Social Security Understanding How to Work

the System

Theodore J. Sarenski, CPA/PFS, CGMA, CFP, AEPBlue Ocean Strategic Capital, LLC

September 15, 2016

Ted is recognized locally and nationally as an expert providing financial planning advice. He currently appears on WSTM-3, Syracuse’s NBC affiliate, taking viewers’ calls and offering planning concepts to viewers. Ted appeared on the PBS affiliate in Syracuse as a permanent guest host of the program “Financial Fitness” which aired live for one half hour every Thursday at 8 PM EST through December 2014. He received the 2013 Distinguished Service Award by the American Institute of Certified Public Accountants (AICPA) Personal Financial Planning Division for contributions to industry-related publications and speaking engagements across the country. Ted recently was selected to be on the Wolters Kluwer Financial and Estate Planning Advisory Board.

Ted authored articles on financial planning that have appeared in The Journal of Accountancy, The CPA Journal, The Journal of Taxation and the AICPA Wealth Management Insider. He authored a CPAs Guide to Social Security for the American Institute of CPAs in 2011. He has been interviewed and quoted in many publications including: USA Today, The Wall Street Journal, Consumer Reports, The Christian Science Monitor, Investment News, Kiplinger Personal Finance Report, Financial Planning Magazine (cover photo February 2013), Accounting Today and The Practical Accountant.

Since 2005, Ted has been interviewed by hundreds of Radio Stations across the country on a variety of financial planning and income tax topics. Ted was interviewed for a 45 minute segment of NPR on the topic of retirement and Social Security in 2009.

Speaker Biography

Trustees Report, 2016Analysis and future fixes

Annual Report of the Board of Trustees – June 22, 2016

• For the 75-year projection period, the present value of UNFUNDED obligations is $11.4 Trillion

• Reserves for Social Security will be fully depleted in 2034

• Once depleted, annual Social Security receipts would be sufficient to pay 79% of scheduled benefits

Annual Report of the Board of Trustees – June 22, 2016

• Reserves for Social Security Disability will be fully depleted in the third quarter of 2023 after the action in the 2015 Budget Reconciliation Bill – would have been 2016

• Once depleted, annual Social Security disability receipts would be sufficient to pay 89% of Disability benefits

• To remain solvent – increase revenues from payroll tax by going to 14.98% from its current 12.4% OR reduce benefits for those eligible to start benefits in 2016 and the future by 19.0%

Trustees suggestion – how does it translate?

• Average household income $53,000.

• Increase in payroll tax at 1.29% equals $683.70 per year.

• $683.70 times 35 years equals $23,929.

• Average SS benefit January 2016 is $1341 per month.

• Average household gets the extra withheld money back in 17and 7/8 months.

Trustees suggestion – how does it translate?

• Someone at twice the national average $106,000.

• Increase in payroll tax at 1.29% equals $1367.40.

• $1,367.40 times 35 years equals $47,859.

• Someone at this income level is now getting 15% on their AIME.

• The additional $53,000 of earnings over the average gets them an additional $662.50 in monthly benefits. This person gets the additional tax they pay back in 6 years and 1/4 month.

Proposals from presidential candidates on how to “fix” the Social Security

problem

• Increase full retirement age

• Means test earnings each year

• Reduce growth of benefits for upper income retirees

• Phase in means testing to make SS based on need

• Over $250,000 of income pay the same percentage of income to SS as the middle class

Social Security Facts – From 2015

• 60 million people received benefits totaling $897 Billion• 43 million retirees and dependents – 72%• 11 million disabled workers and dependents – 18%• 6 million survivors – 10%

• Among the Elderly• Social Security represents 50% or more of the income of:

• 53% of married couples• 74% of unmarried persons

• Social Security represents 90% or more of the income of:• 22% of married couples• 47% of unmarried persons

Social Security Facts – From 2015• In 1940, life expectancy of a 65 year-old was almost 14 years – today it is 21years

• By 2035, the number of Americans 66 and over will be 79 million – today 48 million

• By 2035, there will be 2.1 worker for every recipient – today it is 2.8 workers for every recipient

• Today – 51% of the workforce has no private pension coverage

• Today – 34% of the workforce has no savings set aside specifically for retirement

Facts and Figures - 2016

• Social Security maximum taxable income - $118,500

• Medicare maximum taxable income – no limit

• Earnings exempt amount before penalty of $1 of benefit for every $2 earned when under age 66 the entire year - $15,720

• Earnings exempt amount before penalty of $1 of benefit for every $3 earned in the year you become age 66 - $41,880

