Data Entry: Social Security Income

Entering Social Security Income

RightCapital will automatically generate an Social Security income card for each client and co-client created on a profile. To edit the values, simply click on the card to expand it.

If the client / co-client is already receiving benefits, check the Already receiving box on the card. You will be able to enter the monthly amount they are receiving. You can also enter the year in which the client started receiving benefits, which will allow us to calculate any spousal benefits for the co-client.

If the client has not begun receiving benefits, select the filing age, filing month and the estimated benefit amount:

The Filing age & month is the time when benefits will be included in analyses of the client's current plan. Social Security Benefits will begin the month after filing. It is also what will be reflected in the Current strategy for comparison in the Social Security optimization screen.

We assume that Social Security benefits will begin in the month following the client's birthday. Benefits in the first calendar year will be prorated accordingly.

Use the Estimated benefit amount drop-down box to select how Social Security benefits will be calculated. The options are:

  • Use simple estimate – the social security benefit is estimated using the income and projected annual increase entered in any Salary or Self-employment income card. The income is projected backward and forwards to generate a history of earnings that is used to determine the benefit amount.
  • Based on full retirement benefit – Enter the client's Projected Insurance Amount (PIA) at full retirement age that can be found on their Social Security statement. Tip: enter the value at full retirement age, irrespective of the Start age. RightCapital will reduce benefits or add delay credits to the benefit amount as appropriate based on the Start age.
  • Based on historical covered earnings – Enter an annual covered amount for each year and RightCapital will use those earnings to calculate the Social Security benefit. The future income based on the Salary / Self-employment income will be added in.
  • No Social Security – no Social Security benefit will be calculated for the client; we will exclude any retirement, spousal, or survivor benefit for that individual.

Entering Spouse Social Security Income

Financial plans with only one client will have the option to add the Spouse Social Security income card. This card can be used to model Spouse's Social Security benefits for a divorced or widowed client. To add the Spouse Social Security income card, use the Profile > Income > Add Income dropdown menu to chose Spouse Social Security.

The Spouse Social Security card will allow you to capture the essential information required to illustrate Spousal Social Security benefits the client may be entitled to. This benefit will be calculated using the rules for either a divorced spouse or a deceased spouse. The data inputs will adjust based on the relationship selected and whether the spouse was already receiving Social Security income. This data card will not impact the Social Security Optimization tool nor will it offset benefits from the default Social Security income card.

Divorced Spouse Benefit

Clients may be entitled to a spousal benefit based on the earnings record of their previous spouse after being married for ten or more years. The Divorced Spouse benefit is based on half of the ex-spouse’s full retirement benefit (PIA). If that amount exceeds the client’s own retirement benefit, the client will receive the difference as a spousal benefit.

Note:

  • If the ex-spouse is not already receiving Social Security income, the spouse's benefit is based on the ex-spouse’s Primary Insurance Amount(PIA) value. If the ex-spouse is receiving Social Security Income, the spouse's benefit will be based on the ex-spouse's Social Security Income and when the ex-spouse filed for benefits.
  • If the ex-spouse is not already receiving benefits, they must be divorced for over two years before the client starts to receive benefits.
  • Clients may also receive a survivor benefit after the ex-spouse is assumed to have passed away, based on their birthday and life expectancy as entered in the Spouse Social Security card.

Deceased Spouse Benefit

Clients may be entitled to a survivor benefit based on the earnings record of their deceased spouse. The amount the client will receive is based on the benefit amount the ex-spouse was receiving or the ex-spouse’s Primary Insurance Amount (PIA) value if they had not started to receive benefits. If that amount exceeds the client’s own retirement benefit, the client will receive the difference as a survivor benefit.

Note:

  • To calculate the survivor benefit, enter the ex-spouse’s PIA (if the ex-spouse had not begun receiving benefits) or their benefit amount & filing age. In addition, we need to know the ex-spouse’s birthday and age at death.
  • Benefit amounts may be reduced if clients start receiving the survivor benefit prior to their full retirement age.
  • We assume clients begin receiving survivor benefits as soon as they are available. Benefits are only available once the client reaches age 60 and the ex-spouse would have been eligible to file (age 62).

In financial plans that include a co-client, spousal and survivor benefits will be automatically calculated from the default Social Security income cards. The Spouse Social Security income card is only used when a client needs to document spousal/survivor benefits from a previous relationship. Spouse Social Security card will be factored into the Social Security Optimization module.

The Spouse Social Security card will be automatically removed from the financial plan if a co-client is added to the Family profile.

