Category Archives: Social Security

Is Social Security Really Going Broke?

Social Security 2My Comments: Two days ago, I posted an article with 11 Tips About Social Security. Only it somehow got posted without a Title. I didn’t notice and no one called or emailed to tell me about it. Maybe the article was compelling on its own or more likely, few people pay any attention to these posts. Since then I’ve added the Title it was supposed to have.

My son argues that it really doesn’t matter how much he puts into the SSA system since by the time he arrives to collect his benefits, there will be no SSA since it will have long since run out of money.

I’ve argued again and again that it WILL be there, though probably changed somewhat. After all, it was “going broke” 25 – 30 years ago and it got fixed. All they did was delay the full retirement age. They can do that again, or increase the % of payroll that gets sent into the system.

Or maybe it’s not going broke after all, just the way it is. Here’s an article that says all the fuss and hullabaloo is a waste of time and energy. And this argument is compelling, to my mind. See what you think and let me know. Please!

Article added by Dan McGrath on April 4, 2014

There is a lot of rhetoric in the news lately about Social Security becoming insolvent as the baby boomers head towards retirement. The logic makes sense; there is a disproportionate amount of people heading towards retirement, who will be accessing the benefits provided by Social Security while having far fewer people funding the same benefits.

To complicate matters even further, the trust fund that was created at the onset of Social Security has been depleted over the years by politicians who decided to fund their own pet projects with the money that was deposited in it, instead of letting that money grow.

So, the outlook does appear to be ominous at best, especially with too many people taking, not enough people putting in, and the government withdrawing money whenever possible. But even with all of this happening, the rhetoric and the worry may be all for naught and the reason is very simple: health care.

Flying under the radar when it comes to retirement is how the rules have been changed over the course of the last 10 to 12 years, and because of these rules, the baby boomers who are in and heading towards retirement may, to their detriment, actually save Social Security for everyone else who will follow them. Unfortunately for them, there will also be a large strain placed on their financial plans moving forward and quite possibly a chance that the wealth transfer that is often mentioned will be wiped out as well.

Starting in 1993, under a simple change to the Program Operations Manual System of Social Security, it was ruled that in order to receive Social Security, a person must also accept Medicare Part A or forfeit all benefits of Social Security, meaning that those in and heading to retirement must, once eligible and accepting Social Security, accept Part A of Medicare in order to keep receiving Social Security.

Once Part A is accepted and there is no longer any credible insurance from an employer, then a retiree must also enroll into Parts B and D of Medicare or face late enrollment penalties, too. And, by the way, these late enrollment penalties are concurrent, total the length of time late and unfortunately follow for the entirety of a retiree’s life.

The other change to retirement that is creating a windfall for Social Security is the fact that Medicare is also being means-tested for Parts B and D. This means that the more income you earn, the more you will pay for this coverage. This may be the specific reason why, in 2007, the Congressional Budget Office (CBO) released the below graph detailing the impact that Medicare/Medicaid, Social Security and the budget would have on the overall U.S. economy.SSA $ 2002 to 2072

See anything in particular? Do you see how Social Security levels off after about 2029, even in the face of the rhetoric that it should open wide like a funnel?

One possible reason why this 2007 chart from the CBO depicted Social Security as leveling off in the future and not becoming a burden to the economy might just be due to the fact that 2007 was the first year that Medicare was actually means-tested. It could be just some strange coincidence, or it could be that the CBO was really trying to tell us something — that it is due to the fact that Medicare is being means-tested and that certain Medicare premiums and any surcharges are automatically deducted from any Social Security benefit you may receive.

With Medicare inflating at 6.5 percent, the lowest rate reported by the government, and Social Security’s cost of living adjustments (COLAs) only expected to be at a maximum of 2.8 percent annually for the foreseeable future, it is only a matter of time (and simple math) before it’s realized that the government’s obligation of providing Social Security benefits will be lowered drastically, all at the expense of those in and heading to retirement.

On the surface, it would appear that the deck is stacked against Social Security, but due to these simple rule changes the end is most likely not as near as the media would like to report on it. And judging by what the CBO actually told us back in 2007, the end of Social Security is probably nowhere in sight.

Please keep in mind that even though Social Security may be fine in the long run, it still doesn’t mean that people are going to receive the amount of Social Security they have been told. Because of these health costs and these rules, the Social Security benefits that a majority of retirees have and will continue to rely on will, when it comes to actual take-home income, either be stagnant, decreasing or even possibly vanishing all together.

The Hold Harmless Act will only protect people from Part B increases and is null and void for any high-income retirees, as well.

The time to create another form of guaranteed income, one that is not recognized as income by the IRS and/or Medicare, is now because what you don’t know about retirement will hurt you.

11 Tips to Help YOU With Social Security Benefits

SSA-image-2Comment from Tony Kendzior: I’ve been happily accepting monthly checks from the Social Security Administration now for over seven years. I don’t wonder much about it anymore; they just show up in my bank account and along with my wife’s check, make a better positive outcome for us every month.