• Maximum monthly Social Security benefit - $2,639

Advice for Now and Advice for the future

Difference in Monthly Benefit – No Time Value or COLA

AGE % of PIA Benefit at Max Social Security

62 75 $1,979

64 86.67 2,287

66 100 2,639

67 108 2,850

68 116 3,061

69 124 3,272

70 132 3,483

No Wage Earner Timeline

Higher wage earner 62 FRA 70$2,000 FRA Benefit File and Begin $2,640

Suspend Benefit

No Wage Earner

OR Begin $1,000 Spousal Benefit

Begin $750 Spousal Benefit

Not Significant Lower Wage Earner Timeline

Higher wage earner 62 FRA 70$2,000 FRA Benefit File for$700 Begin $2,640

Spousal Benefit BenefitOnly

Lower Wage Earner $1,400 at FRA Begin Reduced $1,050 Benefit

a

The Bipartisan Budget Act of 2015

• Age 66 by April 30, 2016 – no change to rules.

• Age 62 by December 31, 2015 – (born 1953 or earlier) – restricted application for spousal benefits only still allowed at full retirement age.

• The later ½ of the baby boom generation and all those who follow –“Back to the Future” of 1999 before the Senior Citizen’s Freedom to Work Act of 2000.

The Bipartisan Budget Act of 2015

• The ability to ask for a Lump Sum has disappeared.

• I had been featuring this item as a Social Security strategy that single people could employ as well as married people.

• At FRA an individual could file and suspend. Before age 70 that individual could go to Social Security and get all of the monthly amounts they suspended since age 66 in a lump sum check and begin a monthly check at that time.

• Used in cases of unexpected illnesses or good fortune.

The Bipartisan Budget Act of 2015

• Stealth move to prop up Social Security Disability

• Social Security Retirement and Social Security Disability have separate “buckets” of funds.

• The act took $150 Billion from the Social Security Retirement bucket and moved it to the Disability bucket to avoid the issue that SS DBL was going to run out of funds in the fourth quarter of 2016 and only be able to pay 81% of current benefits.

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

$1,400,000.00

$1,600,000.00

75 85 95

$431,292

$821,388

$1,296,912

$394,188

$874,704

$1,460,448

$275,532

$814,164

$1,470,744

62

66

70

Low or No Wage Earner married to worker with FRA benefit of $2,000, both the same age

Lower wage earner with FRA benefit of $1,400 married to worker with FRA benefit of $2,000, both the same age

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

75 85 95

$488,808

$931,912

$1,469,832

$446,748

$991,332

$1,655,172

$383,796

$998,688

$1,748,232

62

66

70

Low or No Wage Earner married to worker with FRA benefit of $2,000, both the same age, one dies at age 75

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

75 85 95

$431,292

$691,356

$1,008,372

$394,188

$714,529

$1,101,532

$275,532

$666,192

$1,142,388

62

66

70

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

85 95

$821,388

$1,138,404

$874,704

$1,265,208

$814,164

$1,290,360

62

66

70

Low or No Wage Earner married to worker with FRA benefit of $2,000, both the same age, one dies at age 85

Lower wage earner with FRA benefit of $1,400 married to worker with FRA benefit of $2,000, both the same age, one dies at age

75

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

75 85 95

$488,808

$748,860

$1,065,876

$446,748

$767,088

$1,157,592

$383,796

$774,444

$1,250,652

62

66

70

Lower wage earner with FRA benefit of $1,400 married to worker with FRA benefit of $2,000, both the same age, one dies at age 85

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

85 95

$930,912

$1,247,928

$991,332

$1,381,824

$998,688

$1,474,896

62

66

70

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

75 85 95

$363,228

$771,264

$1,268,652

$369,768

$819,828

$1,370,040

$269,772

$832,596

$1,504,056

62

66

70

Low or No Wage Earner married to worker with FRA benefit of $2,000, Low or No Wage Earner 4 years younger

Low or No Wage Earner married to worker with FRA benefit of $2,000, Low or No Wage Earner 4 years older

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

75 85 95

$418,932

$839,172

$1,351,428

$338,496

$806,808

$1,377,684

$224,076

$751,440

$1,394,280

62

66

70

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

75 85 95

$35,941

$68,449

$108,076

$32,849

$72,892

$121,704

$22,962

$67,847

$122,562

Both die at age

Same Age

62 66 70

Low or No Wage Earner married to worker with FRA benefit of $2,000, both the same age – cumulative MONTHLY benefit

