section 1 - The American College Online Learning Center

. Solution(3) Because of their current strategy, they have a very low taxable incomefor the year.(4) Is there any other option to improve their situation?(1) They are great candidates for converting a portion of either of their 401(k)plan benefits. Together, with their accountant they should determine howmuch they should convert—the objective may be converting as muchas possible and still have a 15 percent effective tax rate. In the futuretheir taxable income is going way up—as they start taking qualified planwithdrawals and receive taxable Social Security benefits.SECTION 4: DEFERRING SOCIAL SECURITYLO 3-4-1: Understand how deferring Social Security can improve a client’ssituation1. Objective for this section:a. Identify the impact of deferring Social Security benefits.b. Discuss framing the Social Security deferral decision as a way to increase annuityincome as well as the more traditional approach of a “break even analysis.”c. Discuss some practical ways that can help a client afford to defer benefits byidentifying other sources of income.d. Social Security claiming decisions are complicated and will be covered in moredepth in HS 354 Sources of Retirement Income2. Deferring Social Security can improve a client’s situation because it provides for anincrease in guaranteed income in retirement.a. Most clients would benefit from additional guaranteed income. Social Securityprovides an inflation-adjusted annuity guarantee by the government.b. Benefits are payable for life—and for married couples, the higher of the two SocialSecurity benefits is paid after the death of the first spouse to the surviving spouse.c. Many retirees today do not have other guaranteed lifetime income—and researchhas shown that retirees with greater amounts of guaranteed income show moresatisfaction, worry less, and show fewer signs of depressiond. Deferring Social Security means more guaranteed income. It also means a higherproportion of the client’s income is subject to inflation protection because SocialSecurity benefits receive CPI increases.e. Commercial annuities generally do not offer full inflation protection. Someproducts have a cap on annual CPI increases. Others provide an increasingbenefit that is not directly tied to CPI, but increase benefits at a stated percentage.For example, benefits increase 3 percent each year.3. Deferring Social Securitya. Deferring benefits is an easily implemented strategy that can improve a client’ssituation.b. For each year of deferral from age 62 to 70, there’s about a 7% increase inbenefits.c. When talking with clients, discuss both3.20