9 Facts About Social Security

Tip: How Much? Check your Social Security earnings and see an estimate of your benefits on the Web site, www.ssa.gov.Social Security’s been a fact of retirement life ever since it was established in 1935. We all think we know how it works, but how much do you really know? Here are nine things that might surprise you.

  1. The Social Security trust fund is huge. At $2.8 trillion at the end of the first quarter of 2016, it exceeds the gross domestic product (GDP) of every economy in the world except the five largest: the U.S., China, Japan, Germany, and the U.K..¹
  2. Most workers are eligible for Social Security benefits, but not all. For example, until 1984, federal government employees were part of the Civil Service Retirement System and were not covered by Social Security.²
  3. You don’t have to work long to be eligible. If you were born in 1929 or later, you need to work for 10 or more years to be eligible for benefits.³
  4. Benefits are based on an individual’s average earnings during a lifetime of work under the Social Security system. The calculation is based on the 35 highest years of earnings. If an individual has years of low earnings or no earnings, Social Security may count those years to bring the total years to 35.⁴
  5. There haven’t always been cost-of-living adjustments (COLA) in Social Security benefits. Before 1975, increasing benefits required an act of Congress; now increases happen automatically, based on the Consumer Price Index. There were COLA increases in 2012–2015, but not in 2016.⁵
  6. Social Security is a major source of retirement income for 62% of current retirees.⁶
  7. Social Security benefits are subject to federal income taxes — but it wasn’t always that way. In 1983, Amendments to the Social Security Act made benefits taxable, starting with the 1984 tax year.⁷
  8. Social Security recipients received a single, lump-sum payment from 1937 until 1940. One-time payments were considered “payback” to those people who contributed to the program. Social Security administrators believed these people would not participate long enough to be vested for monthly benefits.⁸
  9. In January 1937, Earnest Ackerman became the first person in the U.S. to receive a Social Security benefit—a lump sum of 17 cents.⁹

Fast Fact: How Many? In an average month, 48.2 million people age 62 and older receive a retirement benefit from the Social Security Administration.
Source: Social Security Administration, 2016

1. Social Security Administration, 2016. Assets as of March 31, 2016. CIA World Factbook, 2016.
2-5, 7-9. Social Security Administration, 2016
6. Employee Benefit Research Institute, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

9 Facts About Retirement

Tip: 20% of retirees are currently providing financial support to a relative or friend.
Source: 2015 Retirement Confidence Survey, EBRIRetirement can have many meanings. For some, it will be a time to travel and spend time with family members. For others, it will be a time to start a new business or begin a charitable endeavor. Regardless of what approach you intend to take, here are nine things about retirement that might surprise you.

  1. Many consider the standard retirement age to be 65. One of the key influences in arriving at that age was Germany, which initially set its retirement age at 70 then lowered it to age 65.¹
  2. Every day for the next 20 years, another 8,000 baby boomers will turn 65. That’s roughly one person every 10 seconds.²
  3. In 2015, people aged 65 and older accounted for 15% of the population in the U.S. By 2050, they are expected to make up more than 22% of the population.³
  4. Ernest Ackerman was the first person to receive a Social Security benefit. In March 1937, the Cleveland streetcar motorman received a one-time, lump-sum payment of 17¢. Ackerman worked one day under Social Security. He earned $5 for the day and paid a nickel in payroll taxes. His lump-sum payout was equal to 3.5% of his wages.⁴
  5. In 2001, people aged 65 and older owned 31% of the U.S.’s financial assets. By 2040, it is estimated they will hold 44% of the country’s financial assets.⁵
  6. Nine of ten adults aged 65 years and older say they have taken at least one prescription drug in the last 30 days.⁶
  7. In 2015, nearly two-thirds (62%) of retirees depended on Social Security as a major source of their income. The average monthly Social Security benefit at the beginning of 2016 was $1,341.⁷
  8. Centenarians — in 1980 there were 15,000 of them. Today there are more than 72,000. And 80% of them are women.⁸
  9. Seniors spend a lot of time doing leisure activities, 7 to 8 hours a day.⁹

Conclusion

These stats and trends point to one conclusion: The 65-and-older age group is expected to become larger and have more influence in the future. Have you made arrangements for health care? Are you comfortable with your investment decisions? If you are unsure about your decisions, maybe it’s time to develop a solid strategy for the future.