I’m also finding ways to help individual clients optimize their benefits. It’s a function of doing the math to determine which of the 97 months you can choose to start taking your benefits. And knowing the impact of several options you have in each of those 97 months.

So my goal is to try and post something about the Social Security System at least once every week. If this is redundant, my apologies. But I never know who is reading this stuff so I just keep shoving it at you in hopes you will benefit. BTW, if you want a specific analysis for yourself, let me know. It’s free.

by: Ann Marsh / Financial Planning / Wednesday, January 22, 2014

The Social Security system may be in serious trouble but, right now, it’s still a critical source of support for clients, according to Theodore Sarenski, president of Blue Ocean Strategies Capital in Syracuse.

Sarenski started with the bad news during his presentation before CPA-planners at the Advanced Personal Financial Planning Conference sponsored by the American Institute of CPAs in Las Vegas.

Reserves for Social Security will be depleted by 2033 and, once they’re gone, incoming receipts will cover just 77% of scheduled benefits, Sarenski says. “It sounds like it’s a long time away, but it’s only 19 years.”

Trouble looms even sooner for the Social Security Disabilty reserves, which will be depleted by 2016, according to Sarenski. And, once depleted, anticipated income would cover just 80% of scheduled benefits, he adds.

For these reasons, Sarenski says, he urges caution.

“We need to be conservative, I think, in our planning,” he says. For people who are age 50 or younger, he is currently projecting they will receive 75% of their benefits.

While he holds out hope that government intervention – possibly in the form of tax increases – can provide a solution, planners still can help their clients get solid benefits from Social Security right now.

This is especially important because baby boomers, now entering their retirement years, have not been good savers, he says.

Across the U.S. workforce today, 51% of people have no private pension coverage and 34% has no retirement savings, he adds.

“So, now that we are all depressed,” he says, “what are the things that we can do for our clients?”

His advice includes the following:

1. WAIT
Although there are exceptions, planners should urge most clients to wait to take their Social Security benefits. If they take them as soon as they can at age 62 rather than waiting until age 66, or even 70, they will receive lower monthly benefits. Planners should remind clients that Social Security is the only benefit with a built-in inflation adjustment.
“You cannot buy an annuity that has an inflation rider so it’s worth waiting” for the higher number, he says.

2. FILE AND SUSPEND
In some cases, it can make sense to start benefits at age 62 and then immediately suspend them – a strategy many clients are not aware of. For example, a spouse may want to start his benefits and immediately suspend in order to trigger spousal benefits for a wife who is 62 or older. He can then suspend his benefits in order to receive a higher benefit when he resumes them later. Some people take this route to reduce required minimum distributions from retirement savings.

“The closer [married couples] are in age, the better this works out,” he cautions.

3. MEDICARE B PREMIUM
However, if you do file and suspend, make sure to pay your Medicare Part B premium yourself. If you don’t, Social Security will pay that premium for you, which will reduce future benefits. “Be careful of that,” he says.

4. MARRIAGE
Remember that spouses need to be married for a full year to collect benefit from a spouse’s work record.

5. SPOUSAL BENEFITS

Both spouses in a couple cannot file and suspend in order to trigger benefits on each other. On the other hand, if they decided to get divorced, they could.
Planners “probably won’t get a lot of clients to do this,” Sarenski jokes.

6. DIVORCE
Those already divorced must have been divorced for two years before they can collect a spousal benefit on their divorced spouse. The same goes for their exes if they want to collect on them. Benefits collected by ex-spouses do not impact the benefits due to a client’s family.

7. REPRESENTATIVE PAYEES
When working with clients who are much older and could lose the ability to care for themselves, those clients should appoint “representative payees” to receive funds on their behalf from the administration. That’s because Social Security does not recognize powers of attorney.

Once, Sasenski says, one of his clients had to close out a banking account that took direct deposits of Social Security checks for herself and her husband. Although she had power of attorney over her husband’s affairs, it took four months of wrangling with the Social Security Administration before she could have her husband’s check sent to her for his benefit.

8. IN-PERSON ENROLLMENT

Remember that, although the Social Security Administration has made a large push to get people to enroll for benefits online, anything beyond the simplest arrangements must be handled in person, at a Social Security office. The online system is not set up to handle anything anomalous.

“Someone told me here at the conference that one of their clients couldn’t apply online. Why? Because they were born on Feb. 29,” Sarenski says, and the system couldn’t recognize that leap year date.

9. ANNUAL STATEMENTS
Planners should urge all their clients to enroll online right now to receive annual Social Security statements. The administration sent out paper statements for the last time in 2010. It waited so long to move the entire operation online to ensure that people could safely and securely access their information online. Now, Sarenski says, the administration’s website is robust. But it’s important that clients check their data regularly because the government does make mistakes occasionally and the older those mistakes are, the harder they are to rectify.

10. NO BENEFITS IN JAIL
For anyone wondering, Sarenski says, husbands or wives who kill their spouses can’t collect benefits on them. Neither can children who kill their parents. If someone goes to jail, any benefits that would have come due during that jail time are lost.