Social Security Inflation

All Social Security benefit amounts are be inflated by the Social Security inflation rate before and after the client starts receiving benefits. The Social Security inflation setting can be adjusted in the Advisor Portal >Assumptions area.

The Social Security inflation setting is based on historical cost of living adjustments (COLA) by the SSA. This setting is used to adjust the PIA bend point and other variables needed to calculate social security benefit. It also adjusts the Social Security salary base every year for the purpose of calculating maximum social security benefit.

Adjustments to Social Security income

Adjustments to Social Security Income

When estimating Social Security income amounts, RightCapital will automatically include spousal benefits, survivor benefits, and child benefits when applicable. Earnings test adjustments and family max reductions are also built into the future Social Security income calculations.

The impact of these adjustments are detailed in the future cash flow projections. To see the breakdown of Social Security income visit the Retirement > Cash Flows > Income Inflows > Social Security income area. Click the underlined column headers to reveal additional information. For a detailed breakdown of each adjustment please review this article.

Government Pension Offset (GPO)

Clients with government pensions may have a Government Pension Offset which affects spousal and widow(er) benefits if the client didn’t pay Social Security taxes. If clients are subject to a Government Pension Offset (GPO) that reduces any Social Security spousal benefits they would otherwise receive, check the Non-covered box in the pension income card to have that pension amount offset the spousal benefit.

How to Apply GPO to Pension Income

In the Profile > Income area (or step 2 when creating a client) Add a pension income card, fill out the necessary data fields and check the "Non-Covered" box on the bottom left. Once checked the pension amount will offset any Social Security spousal benefits that the client would otherwise receive.

Windfall Elimination Provision (WEP)

RightCapital will apply the WEP reduction to Social Security benefits when there is a non-covered pension income card entered. This calculation will not impact Social Security income that is already being received nor will it affect Social Security estimates based on the "full retirement benefit amount". The WEP reduction will impact estimated SS benefits using the "simple estimate" or from"historical covered earnings". WEP can affect monthly SS benefits, spousal benefits, child benefits, family maximum benefits and annual earnings test calculations within a financial plan. Survivor benefits will not be impacted by the Windfall Elimination Provision. RightCapital will also apply the WEP guarantee that restricts SS benefit reduction to half of the client's pension income.

How to Apply WEP to a Financial Plan

1
In the Profile > Income area (or step two when creating a client) Add a pension income card and check the "Non-Covered" box on the bottom left. Once checked the pension amount will offset any Social Security spousal benefits that the client would otherwise receive while enabling WEP reduction.

2
In the Profile > Income > Social Security card, RightCapital users have three different options to choose from when calculating future Social Security benefits. WEP calculations will be uniquely impacted by each choice.

  • Use simple estimate – The social security benefit is estimated using the income and projected annual increase entered in any Salary or Self-employment income cards. WEP will affect this calculation as long as "exclude from SS tax" is not checked in the income card.
  • Based on full retirement benefit – Enter the client's projected Primary Insurance Amount (PIA) at full retirement age that can be found on their Social Security statement. WEP will NOT affect this calculation in RightCapital, as we assume WEP has already been applied to the PIA value supplied by the Social Security Administration.
  • Based on historical covered earnings – Enter an annual covered amount for each year and RightCapital will use those earnings to calculate the Social Security benefit. The future income based on the Salary / Self-employment income will be included. WEP will affect this calculation based on the number of covered earnings that meet the substantial earnings criteria for each year ($25,575 for 2020).
3
The WEP reduced Social Security benefit can be tracked into the Retirement > Cash Flow Projections > Summary Tab > Income Inflows Column > Social Security Income

Customizing Social Security Income

To customize Social Security income or reflect benefits that are not calculated in RightCapital, add an Other Income card on the Profile>Income page. This can be substituted for the default Social Security income card or illustrate additional benefits that clients may be receiving. If substituting the Other Income card for the default Social Security income card, turn the default card to "no Social Security" under the estimated benefit amount dropdown menu to avoid duplicate inflows.

If using the Other Income card to reflect Social Security, use the drop-down box to select Social Security as the tax attribute. This income is calculated separately from the client/spouse’s retirement benefit but will taxed as social security income.

Excluding Salary from Social Security Tax

To exclude salary income from Social Security taxes, click on the Exclude from SS tax checkbox on the Salary card. If selected the income will only be subject to Medicare tax.

For additional information on using the Social Security Optimization Tool or accessing the Social Security knowledge base please clink the links above.