Postponing Retirement?

26% of workers now intend to keep working until age 70 and beyond. And 10% don’t intend to retire at all.

Chart Source: Employee Benefit Research Institute, 2016.

1,4. Social Security Administration, 2015
2. AARP, 2015
3. U.S. Census Bureau, 2016
5. National Bureau of Economic Research, 2015; (landmark study conducted in 2004)
6. Centers for Disease Control and Prevention, 2015
7. Employee Benefit Research Institute, 2016 Retirement Confidence Survey; Social Security Administration, 2016
8. The New York Times, January 21, 2016
9. Bureau of Labor Statistics, June 24, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

The Cost of Procrastination

Tip: Don’t Put it Off. Putting off an easy thing makes it hard. Putting off a hard thing makes it impossible.
-George Claude Lorimer

Some of us share a common experience. You’re driving along when a police cruiser pulls up behind you with its lights flashing. You pull over, the officer gets out, and your heart drops.

“Are you aware the registration on your car has expired?”

You’ve experienced one of the costs of procrastination. Procrastination can cause missed deadlines, missed opportunities, and just plain missing out.

Procrastination is avoiding a task that needs to be done—postponing until tomorrow what could be done today. Procrastinators can sabotage themselves. They often put obstacles in their own path. They may choose paths that hurt their performance.

Though Mark Twain famously quipped, “Never put off until tomorrow what you can do the day after tomorrow.” We know that procrastination can be detrimental, both in our personal and professional lives. Problems with procrastination in the business world have led to a sizable industry in books, articles, workshops, videos, and other products created to deal with the issue. There are a number of theories about why people procrastinate, but whatever the psychology behind it, procrastination potentially may cost money—particularly when investments and financial decisions are put off.

As the illustration below shows, putting off investing may put off potential returns.

If you have been meaning to get around to addressing some part of your financial future, maybe it’s time to develop a strategy. Don’t let procrastination keep you from pursuing your financial goals.

Early Bird

Fast Fact: Chronic Problem. According to Psychology Today, 20% of people are chronic procrastinators.
Source: Psychology Today, 2015

Let’s look at the case of Cindy and Charlie, who each invest $100,000.

Charlie immediately begins depositing $10,000 a year in an account that earns a 6% rate of return. Then, after 10 years, he stops making deposits.

Cindy waits 10 years before getting started. She then starts to invest $10,000 a year for 10 years into an account that also earns a 6% rate of return.

Cindy and Charlie have both invested the same $100,000. However, Charlie’s balance is higher at the end of 20 years because his account has more time for the investment returns to compound.

This is a hypothetical example of mathematical compounding. It’s used for comparison purposes only and is not intended to represent the past or future performance of any investment. Taxes and investment costs were not considered in this example. The results are not a guarantee of performance or specific investment advice. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The types of securities and strategies illustrated may not be suitable for everyone.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Healthcare Costs in Retirement

Tip: Medicare beneficiaries spent an average of $4,734 out of pocket on health care in 2010, the most recent year for which figures are available. Forty-two percent of that went to premiums, 20% to long-term care facilities.
Source: MedicareResources.org, October 24, 2015

American workers are split about 50/50 when asked if they are confident they will have enough money to pay for medical expenses in retirement.

In a 2015 survey, 42% of all workers reported they were “not too” or “not at all” confident they would have enough money to pay for their medical expenses in retirement. Fifty-six percent said they were “very” or “somewhat” confident they could pay the cost.¹

Regardless of whether you’re confident or not, it’s important to have an idea about how much healthcare may cost in retirement. By putting the costs in better perspective, you might be able to better understand what you can pay for and what you can’t.

Health-Care Breakdown

A retired household faces three types of health-care expenses.

  1. A household may have the expense of premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers drug-related expenses). Typically, Part B and Part D are taken out of a person’s Social Security check before it is mailed, so the premium cost is often overlooked by retirement-minded individuals.
  2. The household should expect to pay for co-payments related to Medicare-covered services that are not paid by Medigap or other health insurance.
  3. The retired household should expect to pay for dental care, eyeglasses, and hearing aids, which are typically not covered by Medicare or other insurance programs.