“But your spouse and children, as long as they are not in there with you, they can continue getting benefits,” he says.

11. COMPASSIONATE ALLOWANCES

In some situations, clients can start receiving benefits very rapidly. “There are 200 compassionate allowances,” he says. “You will get Social Security benefits within two weeks if you have one of those conditions.”

Social Security Tips: How to Use File & Suspend

SSA-image-2My Comments: I offer great thanks to the author of the following article, Michael Kitces. You’ll find his credits at the end of this post.

This will take a little time to read and understand. But if you are getting ready to file for Social Security benefits, or are just now starting to think about when and how to file, you need to read this and develop at least a basic understanding.

As part of our efforts at Florida Wealth Advisors, we will provide you with a no-cost analysis and report that creates a timeline to help you maximize your benefits over time. The two caveats are (1) we have no idea when you are going to die and (2) we make no assumptions about cost of living increases each year.

Getting it right is important. There are 97 months for you to choose from when it comes to filing for benefits. The difference between the best one and the worst one can be as much as several hundred thousand dollars over your lifetime. Doesn’t it make sense to ask us for one of these reports?

by: Michael Kitces / Monday, March 24, 2014

An especially popular strategy for maximizing Social Security benefits is to utilize the file-and-suspend rules. These permit an individual to file for benefits but suspend them immediately, allowing delayed retirement credits to be earned while letting the spouse begin spousal benefits simultaneously. They can even be used to activate family benefits for young children.

Yet the file-and-suspend strategy is not just an effective planning tool for couples and families with minor children. Since benefits that have been suspended voluntarily can be reinstated later, even singles may wish to routinely file-and-suspend if they intend to delay anyway, as a way to hedge against a future change in circumstances.
At the same time, there are caveats to the file-and-suspend strategy, as well: Suspending will put all benefits on hold (which limits couples from crisscrossing spousal benefits by having each file and suspend); filing and suspending also triggers the onset of Medicare Part A benefits, making a client ineligible to make any more contributions to a health savings account.

UNDERSTANDING THE RULES

The basic concept of file-and-suspend is straightforward: A client files for retirement benefits (triggering all the rules that normally apply), but then suspends the benefits without receiving any payments (allowing the client to earn delayed retirement credits that increase the future benefit by 8% of the individual’s primary insurance amount). The strategy’s primary purpose: By filing for benefits, the client can render a spouse eligible for spousal benefits (only available once the primary worker has applied for retirement benefits), while still earning delayed retirement credits.
• Example 1: A 66-year-old man eligible for a $1,500-a-month benefit chooses to file-and-suspend, letting his 66-year-old wife begin a $750-a-month spousal benefit. The husband continues to accrue 8% a year delayed retirement credits on his monthly $1,500, which by age 70 rises to $1,980 a month, plus cost-of-living adjustments.

Notably, the ability to suspend benefits is available only to those who have reached full retirement age (66 years old for those born between 1943 and 1954; up to 67 for those born in 1960 or later). If benefits are filed early, the election generally cannot be undone (though clients can change their mind within 12 months of the first filing).

Even if benefits were filed early, they can still be suspended going forward once full retirement age is reached. This will not undo the reduction that applies for taking benefits early, though it can almost fully offset the original reduction as delayed retirement credits are earned.
• Example 2: A 66-year-old woman eligible for a $1,000 monthly benefit filed for benefits early at age 62, reducing benefits by 25% to $750 a month. If she now chooses to suspend benefits, she can begin to earn 8% a year delayed retirement credits for the next four years, ultimately increasing the benefit by 32%, back up to $990 a month. (Ongoing cost-of-living adjustments would also be applied along the way.)

While the file-and-suspend strategy is often explained as a loophole to maximize benefits, it actually was a provision added to the Social Security system in 2000, under the Senior Citizens’ Freedom to Work Act, to allow for the associated planning strategies (especially for couples’ benefits).

FILE-AND-SUSPEND FOR COUPLES
As noted in example 1, the primary purpose of the file-and-suspend strategy is for married couples to better coordinate the claiming of individual and spousal benefits – in particular, for one spouse to claim spousal benefits while the other continues to defer individual retirement benefits to accrue the credits. Otherwise, both members of the couple could face benefit delays. If the husband in example 1 had chosen to delay benefits without going through the file-and-suspend strategy, for instance, both he and his wife would have had to wait until he reached age 70 for retirement benefits.

File-and-suspend may be relevant even in situations where both spouses have their own benefits, but each wishes to delay. By adopting the file-and-suspend strategy, one spouse can claim benefits while both generate delayed retirement credits.
• Example 3: Both members of a couple are 66; the wife is eligible for $1,600 a month in benefits and the husband for $1,300 a month. Both are very healthy and wish to hedge against the risk that they could live well into their 90s, so both want to wait and earn delayed retirement credits. If the wife goes through the file-and-suspend process, then the husband can file a restricted application for just spousal benefits while delaying his own individual benefits. The husband gets $800 a month in spousal benefits based on his wife’s record, then can switch to his own $1,300 monthly individual benefit in the future (and earn 8% a year in delayed retirement credits while he waits). And because she filed and suspended, she also earns 8% a year delayed retirement credits on her benefit.

