Social Security and You Potential strategies for maximizing benefits Options for handling distributions, rollovers and conversions Life s better when we re connected
This guide will help you understand how to incorporate Social Security into your overall retirement income plan, and potential ways you can maximize your benefits by planning ahead. Consider relying on your financial and tax advisors to help you make choices that are aligned with your retirement goals. Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed 2 May Lose Value
Social Security: An essential element of your retirement plan As you reach a point in your life where you are entitled to receive Social Security benefits, you have an important set of decisions to make. First, you ll need to define your vision for this next stage of your life to encompass both the what and the when. Deciding when to start taking benefits can have a significant impact on your financial strategy since your level of benefits is determined by your age, and earnings history. A significant asset Social Security is a monthly check you ll receive for the rest of your life, but in actuality it s far more than that. It s a significant asset in your overall financial portfolio. By way of example, let s say your expected future Social Security benefits will equal $1,800 a month and are increased for cost-of-living adjustments by 2.8% a year for 30 years. After 30 years, your total Social Security benefits would equal roughly $995,000. The decisions you make on when and how to take your benefits will impact the value of this income stream substantially. Why you should consider waiting Almost three quarters of individuals start taking withdrawals early, which can permanently reduce the monthly benefit by 20% to 30% (depending on the year of birth) versus what they could receive if they waited until they qualified for full benefits.* Before deciding when to take benefits, it s essential that you consider other factors, like whether you plan to continue working, whether you need supplemental income, your health and your spouse s circumstances if you re married. Amount of your benefits The amount of your monthly benefits will be based on your age and the amount of income you earned during your working years, assuming you have met the eligibility requirements. Additionally, each year, a Cost of Living Adjustment (COLA) may be applied to Social Security benefits. The Social Security Administration offers several ways to estimate your future benefits based on your personal earnings history. * The Social Security Administration (SSA) calls your full retirement benefits the Primary Insurance Amount. For additional information visit: ssa.gov. 3
Determining when to start taking benefits Your Full Retirement Age, based on the year you were born, is simply the age at which you are entitled to full (or unreduced) benefits. You can retire and collect Social Security benefits any time after age 62. If you decide to start taking benefits before your Full Retirement Age, your benefit amount will be reduced. On the other hand, if you choose to wait until age 70, your benefit amount will be more due to the delayed retirement credits you ll receive. Year Born Your Full Retirement Age: 100% Benefit Age 62: Reduced Benefit Age 70: Increased Benefit 1937 65 80% 132 1 / 2% 1938 65 and 2 months 79 1 / 6% 131 5 / 12% 1939 65 and 4 months 78 1 / 3% 132 2 / 3% 1940 65 and 6 months 77 1 / 2% 131 1 / 2% 1941 65 and 8 months 76 2 / 3% 132 1 / 2% 1942 65 and 10 months 75 5 / 6% 131 1 / 4% 1943 to 1954 66 75% 132% 1955 66 and 2 months 74 1 / 6% 130 2 / 3% 1956 66 and 4 months 73 1 / 3% 129 1 / 3% 1957 66 and 6 months 72 1 / 2% 128% Let s take a look at the difference between collecting at age 62 and waiting until age 70, assuming your Full Retirement Age (FRA) is 66: If you wait to start collecting until age 70, you ll get 132% of your total benefit amount. In fact, for every year you wait past your Full Retirement Age, your benefits will increase by 8%. Conversely, if you decide to start taking benefits at age 62, when you re first eligible, you ll only receive 75% of your total benefit amount. Start collecting benefits at age 62 versus age 70 132% by deferring until age 70 Increase 8% per year 1958 66 and 8 months 71 2 / 3% 126 2 / 3% 1959 66 and 10 months 70 5 / 6% 125 1 / 3% 1960 and later 67 70% 124% FRA (100%) Reduced 6.67% first 3 years, 5% each year after Individual 75% of your FRA benefits by collecting at age 62 FRA (100%) Source: ssa.gov Estimating your benefits Visit ssa.gov and click on Retirement estimator to see your Social Security benefit amount if you begin taking benefits early, at Full Retirement Age, or if you delay benefits. You can also view your Social Security statement if you register on the website. If you do not register online and you are eligible for benefits, as of September 2014 you can expect to receive a paper statement in the mail every five years between the ages of 25 and 60. Keep in mind that the Social Security Administration may change their paper mailing schedule in the future. For the latest information, please visit ssa.gov. 4
