turns 62, his monthly benefit would be 75% of his PIA or approximately $1,850.* This is the amount he would receive for the rest of his life, only increased by COLAs annually. *To understand how to calculate PIA, visit www.ssa.gov

11. The Power of Timing: Applying After FRA At age 66, you obtain your full retirement age. Now you can start receiving your full, unreduced PIA. However, if you delay the onset of benefits past age 66, you will earn what are called delayed actuarial credits. Delayed credits are the first step to increasing your income in order to maximize retirement planning. For each year you delay the start of your benefits, your benefit will increase by 8% per year up to age 70. So if Boomer Bill waits until age 70 to apply, his $2,466 PIA will increase by 32% to $3,255 (excluding COLAs)

12. Delayed Credits and Spousal Benefits This is the key area for retirement planning Leveraging the delayed credit system allows you to optimize spousal benefits through two key “switch strategies” By using these two strategies, pre-retirees can maximize benefits and then redirect these additional funds into a tax-deferred annuity as one valuable option.

13. Case Study A married couple, each turned 62 in 2005 making them eligible to collect Social Security Their estimated full retirement age benefit was $30,000. They planned to stop working in 2008 at age 65. They wanted to know when they should begin taking their Social Security benefits.

14. The Strategy! The spouse with the lowest benefit should begin taking benefits as soon as they turn 62 or stop working. Since the couple planned to continue working one spouse begins their benefit when they stop working at 65. The other spouse takes a “spousal benefit” (equal to half of the first spouse’s benefit) at age 66, their normal retirement age, and delay their own benefit until age 70.

15. Implementation As soon as they both retired in 2008 one spouse applied for their benefit. When the other spouse reached full retirement age (66) in 2009 they applied for a “spousal benefit”. In 2013 the second spouse will apply for their own benefit. Since this spouse has delayed their benefit until 70 they will receive 132% of their full retirement age benefit for the rest of their life. Should one spouse die the surviving spouse will receive the higher of the two benefits for the rest of their life.

16. More Optimization… This is all great, now you know some of the important aspects of Social Security but what you didn’t know: There’s a hidden tax consequence that nobody knows about – you could be taxed on your hard-earned benefits. Income tax on Social Security benefits can reduce an already-small amount of monthly benefits – can you afford that?

17. Social Security Taxation Depending on your earnings, you are responsible for paying income taxes on a portion of their benefits. The IRS adds half of an individual's Social Security benefits plus all other income (such as pensions, CD/bond interest or capital gains) to calculate the income taxes owed In fact, up to 85% of your benefits could be taxed…

18. Social Security Taxation

19. Effect of Deferred Vs. Immediate Taxation Deferred Taxation On Earnings –Municipal Bonds –Annuities –IRA –401(k) Immediate Taxation On Earnings –CD –Savings –Brokerage Accounts –Mutual Funds –Money Market Avoid The Social Security Trap and maximize your take-home Social Security Income – by deferring taxes.

20. Q & A