Another benefit of the file-and-suspend rules is that by filing, the primary worker not only activates eligibility for a spouse to claim spousal benefits, but also for dependent benefits to be paid on behalf of minor children as well (albeit subject to the maximum family benefit limitations).

RULES FOR INDIVIDUALS

While the file-and-suspend rule primarily helps married couples, the strategy also allows individuals who started benefits early to change their mind, suspend benefits and begin to earn delayed retirement credits.

There is another file-and-suspend planning opportunity as well. Under Social Security rules, those who are full retirement age can file for retroactive benefits, but only as far back as six months (resulting in a lump-sum payment of prior benefits). An individual who is 66 1/2 can retroactively file for benefits back to age 66, receiving makeup payments for the prior six months; at age 68, the payments can only go back to age 67 1/2.

Yet if the individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. Under Social Security rules, there’s a difference between the standard filing for retroactive benefits and a request to reinstate voluntarily suspended benefits. To preserve flexibility, a client who plans to delay benefits may want to file-and-suspend rather than simply waiting.
• Example 4: A single 66-year-old woman is eligible for a $1,600 monthly retirement benefit. Because she’s in good health, she plans to delay her benefits until 70 to earn delayed retirement credits. But at 68, her health takes a significant turn for the worse and she believes she may not live much longer. Realizing there’s no longer a reason to delay her Social Security benefits, she applies immediately – and retroactively – but at best she can only get benefits going back to age 67 1/2.

If the same woman had filed and suspended at 66, then when she got the unfortunate health news, she would be able to reinstate her benefits all the way back to age 66 – giving her a lump-sum payment for 24 months, rather than just six.

Alternatively, if the woman stayed healthy after doing file-and-suspend, she could still delay her benefits to age 70.

CAVEATS TO THE STRATEGY
There are a few caveats to the strategy. First, remember that the request to suspend benefits will suspend all benefits, barring couples from crisscrossing spousal benefits.

The act of filing also makes the client eligible for Medicare Part A. In fact, because enrollment is automatic for anyone older than 65 who applies for Social Security benefits, clients can’t opt out of Medicare Part A even if they want to.

Automatic enrollment in Medicare Part A isn’t necessarily problematic – at worst, it’s duplicated coverage, but doesn’t have separate premiums or cost like Medicare Part B. However, it renders a client ineligible to contribute to a health savings account. For clients with a high-deductible health plan, file-and-suspend will render them ineligible to make new contributions.

Beyond these caveats, the file-and-suspend strategy provides a great deal of flexibility, a lot of opportunity to maximize Social Security benefits and the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspended benefits in the future.

Michael Kitces, CFP, is a partner and director of research at Pinnacle Advisory Group in Columbia, Md., and publisher of the planning industry blog Nerd’s Eye View. Follow him on Twitter at @MichaelKitces.

Social Security: Planning Tips by Age

SSA-image-2My Comments: I’m increasingly being asked by people to help answer their questions about Social Security. Here is a short overview of critical ages as you begin to think about retirement.

by: Paul Norr / Wednesday, February 19, 2014

There are many age-related financial and planning milestones that clients will encounter in their sixties. Here is a list of some of the common ones that you and your clients should keep in mind.

59 ½ – Penalty Goes Away
This is the age at which one can withdraw money from traditional IRAs, 401(k)s or similar retirement plans without restrictions and without an added 10% tax penalty. Withdrawals will still be taxed at normal tax rates. For most people, it is not wise to draw down retirement accounts at this relatively young age unless they have specific financial needs. Usually, the value of maintaining tax-preferred savings exceeds the benefit that may come from early spending.

60 – Survivors
This is the first year to collect a Social Security survivor benefit if a spouse or ex-spouse (if they were married for at least 10 years and never remarried) has died.

62 – Social Security – First Call
The earliest age that someone could collect Social Security retirement benefit. Most people should not file for benefits at this early age although certain spousal strategies may be an exception.

62 – Pension Alert
This is a common age at which pension benefits kick in. Pension features vary significantly from company to company or between industry and government. Encourage your clients to carefully evaluate the features of their pension today if they are fortunate enough to have one.

63 ½ – Bridge to Medicare
Not an official milestone but might be an important age for laid-off workers who are offered COBRA health care benefits. COBRA benefits typically last for 18 months and 65 is the age at which one can begin Medicare medical coverage. Therefore, 63 and a half is the earliest age at which , if one were laid off and covered by COBRA health care benefits, that COBRA benefits would provide a health care bridge all the way until they are eligible for Medicare.

65 – Medicare
Medicare eligibility age. Most people should sign up for Medicare benefits within a 7 month window around this birthday in order to avoid lifetime surcharges on Medicare benefits. There are a few exceptions to this requirement such as active employees who are still covered under a large employer health plan.