It All Adds Up

Fast Fact: Nursing Home Costs. In 2015, the national average rate for a private room in a nursing home was $92,378 a year. The national average rate for a semi-private room in a nursing home was $82,125.
Source: Genworth 2016 Cost of Care Survey

According to a HealthView Services study using more than 50 million actual cases, a healthy married couple, age 65, can expect these healthcare expenses to add up to $267,000 over their lifetime.  If you include dental, vision, co-pays, and out-of-pocket costs, the total rises to $395,000.²

For a healthy 55-year-old couple who plans to retire in a decade, the number jumps to $464,000. ³

Should you expect to pay this amount? Possibly. Seeing the results of one study may help you make some critical decisions when creating a strategy for retirement. Without a solid approach, health-care expenses may add up quickly and alter your retirement spending.

Out-of-Pocket Health-Care Cost

The cost of health care for a 65-year-old couple is projected to increase with age.

 Age 65 Age 85
Annual cost  $6,999  $14,530
Monthly cost  $583  $1,211

Source: CNBC, March 27, 2015

Prepared for the Future?

Workers were asked how much they have saved and invested for retirement — excluding their residence and defined benefit plans.

Employee Benefit Research Institute, 2015 Retirement Confidence Survey.

1. Employee Benefit Research Institute, 2015 Retirement Confidence Survey
2,3. CNBC, March 27, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

When Should You Take Social Security

The Social Security program allows you to start receiving benefits as soon as you reach age 62. The question is, should you?

Monthly payments differ substantially depending on when you start receiving benefits. The longer you wait (up to age 70), the larger each monthly check will be. The sooner you start receiving benefits, the smaller the check.

From the Social Security Administration’s point of view, it’s simple: If a person lives to the average life expectancy, the person will eventually receive roughly the same amount in lifetime benefits no matter when he or she chooses to start receiving them. In actual practice, it’s not quite that straightforward, but the principle holds.

The key phrase is “if the person lives to average life expectancy.” If a person exceeds the average life expectancy, and has opted to wait to receive benefits, he or she will start to accumulate more from Social Security.

The chart shows how Social Security benefits accumulate for individuals who started to receive at ages 64, 67, and 70. The person who started to receive benefits at age 64 would accumulate $536,996 by the age of 85. Conversely, the person who started to receive benefits at age 70 would accumulate $646,550 by the age of 85.

The example assumes the maximum retirement benefit of $2,533 at age 67. It does not assume COLA.

Source: Social Security Administration, 2014.

There is no single “right” answer to the question of when to start benefits. Many base their decision on family considerations, economic circumstances, and personal preferences.

If you have a spouse, the decision about when to start benefits gets more complicated—particularly if one person’s earnings were considerably higher than the other’s. The timing of spousal benefits should be factored into a decision.

When considering at what age to start Social Security benefits, it may be a good idea to review all the assets you have gathered for retirement. Some may want the money sooner based on how assets are positioned, while others may benefit by waiting. So as you near a decision point, it may be best to consider all your options before moving forward.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Traditional vs. Roth IRA

Tip: Not Quite Anything. IRAs are free to invest in just about anything, except collectibles such as artwork, rugs, antiques, gems, stamps, and coins, for example.

Traditional IRAs, which were created in 1974, are owned by roughly 31.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 19.2 million households.1

Both are IRAs. And yet each is quite different.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the account. Distributions from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.2

For individuals covered by a retirement plan at work the deduction for a traditional IRA in 2016 is phased out for incomes between $98,000 and $118,000 for married couples filing jointly, and between $61,000 and $71,000 for single filers.

Also within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.3

Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2016, contributions to a Roth IRA are phased out between $184,000 and $194,000 for married couples filing jointly and between $117,000 and $132,000 for single filers.

In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $5,500 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,000 in that same year.4

Fast Fact: Wealthy Owners. The higher your income is, the more likely you are to have an IRA. Of wealthy households—those with incomes of $200,000 or more—49% own a traditional IRA, 34% own a Roth IRA.
Source: Investment Company Institute, 2015

Individuals who reach age 50 or older by the end of the tax year can qualify for “catch-up” contributions. The combined limit for these is $6,500.5

If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: open an account.

What Is a Stretch IRA?

Tip: What’s in a Name? If you fail to name a beneficiary on your IRA, it may be much more difficult for your beneficiaries to ‘stretch’ the inherited IRA over their lifetimes.