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

75 85 95

$44,098

$78,393

$114,598

$43,928

$83,660

$126,494

$39,857

$88,442

$140,771

Both Die, Youngest at age

Higher Earner 4 years older

62 66 70

Low or No Wage Earner married to worker with FRA benefit of $2,000, higher earner is 4 years older - cumulative MONTHLY

benefit

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

75 85 95

$39,393

$73,346

$108,388

$37,332

$76,308

$117,474

$32,086

$76,921

$125,229

Both Die, Youngest at age

Higher Earner 4 years Younger

62 66 70

Low or No Wage Earner married to worker with FRA benefit of $2,000, higher earner is 4 years younger - cumulative

MONTHLY benefit

More of What Happened and What Did Not

Change

2015 Social Security Press

ReleasesJanuary 22 – Starting March 16, 2015, field offices will be open an extra hour, going to office hours of 9 – 4 instead of 9 – 3, on Monday, Tuesday, Thursday and Friday.

February 2 – Online Replacement of SSA-1099 now available

May 8 – Noah and Emma win SS Most Popular Baby Names for 2014

June 1 – Go online through my Social Security for replacement Medicare cards

July 22 - the annual Trustees Report issued

August 14 – 80th Birthday party!

October 15 – NO COLA FOR YOU announcement.

November 16 – Social Security fiscal 2015 report.

Divorce

• Married for at least 10 years

• Been divorced for at least 2 years

• Ex-spouse signing up for benefits is not a requirement

• Not re-married before age 60, UNLESS• Subsequent marriage ended in divorce• Subsequent marriage ended in death (not caused by survivor)

Other Issues: Disability Benefits

• Family Maximum for SS Disability Benefits• 85% of the worker’s Average Indexed Monthly Earnings (AIME)• HOWEVER – it cannot be less than the worker’s Primary Insurance Amount

(PIA) nor more than 150% of the PIA• Example: a worker’s AIME is $1,800. The worker would receive a disability

payment of $1,020.80 on his/her own. 85% of AIME is $1,530; 150% of PIA is $1,531.20 ($1020.80 X 150%). Therefore, spouse and children could receive the additional $509.20. ($1,530 - $1020.80)

• Eligible people include:• Spouse (85%)• Children (50%)

Other Issues: Death (Survivor) Benefits

• Family benefits with a family maximum limit

• The maximum family benefit is computed using a 4-tier formula instead of the usual 3-tier formula. When hitting the maximum family benefit, each beneficiary is reduced proportionately.

• 2016 bend points:• 150% of the first $1,093 of the worker’s PIA• 272% of the worker’s PIA over $1,093 up to $1,578• 134% of the worker’s PIA over $1,578 up to $2,058• 175% of the worker’s PIA over $2,058

Other Issues: Death (Survivor) Benefits

• Lump sum death benefit - $255

• Benefit based on the insured worker’s PIA at date of death

• Eligible people include:• Widow or widower – Age 60 (100%) OR any age (75%) if caring for the

deceased’s child under age 16 or disabled• Surviving divorced spouse – (happiest person) (100%)• Unmarried children – under age 18 or up to 19 if still in high school (75%)• Dependent parents – 62 or older who were dependent on the deceased for

more than ½ of their support (2 – 75% each; 1-82.5%)

Repay and Reapply

• Withdraw your Social Security application and repay all of the benefits received in one lump sum, no interest! (Including spousal and/or children’s benefits)

• As of December 8, 2010, only allowed within 1 year of beginning benefits and only once per lifetime.

• You will likely advise this for a new client who made a decision before meeting with you to discuss the options for Social Security. Not unlike hearing they made a taxable transaction that they tell you about after-the-fact during tax time; except this is reversible!

Windfall Eliminations Provision

• Affects any worker who earned a pension in a job in which they did not pay Social Security taxes and also worked in a job that qualifies them for Social Security benefits.

• The percentage of the first bend point of the AIME calculation is reduced from 90% to 40% but the Social Security benefit cannot be reduced by more than ½ of such pension received.

Government Pension Offset

• Affects federal employees hired before 1984 who continued to opt out of the Social Security system.

• Spousal or widow/widower Social Security benefit is reduced by 2/3 of the government pension being received by the individual.

• Only the government employee is affected, not the non-government employee spouse.

Other Social Security Items

• Same Sex Couples

• Representative Payee

• Non-Citizens

• Correct an Earnings Record

• When do You Get Your Check

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?

Questions

Contact Information

Ted Sarenski

333 W Washington Street Suite 220Syracuse, NY 13202

Phone 315-471-2672

E-Mail: tjs@boscllc.com