66 – Social Security Magic Age
Sixty-six is the ‘magic age’ for Social Security when many options become available. For most boomers, 66 is the official full retirement age . At this age a number of creative Social Security strategies for couples become available such as File and Suspend and Restricted Filing. If a client is second-guessing their decision to file for earlier benefits, 66 is also the first age at which they can suspend benefits in order to allow delayed retirement credits to build up.

70 – Social Security – Last Call
Don’t delay any longer. This is the age at which there is no additional benefit to delay filing for Social Security benefits. If a client has not filed for benefits yet, congratulate them. They have maximized their lifetime monthly Social Security benefit but encourage them to file immediately.

70½ – Required Distributions Ahead
Owners of retirement accounts such as IRAs, 401(k)s or other similar retirement plans are required to start taking specified required minimal distributions (RMDs) from these accounts when they turn seventy and a half. They actually have until the following April to make take the first year distribution. After that, each year’s distribution must be taken by Dec. 31 of that year.

The total required distribution is based on the total values of all of a person’s IRAs and retirement plans as of Dec. 31st of the earlier year. The total distribution may all be taken out of any one account or may be split among the accounts in any manner that one chooses.

How Divorce, Remarriage Impact Social Security

5-little-known-facts4-spouse-lgMy Comments: Recently, I’ve become a self proclaimed expert on Social Security. The truth is I’m more knowledgable than most and have access to resources that are expert.

Among the many questions that folks who are approaching retirement are asking, are those that impact when and how they should apply for benefits. Of the 97 possible months available during which to apply, each month also includes as many as eight options to choose from, depending on your marital history, relative earnings history, disparity in respective ages, etc.

The difference between doing it to optimize the amount of money you will receive, assuming you live to normal life expectancy, and doing it wrong, can mean as much as several hundred thousand dollars over the next X years.

By Robert Powell February 18, 2014

If you’re considering or in the process of divorce, and you’re just shy of your 10th wedding anniversary, you might want to wait a bit and use the time to brush up on all things Social Security before you make the break official.

“Clearly, a lot of factors need to be taken into account when making divorce decisions,” said Marcus Dillender, an economist at the W.E. Upjohn Institute for Employment Research and author of a just-published paper, Social Security and Divorce Decisions. “However, people should be aware of the fact that Social Security provides spousal benefits to divorced people if their marriages lasted at least 10 years.”

For people planning on divorcing around the 10-year mark of a marriage, Dillender said waiting a few months may result in higher Social Security payments if their spouses’ earnings records are higher than their own.

Others provide similar advice. “So if your divorce will be final at the nine-year-and-10-months mark, you might delay signing for a couple months, just to keep the door open to Social Security’s former spouse benefits,” said Andy Landis, of the website Thinking Retirement and a contributor to the MarketWatch RetireMentor section.

Martha Shedden, a Social Security specialist with ClientFirst Financial, said the devil is in the details when it comes to Social Security and divorce. According to the Social Security Administration (SSA), if you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried) if:
• Your marriage lasted 10 years or longer;
• Your ex-spouse is unmarried;
• Your ex-spouse is age 62 or older;
• The benefit that your ex-spouse is entitled to receive based on his or her own work is less than the benefit he or she would receive based on your work; and
• You are entitled to Social Security retirement or disability benefits.

According to SSA, if you have not applied for retirement benefits, but can qualify for them, your ex-spouse can receive benefits on your record if you have been divorced for at least two years. If your divorced spouse remarries, he or she generally cannot collect benefits on your record unless their later marriage ends (whether by death, divorce or annulment).

Now, according to Dillender’s study, spouses (or perhaps their lawyers) are aware of Social Security’s rules regarding the 10-year rule. In fact, in his paper, Dillender found evidence looking at data from 1985-1995 and from 2008-2011 that the 10-year rule results in a small increase in divorces for the general population.

However, the effects vary greatly by age. In his paper, he noted that divorce decisions change very little for people under the age of 35. But for people 55 and older, divorces increase by about 20% around the 10-year cutoff, which leads to an increase in the likelihood of being divorced of 11.7% at 10 years of marriage.

And for people between the ages of 35 and 55, who account for more than half of divorces, Dillender noted that the likelihood of being divorced increases by almost 6% as marriages cross the 10-year mark.

“This heterogeneity across ages likely exists because older people are more focused on retirement and have less time to remarry,” Dillender wrote. “These results indicate many people delay divorcing because they need Social Security benefits. In addition, the results also indicate that younger people plan on remarrying, which means they would no longer be eligible for spousal benefits.”

Landis said the overall bump for those age 55 and older, at 11.7%, is rather small. “To me that means that finalizing the divorce is the priority motivator, and retaining the rights to Social Security former spouse benefits is smaller,” he said. “The bottom line is that couples may be willing to delay a few months to keep their Social Security options open, but they won’t wait for years.”

Others agree that it’s worth waiting to divorce, though perhaps not forever. “If I were counseling someone — especially a woman who had taken time off or worked part time to raise the couples’ children — I would definitely advise them of these rules,” said Shedden.

Few know how Social Security works

To be fair, not all agree that spouses are aware of how Social Security works with respect to marriage, divorce, death, and remarriage. But they should be.