The Investment Company Institute reports that there is roughly $7.4 trillion in Individual Retirement Accounts (IRA).1 To help put that in perspective, that’s well over one-third the annual gross domestic product of the U.S.2

If you have a traditional IRA, you may have the opportunity to stretch it out, meaning the account may be structured to extend its tax-deferred status across multiple generations.3

With a traditional IRA, the account holder must begin taking required minimum distributions (RMDs) by April 1 of the year after he or she turns 70½. These payments are based on the IRS’ tables for life expectancy. To calculate an RMD, divide the account balance by the account holder’s anticipated lifespan.

Case Study

Let’s assume, for example, a 73-year-old has an IRA with a balance of $250,000. According to the Internal Revenue Service’s 2015 lifespan table, the person’s life expectancy is 14.8 years, so the RMD is:

$250,000 ÷ 14.8 = $16,891.89

At that rate, it may take several years to deplete the account — in some cases, longer than the account owner is likely to be alive. So what are your options?

First, you can name your spouse as beneficiary of the traditional IRA, and he or she can roll the balance into a new account. If your spouse is over age 70½ when you die, he or she must begin taking RMDs based on his or her life expectancy. When your spouse dies, the second-generation beneficiary may transfer the balance into an inherited IRA. Then, the owner of the inherited IRA must begin taking RMDs based on his or her life expectancy. (See illustration.)

This gives the money in the inherited IRA a longer time to remain tax deferred. Keep in mind, however, that there is no guarantee that the person who inherited the IRA will continue the tax-deferred treatment of the account.

How About a Roth IRA?

Fast Fact: Inheritance. The IRS rules that allow a stretch IRA are the rules under which one inherits an IRA. This is why stretch IRAs are sometimes referred to as “inherited IRAs.”
Source: Internal Revenue Service, 2015

Stretching a Roth IRA follows similar rules to a traditional IRA. But remember, a Roth IRA does not require any RMDs. If you name your spouse as a beneficiary, he or she can roll the balance into a new Roth account. Since it remains a Roth IRA, your spouse is not required to take RMDs either. When your spouse passes, the beneficiary must begin taking distributions. The distributions will be tax free since it’s a Roth IRA.4

Stretching an IRA can be a powerful strategy. But it’s critical to understand the limitations and benefits before following the approach.

How Does it Work?

A single father, age 55, rolls over $250,000 from his employer’s retirement plan into a traditional IRA and names his son, age 25, as beneficiary. At age 70½, the account owner starts taking RMDs.

When he dies at age 80, his son moves the assets into an inherited IRA and starts taking RMDs based on his life expectancy.

By the time it’s exhausted, the IRA will have lasted 85 years and paid out over $2 million in benefits — all from a $250,000 rollover.

This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Past performance does not guarantee future results. Actual results will vary.

  1. Investment Company Institute, 2015
  2. CIA World Factbook, 2015
  3. Contributions to a traditional IRA may be fully or partially deductible, depending on your individual circumstance. Distributions from traditional IRAs and most other employer–sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  4. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as a result of the owner’s death.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Where Will Your Retirement Money Come From?

Tip: Retiring Older.
During the past year, one survey found 13% of workers now plan to retire later than they previously expected.
Source: Employee Benefit Research Institute, 2015

For many people, retirement income may come from a variety of sources. Here’s a quick review of the six main sources:

Social Security

Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. If there are fewer than 35 years of earnings, non-earning years are averaged in as zero. In 2016, the average monthly benefit is estimated at $1,345.¹

Personal Savings and Investments

One survey found that 66% of today’s workers expected that their personal savings and investments outside their IRAs and employer-sponsored retirement plans will be either a major or minor source of retirement funds. The same survey found that only 44% of current retirees report personal savings and investments are a source of funds.²

Individual Retirement Accounts

Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your individual circumstances. Distributions from a traditional IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

Roth IRAs were created in 1997. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Defined Contribution Plans

Well over one-third of workers are eligible to participate in a defined–contribution plan such as a 401(k), 403(b), or 457 plan.³ Eligible workers can set aside a portion of their pre-tax income into an account, which then accumulates tax deferred.

Distributions from defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

Defined Benefit Plans

Defined benefit plans are “traditional” pensions—employer–sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on factors such as salary history and duration of employment. The number of traditional pension plans has dropped dramatically during the past 30 years.

