When to Start Social Security Benefits

Presented by:Robert L. Wolff, Esq.

P.O. Box 381Dumaguete City, Negros Oriental

Philippines 6200

wolff2000@earthlink.netNY (518) 325-6015PH 09266485273

DisclaimerI am not an attorney admitted to practice law in the Philippines. I am an attorney admitted to practice law in New York. Forunately I have a friend who is a Philippine lawyer that can give advice.

•The following is not a legal advice, but rather comments and observations.

•For answers to legal issues raised by this presentation, you need to consult an attorney admitted to practice law in the Philippines.

When to Start Social Security Benefits

You say to yourself, I have earned my Social Security by working all my life.

What’s the best way to get the most money out of my contributions to Social Security?

Answer - Take the time to understand Social Security rules.

35 Years is the Magic Number

Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year’s wages are adjusted for inflation before being averaged.

•If you worked longer than 35 years, the government will use the highest years.

•If you worked for less than 35 years, they’ll average in zeros for the years you are lacking. You don’t have to be math genius to figure out the impact of that – it drags down your average. If you can avoid zeros by working a couple years longer, you’ll increase your Social Security payment.

Social Security

• Who is eligible for benefits?

Applicant – worker

Spouse- living, divorce and decease

Qualified children and parents

The Skinny on Social SecuritySocial Security is basically a Joint Life Annuity, with a Cost of Living Adjustment (COLA)

For spouses, this is important for retirement planning, particularly for the surviving spouse.

Social Security - Retirement

• Eligibility – AgeFull Retirement Age varies depending on year

of birth

For Individuals born between 1943 – 1954 the full retirement age is 66.

Born after 1960 – full retirement age is 67

A question individuals nearing retirement often ask themselves is, “What is the earliest age I can retire and receive benefits?” Age 62, (age 60 if you are a surviving spouse) but if you take early retirement, your Social Security benefit will be reduced.

The question should be asked – Should I.

Earliest Retirement Age

Three Factors To Consider If You Take Social Security At 62

1. If you were born between 1943 and 1954, Your Social Security benefit will be reduced by 25 percent. 30 percent if born after 1960.

2. Your Social Security benefit may be reduced by earned income.

3. 50 or 85% of your Social Security could be subject to income taxes.

If you were born in 1953, your Social Security benefit increases by approximately 7 % each year you delay taking it from age 62 to 66 and by 8 % a year until age 70.

From 75 % to 132% increase at age 70- that is close to a doubling of the monthly retirement income for the rest of your life.

Plus the cost-of-living adjustments (COLA) to keep up with inflation will be based on a larger amount if you wait.

If you can wait, Social Security is one of the best annuity buys in town.

Born In 1953

COLA

1975 8.0% 1984 3.5% 1993 2.6% 2002 1.4% 1976 6.4% 1985 3.1% 1994 2.8% 2003 2.1%

1977 5.9% 1986 1.3% 1995 2.6% 2004 2.7%

1978 6.5% 1987 4.2% 1996 2.9% 2005 4.1%

1979 9.9% 1988 4.0% 1997 2.1% 2006 3.3%

1980 14.3% 1989 4.7% 1998 1.3% 2007 2.3%

1881 11.2% 1990 2.5% 1999 2.5% 2008 2.3%

1982 7.4% 1991 3.7% 2000 3.5% 2009 5.8%

1983 3.5% 1992 3.0% 2001 2.6% 2010 0 %

2011 0 % 2012 3.8% 2013 1.7% 2014 1.5%

Gross Over Age

• The gross over age is that point in time you will receive the same amount of Social Security payments no matter what age you started taken benefits age 62-66-70 or some age in between.

• What is different is the amount of your monthly payment after you have reached your gross over age.

• The longer you wait to take social security benefit up to the age 70, the bigger your monthly payment and maybe that of your spouse.

Betting Against Death

The cross over age or break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years.•If this person waits until 70 to claim Social Security and lives until at least age 90, he’ll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. •But there’s a possibility of losing the bet and getting nothing.•But if you are married, your spouse can claim your benefit if it is bigger than theirs.