“While many people may stay in a marriage for financial reasons, people are generally unaware of how Social Security retirement benefits are calculated and less are likely aware that you need 10 years of marriage to qualify for spousal benefits, regardless of whether the marriage ends in divorce,” said Jason Fichtner, a senior research fellow at the Mercatus Center at George Mason University.

As proof, Fichtner cited research conducted for the Social Security Administration in 2010 which found that only 13% of those surveyed were very knowledgeable about how Social Security benefits are calculated. (Read: What Do People Know About Social Security?)

Further, only 21% said they were very knowledgeable about how their spouse’s decision on when to claim Social Security retirement benefits might affect their own retirement benefit amount.

“This research suggests that many people aren’t likely to be aware of the technical details surrounding the spousal benefit and 10-year requirement,” said Fichtner. “Hence, I’m skeptical that people are delaying divorce past the 10 year mark just to qualify for Social Security spousal benefits.”

“My guess,” he said, “is that 10-year marriage mark is a milestone — just like two or five years — that people in a troubled marriage try to make it through hoping things get better before deciding to divorce.”

His advice: “Regardless of whether people are single, married or divorced, it’s important that they understand their Social Security retirement benefits and the important personal decision surrounding when to claim benefits. This is even more important for women.”

Others agree about the importance of understanding Social Security retirement benefits.

Elaine Floyd, the director of retirement and life planning at Horsesmouth, said Dillender’s paper serves as a good reminder that the 10-year length-of-marriage requirement to qualify for divorced-spouse benefits, and the disqualification for such benefits upon remarriage, are huge issues in Social Security planning and overall retirement income planning.

“Divorcing just shy of the 10 years can deny a person — man or woman — many thousands of dollars in divorced-spouse benefits,” Floyd said.

Like Fichtner, Floyd takes issue some of Dillender’s findings. For instance, she Dillender’s paper suggests that women are the biggest beneficiaries of divorced-spouse benefits, and that might be true. “But high-earning people of either gender can take advantage of such benefits by filing a restricted application for divorced-spouse benefits at full retirement age and switching to their own maximum retirement benefit at 70,” Floyd said.

In fact, Floyd said, unlike married couples, two divorced spouses can each receive spousal benefits on the other’s record at the same time, and the ex-spouse need not have filed for his own benefit as long as he is over 62 and they have been divorced more than two years.

As for remarriage, there are lots of reasons why a person might want to remarry — Social Security probably being far down on the list. “But anyone who plans to take advantage of divorced-spouse benefits may want to reconsider that decision in light of the thousands of dollars in Social Security benefits they may be giving up,” Floyd said.

To be sure, Floyd said remarriage may not affect a lower-earning spouse as much because she can always draw spousal benefits off her new spouse. “But high-earning spouses who are taking advantage of the restricted application to receive as much as $60,000 in spousal benefits between age 66 and 70 (if the ex-spouse is a high earner) may want to postpone any nuptials until after age 70,” she said.

Said Floyd: “Anyone considering divorce or remarriage should consider all the ramifications, including the impact on Social Security.”

Resources where you can gain further knowledge about divorce and Social Security:

When to Start Receiving Retirement Benefits, a well-written and informative two-page pamphlet available from the Social Security Administration;

10 Things You Must Know About Social Security

SSA-image-2My Comments: The folks behind this headline is Kiplinger, the people who publish the magazine about money. Ever since I began to offer meaningful Social Security advice to clients and prospective clients, I’ve been sensitive to all the ideas that are circulating out there.

These 10 Things are presented in a slide show where you read the item and then click for the next one. It’s good information. But at the end of #10, I want you to get in touch with ME and not with Kiplinger. OK?

There’s a link at the bottom of the first paragraph that will take you to all 10 Things.

By Rachel L. Sheedy

For many Americans, Social Security benefits are the bedrock of retirement income. Yet future retirees could find themselves on shaky ground. The Social Security Board of Trustees, in its latest annual report, estimated that the retirement program would only be able to pay out 75% of scheduled benefits starting in 2033.

You can’t control how the government might fix that problem. But you can educate yourself about Social Security to ensure that you claim the maximum amount of benefits to which you are entitled. Here are ten essentials you need to know.

READ ALL 10 HERE:

Restricted Application for Social Security Benefits

Social Security 2My Comments: Years ago, it was simply a matter of waiting to reach 65, showing up at the Social Security office and then waiting for a check to appear in the mail. Today, that idea is quaint and naive.

As the baby boomers reach age 62 and beyond, it’s become a chore to figure out when to apply. For one thing, there are a possible 97 months to choose from. If you have a spouse, there are 9 different options for each one of those 97 months. Between the best month and the worse month for you, there is often a $100,000 difference over time. Increasingly, financial planners such as myself are being asked to help.

Which is why I’ve become knowledgable and aligned myself with a team that provides a personalized Social Security Report that quantifies the best options. The flaw in this system is you cannot know ahead of time when you are going to die, but that’s probably a good thing. So you have to play the odds and hope for the best.

