1
Q
True or False
- A more affluent a client will have a lower percentage of his/her final salary replaced by Social Security than a less affluent client
A
True
2
Q
True or False
- Affluent clients need to save more for retirement because Social Security provides them with a lower replacement ratio
A
True
3
Q
True or False
- An opportunity to help clients is to encourage them to enroll at the Social Security website so that they can obtain benefit estimates
A
True
4
Q
True or False
- Widows in particular are very dependent on Social Security
A
True
5
Q
True or False
- People who are more financially literate are more apt to start Social Security benefits at age 62
A
False. They are more apt to delay benefits. (LO 8-1-3)
6
Q
- Clients with only defined-benefit plans are more likely to delay claiming Social Security benefits until age 70.
A
False. They may need to claim Social Security when they retire and absent other significant savings may not be able to delay claiming. (LO 8-1-3)
7
Q
- If there is an entitlement program or salary continuation mindset, people will claim late.
A
False. They will claim early. If it is an insurance/longevity program, people may claim later. (LO 8-1-3)
8
Q
- Money earned after age 60 is indexed in the PIA formula
A
False. It is not indexed. (LO 8-2-1)
9
Q
- The PIA formula factors in 35 years of earnings
A
True. (LO 8-2-1)
10
Q
- A client who continues to work is not just working for their salary. They may also be working for a “bump” in their Social Security benefit
A
True. (LO 8-2-1)
11
Q
- Social Security has a weighted benefit formula, so higher-income individuals have a higher percentage of their income replaced than lower-income indiciduals
A
False. The formula is weighted in favor of low-income people. (LO 8-2-1)
12
Q
- The PIA formula is used when a person turns 62 (even if benefits are paid out in a later year).
A
True. (LO 8-2-1)
13
Q
- The full retirement age for a client born in 1964 is 66.
A
False. Anyone born in 1960 or later has a full retirement age of 67. Clients born from 1943–1954 have age 66 as their full retirement age. (LO 8-2-1)
14
Q
- A client who retires and claims three years early will receive a 25 percent decrease in the PIA.
A
False. 5/9 x 36 = 20% (LO 8-2-2)
15
Q
- Your client Christella was born on January 18, 1957. She is a chemist who wants to retire and claim benefits when she reaches age 62 and 2 months. Christella will receive 70 percent of her PIA
A
False. Christella will receive 73.34% (rounded) of her PIA. Her full retirement age is 66 and 6 months. She is claiming 52 months prior to her full retirement age. She will receive 73.34 percent of her PIA determined as follows (5/9 x 36=20) + (5/12 x 16=6.6) (total 26.66) (100-26.66=73.34) (LO 8-2-2)
16
Q
- In the case of a claiming age after full retirement age, a benefit is increased 2/3 of one percent for each month for anyone born after 1943
A
True. (LO 8-2-2)
17
Q
10.Your client Dave is a plumber who was born in March of 1950 and wants to retire and claim benefits when he turns 68. This is 24 months after his full retirement age of 66. Dave will receive 108% of his PIA.
A
False. He gets 116% of the PIA determined as follows (2/3x24=16). (LO 8-2-2)
18
Q
11.There is no advantage to delay Social Security benefits once an individual reaches age 70.
A
True. (LO 8-2-2)
19
Q
12.A person claiming at 66 will lose the COLAs for age 62, 63, 64, and 65.
A
False. A client does not need to claim Social Security in order to get the COLA increases in their benefits. (LO 8-2-3)
20
Q
13.The increase in the Part B premium is never allowed to be more than the client’s own COLA.
A
True. (LO 8-2-3)
21
Q
14.Because the actuarial adjustment is “neutral,” lifetime benefits received under the Social Security system are not impacted by the claiming age for a person whose life expectancy is accurately reflected by the actuarial table.
A
True. (LO 8-2-4)
22
Q
15.The age at which an individual chooses to start Social Security retirement benefits can possibly be the most significant factor in their ability to maintain financial security throughout retirement
A
True. (LO 8-2-4)
23
Q
16.In many cases, the windfall elimination rule restricts an employee with non-covered compensation (e.g., a long-time state employee) from double dipping under both the state system and Social Security system for workers.
A
True. (LO 8-2-5)
24
Q
17.In many cases, the government pension offset provision restricts an employee with non-covered compensation (e.g., a long-time state employee) from double dipping under both the state system and Social Security system for spousal benefits.