Betting Against Death If You Or Your Spouse Live To Age 90

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

62 66 70 74 78 82 86 90

Start Age=62 Start Age=66 Start Age=70

$764,820$669,552$603,064

CROSS OVER AGE

No Adjustments For The COLA

Social Security benefit

at 62

Social Security benefit

at 66 (NRA)

Social Security benefit

at 70$13,860 $18,372 $24,252

$55,440 ($13,860 x 4 years) $55,440 ($4,512 x 12.3 years)

Increased benefit by $4,512 per year by waiting until age cross

over age - 78.3

$110, 880 ($10,392 x 10.7 years)

Increased by $10,392 per year by waiting until age 70 cross

over age – 80.7

Meet Bill, Bob and Buck

Bill took his benefits at age 62, Bob at age 66, and Buck at age of 70.

Assume that their yearly benefit will increase by 3% due to the COLA adjustment.

Bill - Age 62 Bob - Age 66 Buck - Age 70

$13,860 $20,292 $30,805

Compare the Three At Age 80

Bill Bob Buck

$23,595$30,694

$41,399

Compare the Three At Age 90

Bill Bob Buck

$31,710$41,250

$55,637

Sam and Mary’s Benefits Adjusted for COLA (3%)

$13,860

$23,595 $23,595

$30,805

If both start collecting benefits at 62, and Sam dies at 80

If Mary collects at 62 and Sam delays to 70, then dies at 80

Initial benefit for Sam

Benefit that will continue for Mary

Sam and Mary’s Benefits Adjusted for COLA (3%)

$13,860

$31,711 $31,711

$55,637

If both start collecting benefits at 62, and Sam dies at 90

If Mary collects at 62 and Sam delays to 70, then dies at 90

Initial benefit for Sam

Benefit that will continue for Mary

Watch Out For Income Limits

If you start taking Social Security before your full retirement age, you may lose some of your Social Security benefits if you work.

Social Security - Retirement

Earning Limits

Full retirement age – no limit on earnings

Under full retirement age - $15,720/year for 2015 Penalty: For $2 over limit, reduce benefit by $1

Year of reaching full retirement age - $41,880/year for 2015 Penalty: For every $3 over limit, reduce benefit by $1, until you hit the month of actual full retirement age

What if Your Spouse is Still Working?

If your spouse has not reached full retirement age and is still working – their income may reduce your benefit.

For married couples, taking Social Security before full retirement age needs to be a family decision.

Caution -Your Social Security Benefits May Be Taxable!

Provisional Income

Revenue Reconciliation Act of 1993

Increased marginal tax rates on your Provisional Income

Earned income

Pensions, 401(k)s, traditional IRAs

Taxable interest and gains

Tax-exempt interest

50% or 85% of Social Security retirement benefit can be taxable

Determining Taxation

Provisional Income

Bracket #1

•Single Filers: Income less than $25,000

•Joint Filers: Income less than $32,000

Social Security benefit is not taxable.

Provisional Income

Bracket #3

•Single Filers: Income more than $34,000

•Joint Filers: Income more than $44,000

Up to 85% of your Social Security benefit

is taxable.

Provisional Income

Bracket #2

•Single Filers: Income between $25,000 and $34,000

•Joint Filers: Income between $32,000 and $44,000

Up to 50% of your Social Security

benefit is taxable.

Provisional Income

CautionIf you take Social Security at age 62, and your spouse has not reached full retirement age, and if you or your spouse are still working, three bad things can happen:

1. Your Social Security benefit will be reduced.

2. Plus, your Social Security benefit will be reduced by $1 for every $2 of earned income over $15,720 by you or your spouse until full retirement age.

3. 50 or 85% of your Social Security could be subject to income taxes.

Dependent Spouse’s Age

62

63

64

65

Full Retirement Age

Percent of Worker’s Benefits

35.0%

37.5%

41.7%

45.8%

50.0%

Spousal Dependent BenefitsThe Social Security benefit at full retirement age, whether the dependent is a spouse, or divorced spouse, is 50% of the worker’s retirement or disability benefit amount.