If you aren’t confused yet, you will be by the time you finish reading this.

By Dana Anspach

In many cases to get the most out of your Social Security benefits you will need to use something called a restricted application.

As there are different types of Social Security benefits you may be eligible for, a restricted application, sometimes referred to as “restricting the scope” of your application, specifies to the Social Security office that you are not simultaneously applying for all benefits you are eligible for.

To understand why you would do this first take a look at some of the types of Social Security benefits you may be eligible for:
• A benefit based on your own earnings record, referred to as a Retirement Insurance Benefit (RIB)
• A benefit based on a spouse or ex-spouse’s earnings record, referred to as a spouse’s insurance benefit (SIB)
• A benefit based on a deceased spouse’s or deceased ex-spouse’s earnings record, referred to as a Widow/Widower’s Insurance Benefit (WIB)
• A benefit if you are disabled referred to as disability insurance benefits (DIB)

How might you use these rules to boost your benefits?

If married, or eligible for a benefit on an ex-spouse’s record, once you reach full retirement age, you can use a restricted application to claim a spousal benefit, while letting your own benefit continue to grow. You would then switch to your own higher benefit amount when you reached age 70.

In Social Security’s online Programs Operations Manual System (POMS) their Scope of the Application section says:
“A claimant may choose to limit or restrict the scope of the application to exclude a class of benefits he/she may be eligible to on one or more SSNs for any reason (except where deemed filing applies). The reason may be to receive higher current benefits or to maximize the amount of benefits over a period of time, including the effect of delayed retirement credits (DRCs).”

Here are a few key points to note about the restricted application rules:
1. A spouse must be full retirement age to file a restricted application for spousal benefit only
2. A widow/widower, or survivor of a deceased ex-spouse, may file a restricted application even if they have not yet reached full retirement age.
3. A claimant who is caring for child (under age 16 or disabled adult child) who is entitled to child’s benefits may have the option to restrict the application to spouse’s benefits only even if they have not yet reached their full retirement age.

Regarding item number one above POMS says (GN 00204.020D.1):
“In fact, a spouse claimant at or past Full Retirement Age (FRA) has the right to restrict the application to exclude RIB. However, always take a RIB application in a reduced benefit situation when the spouse is insured for RIB as the “deemed filing” provision applies.”

A “reduced benefit situation” means if you are filing before you reach full retirement age. When you file before you reach full retirement age if your spouse has already filed for their benefits (in the cases of an ex-spouse they have to have reached age 62, but do not have to have filed yet) you are deemed to be filing for spousal benefits at the same time you file for your own retirement benefits. Doing this prevents you from using claiming strategies that might otherwise allow you to later switch between benefits.

If your spouse has not already filed for benefits, you would not be deemed to be applying for a spousal benefit, however, if they subsequently file for their own benefits before you reach your full retirement age, the deemed filing rules would kick in, and your future choices would be limited if you had filed before your own full retirement age.
Regarding item number two above, POMS says (section GN 00204.020E.4.a):

“A widow(er) or surviving divorced spouse may wish to exclude a reduced RIB from the scope of the application and defer filing for an unreduced RIB because of the increasingly greater amount payable after FRA because of DRCs,” and that in order to do so the Social Security office needs to take get a statement such as “I do not wish this application to be considered an application for reduced benefits on my own record.”

This means if your spouse or ex-spouse is deceased, and you are eligible for a widow/widower’s benefit on their earnings record, you have greater leeway to restrict the scope of your application, even if you have not yet reached full retirement age.

Regarding item three above POMS says (GN 00204.020F.2.a):
“A claimant who is between the age of 62 and FRA, has in his/her care a child (under age 16 or a disabled adult child) of the NH (number holder) who is entitled to child’s benefits, and is filing for spouse’s benefits is not deemed to have filed for reduced RIB. He/she may exclude RIB from the scope of the application for spouse’s benefits by a clear declination.”

In addition to item three above there are also special provisions when you are eligible for a disability insurance benefit that may allow you to file for spousal benefits, while not yet applying for your own retirement benefits. It is beyond the scope of this article to go into details about such disability or child benefit strategies.
Because the rules are complex, some couples seek the advice of an attorney to advise them on their best claiming options.

If you are married, or a widow/widower, a Social Security calculator (online software) can often provide you the needed Social Security strategy.

If you have dependents, multiple ex-spouses, may be eligible for disability benefits, or have other complexities, the services of an attorney may be appropriate.

Push Is On To Increase Social Security Retirement Age

SSA-image-2My Comments: In an attempt to be positive on this wet and gloomy Tuesday, I will say with some certainty that the Social Security System will NEVER go bankrupt. It’s too easy to make the necessary changes to assure this will not happen. My children and grandchildren will receive a benefit based on their age and contribution to the system, just like I do.

It will stay solvent becuase of issues like the headline to this post. When there was talk in the 70’s and 80’s about pending bankruptcy, they simply moved the age for full benefits up from 65 to 66 and a few months. No big deal, unless you were already 45 and suddenly you had to work 40 quarters by the time you were 66 instead of 65.