A
True. (LO 8-2-5)
25
18.The government pension offset provision will always eliminate a spousal benefit from being paid.
False. The government pension offset provision uses 2/3 of the government pension to reduce spousal and widow benefits dollar for dollar. If the spousal benefit is large enough, the client will receive any excess. (LO 8-2-5)
26
19.Potential confusion may exist for clients because the windfall elimination and pension benefit reductions were not articulated in Social Security benefit statements
True. (LO 8-2-5)
27
20.A client is deemed to attain their age on the day after their birthday.
False. The day prior to their birthday. (LO 8-2-6)
28
21.For a client born on January 1st, they receive the full retirement age and PIA formula of someone born in the prior year.
True. (LO 8-2-6)
29
22.Anyone covered by the system can claim Social Security in the month they turn age 62.
False. Most people have to wait until the month after they turn age 62. (LO 8-2-6)
30
23.A person born on the 2nd day of the month gets benefits from age 62.
True. (LO 8-2-6)
31
1. Your client has an AGI of $70,000, $1,000 in municipal bond income, and $22,000 in Social Security income. Her provisional income is $92,000.
False. The provisional income is $82,000. This equals the $70,000 AGI, plus the $1,000 provisional income plus ½ of $22,000 on Social Security ($11,000). (LO 8-3-1)
32
2. Municipal bonds are not tax-advantaged when it comes to determining the percentage of Social Security benefits that are taxed.
True. (LO 8-3-1)
33
3. Roth IRA distributions will increase provisional income
False. Since Roth IRA distributions are tax-exempt, they are not part of AGI and they will not increase provisional income. (LO 8-3-1)
34
4. One of the advantages of a delayed Social Security claiming age may be creating a reverse tax torpedo
True. (LO 8-3-2)
35
5. The earnings test will apply to a 68-year-old client
False. The earnings test only applies to people who are normal retirement age or younger. (LO 8-3-3)
36
6. The earnings test is triggered by pension income, interest income, dividend income, deferred bonuses, and/or nonqualified deferred compensation payments
False. The earnings test is triggered by W-2 income and 1099 income from self-employment. A client who receives only pension income, interest income, dividend income, deferred bonuses from a prior year, and/or nonqualified deferred compensation payments from a prior year will not be subject to the earnings test. (LO 8-3-3)
37
7. In 2013, the earnings limit is $15,120 and Social Security benefits are reduced $1 for every $2 over the threshold
True. (LO 8-3-3)
38
8. A special earnings test applies in the first calendar year of eligibility.
True. (LO 8-3-3)
39
9. If a married client loses $5,000 in benefits, it is taken in equal proportion from the worker’s benefit and the spousal benefit
True. (LO 8-3-3)
40
10.Under the earnings test, if a client is receiving a spousal benefit and has not attained full retirement age, the client’s earnings from employment can result in a reduction in benefits
True. (LO 8-3-3)
41
1. A working spouse who wants to allow the other spouse to start spousal benefits, but does not want to claim benefits, can file and suspend benefits
True. (LO 8-4-1)
42
2. A divorced spouse can get spousal benefits if the marriage lasted 2 or more years
False. 10 years or more. (LO 8-4-1)
43
3. Spousal benefits to divorced former spouses end upon remarriage with someone other than the worker
True. (LO 8-4-1)
44
4. The earnings test does not apply to spousal benefits
False. The earnings test applies to spousal benefits. (LO 8-4-1)
45
5. A spouse should typically wait until age 70 to start the spousal benefit.
False. There is no increase in the Social Security spousal benefit after the full retirement age, so there is no advantage to delaying spousal benefits after full retirement age. (LO 8-4-1)
46
6. The worker does not need to apply for benefits in order to trigger the availability of the spousal benefit
False. Only after a worker’s benefit is claimed (either actually claimed, or claimed and suspended), is an eligible non-working spouse entitled to a spousal retirement benefit. (LO 8-4-2)
47
7. The spousal benefit is only paid if the worker has been married for one year before filing for worker benefits
True. (LO 8-4-2)
48
8. Your client is looking to apply for Social Security spousal benefits at age 64 (24 months prior to her full retirement age of 66). She will receive 50% of her husband’s PIA.
