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Getting the Most from Social Security
The Brantley GroupThe Brantley GroupSimple. Relevant. Impactful.Simple. Relevant. Impactful.
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Agenda
Know Your Benefit
Understand Your Options
Maximize Your Benefit
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Know Your Benefit
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Sources for retirement income for average income earners to sustain 80% – 100% of pre-retirement income
Employer-Sponsored Retirement Plan and Personal Savings
Social Security
Source: Social Security Administration, Office of Policy. Office of Research, Evaluation Statistics, Fast Facts and Figures About Social Security, 2010.
Know Your Benefit
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Social Security Full Retirement Age
Birth Year Full Retirement Age
1943-1954 66
1955 66 + 2 months
1956 66 + 4 months
1957 66 + 6 months
1958 66 + 8 months
1959 66 + 10 months
1960 and later 67
Source: 2010 Social Security Administration, ssa.gov/retire4/retirechart.htm.
Know Your Benefit
Full Retirement Age
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Receivebenefitsearlier
Higher monthlycheck
No penalty for employment
Highest monthlypaycheck
No penalty for employment
Smallest monthlycheck
Potential reductionpenalty for employment
No interimbenefits
Receivebenefits later
62 70AGE
PROS
CONS
Full Retirement Age
Know Your Benefit
Your Age and Your Benefit
Electing your benefit — early vs. late
Working while collecting your benefit
Examining your tax situation
Considering your spouse’s benefit
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Understand Your Options
Understand Your Options
Early vs. Late
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130%
120%
110%
90%
80%
70%
Early vs. Late Benefit Election
Assuming Full Retirement Age at 66. Source: Social Security Administration.
100%62 63 64 65
67 68 69 70
Take Benefits EarlierTake Benefits Later
Retire at age 66 withfull monthly benefit
Working While Collecting
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Understand Your Options
Age 2011 Income* Limits Considerations
Under Full Retirement Age
$14,160 For every $2 over the limit, $1 is withheld from benefits
In the year Full Retirement Age
is reached$37,680
For every $3 over the limit, $1 is withheld from benefits until
the month in which full retirement age is reached
At Full Retirement Age
or older**
No limits on earnings
None
* Adjusted Gross Income (AGI).** At FRA your benefit amount is adjusted to accommodate for the earlier reduction.
Examining Your Tax Situation
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Understand Your Options
Single Filing
Provisional* Income
Taxed Benefits
Under $25,000 0%
$25,000 - $34,000 Up to 50%
Over $34,000 Up to 85%
Note: State and local taxes may differ.
Married Filing Jointly
Provisional* Income
Taxed Benefits
Under $32,000 0%
$32,000 - $44,000 Up to 50%
Over $44,000 Up to 85%
* Provisional Income is Adjusted Gross Income including any tax-exempt interest plus 50% of Social Security benefits .
Source: 2010 Social Security Administration, http://www.ssa.gov/pubs/10035.html.
Consider Spouse’s Benefit
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Understand Your Options
Option 1Individual Benefit
Option 2Spousal Benefit
Option 3Survivor Benefit
Lower-earning spouse collects his or
her own individual benefit
Lower-earning spouse may collect a higher
spousal benefit (up to 50% of their spouse’s
full benefit) if the spouse has filed
A widowed spouse may collect survivor
benefits (up to 100% of their deceased spouse’s benefit)
Consider Spouse’s Benefit
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Understand Your Options
Social Security Benefits
Name Age 62 Age 66 Age 70
Ann $675 $900 $1,180
Sam $1,562 $2,071 $2,733
Spousal Benefit $724 $1,035 $1,035
Sam and Ann, both age 62
Full Retirement Age: 66
Maximize Your Benefit
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Social Security Strategy
Definition Benefit
Claim and Suspend
Individuals at FRA or later who have claimed benefits
then suspend the benefits. When benefits are reinstated down the road, they will receive a higher
benefit amount.
Allows spouse to claim spousal benefit. Can increase the overall
lifetime benefits, specifically considering survivor planning.
Claim Now, Claim More Later
A Full Retirement Age individual may claim one-half of their
spouse’s benefit, delay taking their own benefit.1
Can earn delayed credits and then claim their higher personal benefit at a later age or may help spouse
to receive greater survivor benefit.
Do-OverIndividuals are allowed to change
their earlier claiming decision.2
Provides flexibility to cease taking benefits if life situation changes.
1 Benefit will be reduced if not at Full Retirement Age. Both individuals must have filed for Social Security benefits.
2 Effective December 8, 2010, Social Security Administration published new rules regarding the withdrawal policy and will make a final ruling in 2011.