Strategies for potentially maximizing benefits The following are several hypothetical examples illustrating how to make the most of your Social Security benefits. Your financial advisor may also suggest other strategies to consider, based on your personal needs and goals. Strategy: Collect spousal or survivor benefits The situation Mary and her husband Jack have been married for 30 years. Jack is 75, retired and receiving Social Security benefits, while Mary is 66 and preparing to retire. During their marriage, Mary worked part-time as a nurse. She has enough Social Security credits to qualify for Social Security on her own. However, her benefits will be significantly less than her husband s. The solution The couple reviews Mary s options with their financial advisor. She can either collect her own benefits, or collect spousal benefits. Since her spousal benefits, 50% of Jack s benefits, are higher than her own, she decides to collect spousal benefits. If Jack passes away before she does, she will become eligible to receive 100% of his benefits, as a survivor. Strategy: Collect spousal, then collect your own The situation Bob and Kate are married and each is eligible to receive Social Security benefits on their own. However, Bob s benefits will be slightly higher than Kate s since he earned more during their working years. The solution After speaking with their financial advisor, Bob decides to start taking benefits at his Full Retirement Age, while Kate starts collecting the spousal benefits, which are lower than her benefit based on her own work history. Kate allows her own benefits to earn delay credits, and begins taking them at age 70. 5
Strategies for potentially maximizing benefits Strategy: File, then suspend The situation Tom and Jan are married and approaching retirement. They re each eligible to collect Social Security benefits on their own, however Jan s Full Retirement Age benefits will be significantly higher based on her earnings history. Tom is entitled to his own benefits or spousal benefits since they have been married for more than one year. The solution Since Jan would like to continue working, she doesn t want to start taking her benefits until she reaches age 70. After speaking with their financial advisor, they decide to have Jan file for benefits and suspend her payments until age 70, when she will no longer accrue delayed retirement credits. Tom decides to collect spousal benefits, 50% of Jan s benefit because it is much higher than his own benefit. When Jan turns 70, she will begin collecting her own benefits. File on ex-spouse s record Did you know that you can file to collect benefits on your ex-spouse s record even if your ex-spouse has not already started his or her benefits? There are eligibility requirements, including: You must have been married to your ex-spouse for at least 10 years before the final divorce. You must be divorced for more than two years. You must be at least 62 years of age. Your ex-spouse must be at least 62 years of age. You cannot be re-married or eligible for equal or higher benefits on your own if you are younger than Full Retirement Age. Your Merrill Lynch financial advisor can help you determine if this strategy makes sense for your specific situation. 6
Creating a comprehensive retirement plan You should consider Social Security an asset in the context of your overall retirement plan. Not only will this perspective help you determine when to take your benefits, it will also allow you to plan more effectively to meet both your essential spending needs for daily living and what you have available for discretionary spending. In addition to Social Security, you ll want to look at your other guaranteed, and non-guaranteed, sources of income to determine how to best allocate your resources to meet your retirement goals. Your tax advisor and Merrill Lynch financial advisor can help you evaluate your options in the context of your overall retirement plan and help you decide when to start taking your Social Security benefits. There are several factors that should be taken into consideration based on your individual situation, such as: What are your essential retirement spending needs? Will you continue to work in retirement? What other sources of retirement income do you have? What is the age difference between you and your spouse? Will your spouse receive his or her own benefits? Are you eligible to file on an ex-spouse s record? Are you married? Getting started Talk to your Merrill Lynch financial advisor about the role Social Security will play in your overall retirement plan. Your advisor can help you decide how to potentially maximize your Social Security benefits in order to meet your retirement goals.
This material should be regarded as general information on Social Security and is not intended to provide specific Social Security advice. If you have questions regarding your particular situation, please contact your legal or tax advisor. Merrill Lynch and its financial advisors do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax, accounting or legal statements made herein. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Merrill Lynch or any of its affiliates do not monitor or maintain the information available on the external web sites mentioned nor represent or guarantee that such web sites are accurate or complete, and they should not be relied upon as such. The clients names and stories are fictitious and are intended to be strictly illustrative. They may not be representative of the experience of every client. Given that each client s needs, goals and situation are unique, each client should be evaluated independently and the strategies and solutions presented are not appropriate in all instances. 2014 Bank of America Corporation. All rights reserved. I ARKCSJCG I 102204-0714