False. Since she is claiming 24 months early, she will be subject to a reduction equal to 16.2/3% (25/36x24=16.66). Since she would have received 50% at 66, she will receive 33 and 1/3%. (LO 8-4-2)
49
9. If a spouse with a full retirement age of 66 claims at 62 (48 months early), it will result in a 30% reduction. [(25/36 x 36 = 25) plus (5/12 x 12 = 5) = 30%]. So if the husband's PIA is $2,000 per month, the wife will receive $1,000 per month at 66 (50%) and $700 per month at age 62. (1,000 x 30% = 300; 1,000 - 300 = 700).
True. This is a correct application of the reduction formula. (LO 8-4-2)
50
10.Widows and widowers can begin receiving Social Security benefits at age 60 (at age 50 if they are disabled or at any age if they are caring for the deceased worker’s child who is younger than 16 or disabled).
True. (LO 8-4-3)
51
1. Since future legislation may change the Social Security rules, clients should be informed that the claiming age strategy is contingent on the status quo, and any alteration of the status quo may have an impact on the validity of their decisions
True. (LO 8-5-1)
52
No Longer tested ..............
2: The "claim now, claim more later" strategy is available at age 62
False. Even under the law prior to the Bipartisan Budget Act of 2015, a restricted filing for spousal benefits, also called the claim now, claim more later strategy, could only be accomplished at or after attainment of full retirement age. Under the new law’s grandfathering provisions, those who attained age 62 in 2015 or earlier will still be able to use this strategy at or after full retirement age. (LO 8-5-2 & 8-5-8)
53
3. A husband’s later claiming age has a long positive effect on the expected present value of his wife’s survivor benefit, as long as the husband has the larger Social Security benefit
True. (LO 8-5-4)
54
4. A widow must claim survivor benefits and cannot claim her own worker benefits
False. A widow can begin survivor benefits and later switch to her record. Note that the changes made by the Bipartisan Budget Act of 2015 do not affect the widow’s opportunity to change benefits. (LO 8-5-5)
55
5. Under the "claiming Social Security later to increase the portfolio’s longevity" strategy, the delay in claiming Social Security benefits will increase the longevity of the portfolio (which assumes living 30 years in retirement) when applying the "4 percent rule."
True. (LO 8-5-7)
56
6. Under the "claiming Social Security later to increase the portfolio’s longevity" strategy, the desirability of receiving delayed Social Security benefits increases commensurate with increases in the client's wealth
False. It decreases because if Social Security plays a greater role in retirement income, then delayed claiming of Social Security enhances the "30-year 4 percent rule." However, if Social Security plays a smaller role in retirement income (as it does for those with greater net wealth), then delayed claiming of Social Security enhances the "30-year 4 percent rule" less. (LO 8-5-7)
57
7. Under the "claiming Social Security later to increase your portfolio’s longevity" strategy, assuming you live beyond the life expectancy, it pays to delay claiming Social Security regardless of the client’s income level
True. (LO 8-5-7)
58
8. A person with $200,000 to $700,000 in liquid assets should take Social Security as soon as possible
False. For someone with between $200,000 and $700,000, delaying Social Security is their best opportunity to increase portfolio longevity. (LO 8-5-7)
59
9. The Bipartisan Budget Act of 2015 eliminates the ability of a married worker to file and suspend Social Security benefits as a way to trigger the payment of a spousal benefit effective May 1, 2016.
True. (LO 8-5-8)
60
10.The Social Security changes made by the Bipartisan Budget Act of 2015 change the calculation of deferral credits for those that claim worker’s benefits after full retirement age.
False. The changes did not affect the calculation of the worker’s benefit or the adjustments made for early or late filing. (LO 8-5-8)
61
11.The Social Security changes made by the Bipartisan Budget Act of 2015 preserve the restricted filing strategy for spousal benefits for married and divorced individuals who attained age 60 in 2015 or earlier
False. The grandfather provision described is correct except that it requires that an individual is age 62 in 2015 or earlier. (LO 8-5-8)
62
1. The largest amount of research regarding the claiming age decision of Social Security benefits centers on the net present value, or money’s worth, model. This model attempts to discern a break-even age at which the claiming age decision would be more financially beneficial to the individual or couple.