Continued Employment

In a recent survey, 67% of workers stated that they planned to keep working in retirement. In contrast, only 25% of retirees reported that continued employment was a major or minor source of retirement income.⁴

Expected Vs. Actual Sources of Income in Retirement

What workers anticipate in terms of retirement income sources may differ considerably from what retirees actually experience.

Employee Benefit Research Institute, 2015 Retirement Confidence Survey

1. Social Security Administration, 2015
2. Employee Benefits Research Institute, 2015
3,4. Employee Benefits Research Institute, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Important Birthdays Over 50

Tip: Average Benefit. In 2016, the average monthly Social Security benefit for a retired worker was about $1,345.
Source: Social Security Administration, 2016

Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half“ to make sure everyone knows they’re closer to the next age than the last.

When you are older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and “half-birthdays” are critical to understand because they have implications regarding your retirement income.

Age 50
At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 401(k), 403(b), and 457 plans can contribute an additional $6,000 per year in 2016.¹ Those who participate in Simple IRA or Simple 401(k) plans can make a catch-up contribution of up to $3,000 in 2016. And those who participate in traditional IRAs can set aside an additional $1,000 a year.²

Age 59½
At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income-tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (457 plans are never subject to the 10% penalty). Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.

Age 62
At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit. In 2016, the income limit is $15,720.

Age 65
At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65. It’s important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application.³

Age 65 to 67
Between ages 65 and 67, individuals become eligible to receive 100% of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits.

Fast Fact: Early Benefits. In 2013—the most recent year for which statistics are available—75% of retirees opted to begin receiving Social Security reduced benefits before reaching their full retirement age.
Source: Social Security Administration, 2015

Age 70½
At age 70½, participants must begin taking required minimum distributions (RMDs) from traditional IRAs and qualified retirement plans, such as 401(k), 403(b), and 457 plans. RMDs are based on your account balance and life expectancy.

Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.

  1. The catch-up limit is adjusted in $500 increments.
  2. If you reach the age of 50 before the end of the calendar year.
  3. Individuals can decline Part B coverage because it requires an additional premium payment.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

How Will Working Affect Social Security Benefits?

Tip: Rules, Rules, Rules. Different rules apply for those receiving Social Security disability benefits vs. Supplemental Security income payments. Different rules also apply for those working outside the U.S.
Source: Social Security Administration, 2015

In a recent survey, 67% of current workers stated they plan to work for pay after retiring.¹

And that possibility raises an interesting question: How will working affect Social Security benefits?

To answer that question requires an understanding of three key concepts: full-retirement age, the earnings test, and taxable benefits.

Full Retirement Age

Most workers don’t face an “official” retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62—or to put off receiving benefits until age 70.

“Full retirement age” is the age at which individuals become eligible to receive 100% of their Social Security benefits. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.²

Earnings Test

Starting Social Security benefits before reaching full retirement age brings into play the earnings test.

If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2016, the income limit is $15,720.³

During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2016, the limit is $41,880 before the month the worker reaches full retirement age.⁴

For example, let’s assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age. In that year, before the month the worker reaches full retirement age, the worker earns $65,000. The Social Security benefit would be reduced as follows:

Earnings above annual limit $65,000 – $41,880 = $23,120
One-third excess $23,120 ÷ 3 = $7,707

In this case, the worker’s annual Social Security benefit would have been reduced by $7,707 because he or she is continuing to work.

Taxable Benefits

Fast Fact: Earnings Test. The Senior Citizens’ Freedom to Work Act of 2000 eliminated the annual earnings test after the month a person attains his or her full retirement age.
Source: Social Security Administration, 2015

Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable.

For example, say you file a joint return and you and your spouse are past the full retirement age. In the joint return, you report a combined income of between $32,000 and $44,000. You may have to pay income tax on as much as 50% of your benefits. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.

There are many factors to consider when evaluating Social Security benefits. Understanding how working may affect total benefits can help you put together a program that allows you to make the most of all your retirement income sources—including Social Security.

What’s Your Full Retirement Age?

Those born in 1942 or before are already eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67.

Source: Social Security Administration, 2015

1. Employee Benefit Research Institute, 2015
2,3,4. Social Security Administration, 2015

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