The amount of your dependents benefits depends on your age when you claim the benefits. At each of the ages listed below, a dependent whose full retirement age is 66 receives a benefit as follows:

Spousal Dependent Benefits Example

If you and your spouse have reached full retirement age. Your benefit is $500 per month, your spouse’s benefit is $2,000 for a total of $2,500 per month.

• Your total benefit will be $1,000 – 50% of your spousal benefit. The household benefit will be $3,000, rather than $2,500.

• If you are 62, your total benefit will be $650.00 - $500 from your benefit, plus $150 allocation from your spouse’s benefit.

Spousal Dependent Benefits

If the high-earning spouse is not taken Social Security benefits, then he or she must have applied for benefits before the other spouse can claim spousal benefits, but the higher earner has the option to “file and suspend”– file for benefits, so his or her spouse can claim spousal benefits, and then suspend the application so that his or her own benefits can continue to grow.

Some Good News If Married

At Full Retirement Age, Social Security gives a person two choices:

• You can take your own benefit, or

• If eligible – you can collect just your spousal benefit, let your benefit grow, and then claim your own benefits at a later date - say age 70.

Social Security – Survivor Benefits

• Certain members of a decedent’s family can collect benefits– Surviving spouse, if married at least nine months,

unless an exception applies.– Some divorced surviving spouses

• Marriage lasted at least 10 years

• OR caring for minor or disabled child of decedent

– Children– Dependent parents

Surviving Spouse Under Full Retirement Age

A surviving spouse at age 60 will receive 71.5% of what their spouse’s full retirement benefits would have been. Each year a surviving spouse delays claiming benefits after age 60, those benefits will rise 4.1% to 5.7% per year, depending on the year of birth, until the survivor reaches full benefits age.

Surviving Spouse at Full Retirement Age

A surviving spouse who waits until full retirement age to claim benefits as a surviving spouse, will receive 100% of what the deceased spouse’s full retirement benefit would have been.

For example, if the surviving spouse benefit is $1,000 per month and the decease spouse’s benefit is $2,000, the surviving spouse can claim the $2,000 benefit

Widows and Widowers Can Switch From Retirement to Survivors Benefits

or From Survivors to Retirement Benefits

Claiming early retirement benefits permanently reduces your retirement benefits based on your earning record, but not your survivors benefits. Who is eligible?

1. A surviving spouse age 60 or older (age 50 if disable)

2. A divorced surviving spouse age 60 (age 50 if disable) or older, if the marriage lasted at least 10 years

More Flexibility for Widows and Widower

A widow/ widower can begin benefits based on based on his or her own earnings record and later switch to survivors benefits or begin with survivors benefits and later switch to benefits based on his or her own record – even if the surviving spouse is filing before full retirement age. You can not do that with spousal benefits.

•In other words, a widow or widower can begin drawing Social Security based on his or her late spouse’s Social Security when he or she is as young as 60(50 if disabled). To get the full benefit, one must wait until the full retirement age.

•Then he or she can choose to leave his or her own Social security alone, allowing it to grow in value until their full retirement age or even age 70.

Can a Surviving Spouse Lose Survivor Benefits by Working?

• Yes – if under full retirement age for the entire year and earnings exceed $15,720 in 2015.

• Except for year you reach full retirement age, the cap is $41,880 in 2015.

What Counts as Earnings?

• Wages received as an employee and net earnings from self-employment

• Income excluded – interest and dividends, rental income that is not treated as self-employment income, distributions for IRA and retirement accounts, capital gains, etc.

• The above list does not include all items that are excluded.

Widow(er)s Remarrying Before Age 60

A widow or widower who remarries before age 60 loses the right to collect survivors benefits through the deceased spouse, even if he or she still cares for the former spouse’s minor or disabled child.

If marriage ends, may be entitled to benefits

A widow or widower who remarries after reaching age 60 does not lose survivors benefits from the deceased former spouse.