True. (LO 8-6-1)
63
2. In most cases, a person’s retirement age and Social Security claiming age need to be the same age.
False. In the vast majority of cases, the retirement age and the claiming age do not have to occur simultaneously. (LO 8-6-2)
64
3. The primary focus of a client considering when to claim Social Security benefits should be to avoid losing out on years of payments from Social Security
False. Losing out on payments is a secondary concern to running out of money in retirement. (LO 8-6-2)
65
4. The Social Security claiming decision should be part of a comprehensive evaluation of whether the individual has adequate retirement income (as well as addressing risks posed by retirement). The Social Security claiming decision should be only a part of a comprehensive retirement income plan.
True. (LO 8-6-2)
66
5. The fully-funded client is most likely to frame the Social Security claiming issue as a net present value break-even analysis.
True. (LO 8-6-3)
67
6. In some cases, the claiming age analysis will entail an analysis of how best to deal with the "bridge" period, which is the period between the discontinuance of a paycheck and the commencement of Social Security
True. (LO 8-6-3)
68
7. The Social Security system is generally balanced actuarially. For those who die at life expectancy, they would get approximately the same amount from the system whether they claim early or claim late.
True. (LO 8-6-4)
69
8. Clients dying before the break-even age get a larger net present value from Social Security if they claim at 70.
False. Clients dying before the break-even age get a larger net present value from Social Security if they claim at 62. (LO 8-6-4)
70
9. The net present value break-even age strategy is dependent on picking the correct discount rate and matching expected mortality with actual mortality
True. (LO 8-6-4)
71
10.Married couples and single individuals can use the same net present value break-even age methodology to choose a claiming age.
False. Married couples must factor in the survivor benefit possibility. (LO 8-6-4)
72
11.If someone lives to the average lifetime, they will get about the same benefits from Social Security (in present value terms) if they claim at any age from 62-70.
True. (LO 8-6-4)
73
12.The appropriate discount rate for use in Social Security analysis is the Treasury Inflation Protected Security Bond (TIPs).
True. (LO 8-6-4)
74
13.Clients who wish to delay Social Security claiming will be most focused on liquidity and bequest goals.
False. Clients who are focused on liquidity and bequest goals will strongly consider an early claiming age. (LO 8-6-5)
75
14.In most instances, deferred Social Security claiming (depleting 401(k) assets) will be superior to 401(k) preservation (claiming Social Security early).
True. (LO 8-6-5)
76
15.In all but the rare instance in which the 401(k) earns an extraordinary rate of return, it will be cheaper to "buy Social Security" and spend the 401(k) money.
True. (LO 8-6-5)
77
16.In most cases, commercial immediate annuities are superior to a Social Security annuity.
False. The Social Security COLAs cannot be duplicated in the private sector. (LO 8-6-5)
78
17.Waiting to 70 to claim Social Security benefits will initially reduce the portfolio in half. But the 76% higher Social Security benefit will make the portfolio last longer
True. (LO 8-6-5)
79
18.In all but rare instances where the 401(k) earns a significant rate of return, it will be cheaper to "buy Social Security" and spend the 401(k) money.
True. (LO 8-6-6)
80
19.Clients who continue to work are candidates for the "claim now, claim more later" strategy.
True. (LO 8-6-7)
81
20.If the wife is 10 years younger than the husband, then the likelihood that she will eventually be a widow for a substantial period of time is substantially increased, making the husband’s claiming age even more critical to the wife’s financial well-being.
True. (LO 8-6-7)
82
21.A divorced spouse can receive spousal benefits based on a former spouse’s earnings record even if the former spouse has not retired or claimed his or her own benefit, provided that the divorce occurred more than 1 year earlier and the marriage lasted at least 5 years.
False. A divorced spouse can receive spousal benefits based on a former spouse’s earnings record even if the former spouse has not retired or claimed his or her own benefit, provided that the divorce occurred more than 2 years earlier and the marriage lasted 10 years. (LO 8-6-7)
83
22.When explaining the Social Security break-even analysis to a client who is not financially literate, planners should use present value and cumulative benefits over the lifetime as opposed to focusing on purchasing power
False. For a financially literate client, use present value and cumulative benefits over the lifetime in addition to longevity risk concerns. For a financially illiterate client, use cumulative benefits in today’s collars. Focus on purchasing power because clients understand that issue. (LO 8-6-8
84
23.Choosing a claiming age based on the elimination of the Social Security program is unwise
True. (LO 8-6-9)
85
24.People at or near pay status are more likely to be affected by Social Security changes than younger people
False. They are less likely to be affected because they are more likely to be grandfathered. (LO 8-6-9)