Calculate expected Social Security benefit
Determine your plan to maximize your benefit
Apply for retirement benefits
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Getting StartedMaximize Your Benefit
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• Most recent Social Security statement
• Most recent tax return
• Most recent pay statement from employer
• Latest statements from all retirement plans
• Latest statement from mutual funds
• Life and disability insurance policies
• Annuity contracts
• Wills and trust document(s)
Bring
Getting StartedMaximize Your Benefit
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Retirement Income Planning
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Things to Consider
• Shortfall – gap between your retirement income needs
• Longevity – outliving your assets and running out of money
• Market Risk – relying on your portfolio to provide income, subject to market's ups and downs
• Inflation – ability to maintain purchasing power
Retirement Risks
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Things to Consider
When you are considering when to collect retirement benefits, one important factor to take into account is how long you might live.
According to data compiled by the Social Security Administration:
A man reaching age 65 today can expect to live, on average, until age 83. A woman turning age 65 today can expect to live, on average, until age 85.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
Life Expectancy
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Receivebenefitsearlier
Higher monthlycheck
No penalty for employment
Highest monthlypaycheck
No penalty for employment
Smallest monthlycheck
Potential reductionpenalty for employment
No interimbenefits
Receivebenefits later
62 70AGE
PROS
CONS
Full Retirement Age
Know Your Benefit
Your Age and Your Benefit
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Preparing Your Portfolio
Potential Solutions from Principal Funds
Shortfall Longevity Market Inflation
Diversified Real Asset Fund1 X X
Equity Income Fund2 X X X
Global Diversified Income Fund3,5 X X X
High Yield Fund4,5 X X
Income Fund4 X X
Preferred Securities Fund5 X X
Past Performance is no guarantee of future results.
Asset allocation/diversification does not guarantee a profit or protect against a loss.
Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise.
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DisclosuresPreparing Your Portfolio
1 Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. Investments concentrated in natural resources industries can be affected significantly by events relating to those industries, such as variations in the commodities markets, weather, disease, embargoes, international, political, and economic developments, the success of exploration projects, tax and other government regulations, and other factors. Investing in derivatives entails specific risks relating to liquidity, leverage, and credit that may reduce returns and/or increase volatility. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. An MLP that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors.
2 REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.
3 International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. These risks are magnified in emerging markets. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.
4 Lower-rated securities are subject to additional credit and default risks.
5 Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt.
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Income Strategies
Fixed-income investment options, including those that invest in mortgage securities, are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. Lower-rated securities are subject to additional credit and default risks. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.
Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt.
Income from municipal bond holdings may be subject to state and/or local taxes, and it may be subject to federal alternative minimum tax (AMT) for certain investors.
An MLP that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors.
Seeking Preservation
Short DurationHigh Quality
Core Bond Spread Yield AlphaNon Core
Striving to Maintain Value Enhancing Alpha Potential
1-3 Year Duration
AAA/AA Rated Bonds
Cash Equivalents
Investment-Grade Corporate Bonds
Municipal Bonds
Agency Securities
Mortgage-Backed Securities
Multi-Sector/Strategic Bond Funds
High-Yield Bonds
Preferred Securities
Real Estate Investment Trusts
Master Limited Partnerships (MLPs)
Emerging Market Debt
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Income Strategies
Glossary of Terms:
AAA/AA Rated Bonds: A ratings grade given to bonds indicating their credit quality. AAA and AA-rated bonds are considered “high-quality investment grade” by Standard & Poor’s.
Agency Securities: Debt securities issued by U.S. government-sponsored entities and federally related institutions.
Alpha: The excess return of an investment relative to that of its benchmark index.
Corporate Bonds: Debt securities issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.
Emerging Market Debt: Debt securities issued by governments or corporations in developing countries.
High-Yield Bonds: High paying bonds with lower credit ratings than investment-grade corporate bonds, Treasury bonds, and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment-grade bonds.
Investment Grade: A rating given to a bond indicating that it has a relatively low risk of default.
Master Limited Partnerships: Publicly traded securities in partnership engaged in the production and transportation of natural resources, such as oil and gas.
Mortgage-Backed Securities: A type of asset-backed security that is secured by a mortgage or collection of mortgages.
Multi-Sector/Strategic Bond Funds: Fixed-income funds that invest in different types of bonds, such as corporates and municipals, or that seek to invest in multiple fixed-income sectors.
Municipal Bonds: Debt securities issued by a state or local government entity to finance capital expenditures.
Preferred Securities: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred securities generally have dividends that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.
Real Estate Investment Trusts (REITs): Securities that sell like stocks on the major exchanges and invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Short Duration: Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Short-duration securities are typically investments that have duration of less than three years.
Before investing, you should carefully consider a fund’s investment objectives, risks, charges, and expenses. Contact your financial professional, visit principalfunds.com, or call 800-222-5852 to obtain a prospectus containing this and other information. Read the prospectus carefully before investing.
A mutual fund’s share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost.
The content of this presentation is based upon reliable source material and is believed to be correct as of the time of creation; however is subject to change at any time without warning. Investors should consider consulting with their tax professionals prior to making decisions due to their unique circumstances.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc., member of the Principal Financial Group®. Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation and its affiliates, and Principal Funds, Inc. are collectively referred to as Principal Funds.
MM4787H | 11/2010 | t1010270409
©2010 Principal Financial Services, Inc.
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Disclaimers