New spouse’s income will not affect benefits

Widow(er)s Remarrying After Age 60

Divorced Spouses

You are eligible for dependents benefits if both you and your former spouse have reached age 62, your marriage lasted ten years, and you have been divorced two years. This two-year waiting period does not apply if your former spouse was already collecting retirement benefits before the divorce.You can collect benefits as soon as your former spouse is eligible for retirement benefits at age 62. He or she does not actually have to be collecting those benefits for you to collect your benefits. Note, this not the rule for married spouses.

Earnings of Ex-Spouse

• The excess earnings of an ex-spouse do not cause deductions of benefits of an entitled divorced spouse.

Remarried – Then Divorces or Widow(er)

If you are collecting dependents benefits on your former spouse’s work record and then marry someone else, you lose your right to continue those benefits.

If you divorce again or your new spouse dies, you can collect benefits again on your first former spouse’s record, or on your second spouse’s record if you were married for ten years the second time as well.

Whether your former spouse remarries does not affect your eligibility.

Receiving Your Payments While Outside the United States

• If you are a U.S. citizen, you may receive your Social Security payments in the Philippines as long as you are eligible.

• There are certain countries where Social Security will not be sent, such as North Korea.

Not a U.S. Citizen

• If you are not a U.S. citizen, the ability to receive Social Security benefits depends on the country you are living in.

• If living in the Philippines you will receive your Social Security benefits unless you are receiving your benefits as a dependent or surviving spouse. In that case there are additional requirements that have to be meet.

Non-U.S. Citizen Spouse and Dependents

To qualify for Social Security benefits in the Philippines as a non-U.S. citizen dependent or surviving spouse, as a general rule, you must have lived in the U.S. in a family relationship for at least five years.

There are exceptions, such as those related to military service, etc.

Social Security Benefits for Children

• Children of a retired, disabled or deceased worker living in the Philippines, if they QUALIFY, may collect a child’s benefit up until age 18.

• The Social Security benefit to surviving child is 75% of the deceased parent’s PIA subject to reduction due to the family maximum limit.

When Do Benefits For a Child Stop

• Benefits stop when a child reaches age 18,19 if the child is a full time student or disabled

• Benefits will continue after age 18 to a child who is disabled. If the disability began before age 22.

Adopted Children

• Adoption, if a child is adopted after the death of their natural parent, may be able to collect Social Security on the deceased parent’s account. Adoption before the parent’s death, child is no longer a dependent and can not collect.

• Children adopted outside the U.S. will not be paid outside the U.S., even if the residency requirement is met.

Eligibility For A Spouse To Become A U.S. Citizen – General Rules

• Must be 18, legally permanent resident that has resided continuously for 5 years in the U.S. If married to a U.S. citizen – 3 years.

• Must be physically present in the U.S. for at lease one-half of the 5 or 3 year period.

• Must reside for at least 3 months within the state in which petition is filed.

• There are other requirements and exceptions, such as related to military service.

Eligibility For A Child To Become A U.S. Citizen – General Rules

• Generally a child born in the U.S. is automatically a U.S. citizen.

• A child born in the Philippines generally will qualify to be a U.S. citizen if his or her parents are married and one is a U.S. citizen..

• A child born out of wedlock may qualify to be a U.S. citizen, where one parent is a U.S. citizen, depending on numerous factors.

• The rules for children born outside the U.S. are complex.

Remember, Social Security is the foundation upon which you can build your retirement plan.

When planning for retirement, think of Social Security as a joint life survivor annuity with a COLA.

If your spouse in not a U.S. citizen, he or she may not qualifly for your Social Security benefit.

If you are thinking about taking Social Security, you should also be thinking about estate planning

and such documents as:

• Power-of-Attorney• Health Care Proxy• Living Will• Last Will and Testament• Living and Asset Protection Trusts

You should also be thinking about protecting your estate from catastrophic illness.

IRS Circular 230

Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the advice set forth herein with respect to U.S. federal tax issues was not intended or written by the law firm of Robert L. Wolff to used, and cannot be used, by you or any taxpayer, for the purpose of (i) avoiding any penalties that may be imposed on you or nay other under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.