This outcome will happen again, and it makes sense since so many of us are living well beyond 65 these days. When the system was started in the 1930’s, very few workers lived past 65 so it was a safety net for those who did. Now it’s become a safety net for those of us who live past 70 or so.

January 2, 2014 • Karen DeMasters

The latest increases in the retirement age for Social Security benefits are still being phased in, but there are already proposals to increase it even more.

The full retirement age, on which Social Security benefits are based, was raised from 65 to 66 for most people today and will go up to 67 for those born after 1959.

A proposal backed by major business leaders from The Business Roundtable is being debated would push the age to 70.

Liberal groups and members of Congress want to prevent increase in the retirement age, which would translate into a decrease in benefits, while a group of business leaders say something has to be done to save the Social Security system and raising the retirement age is a way to do it.

Social Security generally is not as important to the people who are clients of financial advisors, but the debate is still important to them, according to Michael Kitces, a leader in the financial services industry.

The argument is being made that an increase in the retirement age is one way to keep Social Security from going bankrupt.

The important point to keep in mind, Kitces says, is that Social Security is not going broke and retirees or near retirees should not make decisions based on that flawed assumption.

“Even if we do nothing and Social Security goes off a cliff in 20 years, benefits will only be cut by 25 percent,” says Kitces, director of research for Pinnacle Advisory Group, a wealth management firm in Columbia, Md. The bulk of Social Security payments will still be funded because the people who are working will still be paying into the system.

“Financial advisors should be talking to their clients about this, even if Social Security is not the major part of their retirement, because too many people think Social Security payments will go to zero,” he says. “Clients are talking hair-brained strategies to avoid a catastrophe that is not going to happen.”

Despite that, some advisors feel the age limit for full retirement benefits of 66 will have to increase.
“Because of longevity, raising the age limit is long overdue,” says Robert Klein, founder of Retirement Income Center in Newport Beach, Calif. “People are now retired for many more years than they used to be.”

The Business Roundtable, a group of CEOs of leading businesses in the United States, is pushing for raising the retirement age, as well as other measures that would boost funding for Social Security but cut benefits for recipients.
The changes are needed “to preserve the safety net for future generations of retirees,” the Business Roundtable says in its proposal for changes to Social Security. The current Social Security structure “is not designed to cope with America’s new demographic realities.”

However, other groups point out that the CEOs pushing for raising the retirement age and other changes that would cut benefits do not have to rely on Social Security for their retirement.

“The loudest calls for cutting grandma’s benefits are coming from CEOs who will never have to worry about their own retirement security,” says Sarah Anderson, global economy director of the Institute for Policy Studies.

The National Committee to Preserve Social Security and Medicare also opposes raising the retirement age. “For those of us sitting behind a desk it might be OK, but people working in retail or at manual labor have physical challenges. Other people are forced out of work through age discrimination or because of family demands,” says committee spokeswoman Pamela Causey. “This makes raising the retirement age unrealistic.”

“Social Security money helps the entire community because beneficiaries spend it locally,” adds Causey. “Young people are not paying much attention but raising the age impacts them.”

An alternative to raising the retirement age could be to remove or raise the income limit on which Social Security taxes are imposed, which would bring more money into the fund and would make higher income individuals pay more, she says. Currently, the first $113,700 in income is subject to Social Security tax.

Chained CPI Could Cut Social Security Benefits

Social SecurityMy Comments: The following is an arcane topic that will bore some of you and cause you to find something else to read. That’s OK. But for those of you interested in what might happen to your Social Security income, you might find it interesting.

Economic fundamentals tells you that, over time, a balance has to be achieved between revenue and spending if there is a reason to keep the organization alive. The dilemma comes in the definition of “over time”. If your time frame of reference is relatively short, then you cannot sustain much annual disparity between inflow and outflow. If, however, your time frame is relatively long, then you can accept a degree of imbalance because secular forces bring you back to equilibrium.

One of our political parties has one perspective with respect to the current imbalance and the other has a different perspective. I suspect neither is wholly right or wrong. And while I tend to favor the Democratic approach, I recognize there is a need to address the problem. This can be done by both increasing revenue and reducing spending which is where the pain starts.

As a recipient of Social Security payments, I admit to a certain bias. Realistically, my personal role will end sometime in the next thirty years. But then there is the question of my children and then my grandchildren. I want what is best for them too. So I reluctantly agree to a changing of the rules to help make that possible.

January 2, 2014 • Karen DeMasters

“Chained CPI” is a phrase floating around the Social Security debate that is important to current and future Social Security beneficiaries.

Chained CPI would change the way cost of living adjustments (COLA) for Social Security and other other government programs are calculated.

The COLA increase that is applied to Social Security, food stamps, Supplemental Security Income, and other programs is determined by the increase in the consumer price index (CPI). The formula has been changed over the years to attempt to make it a more realistic reflection of increases in the price of consumer goods, according to economists.

The chained CPI assumes that when prices increase for one product, people substitute a less expensive product. For instance, if the price of beef increases, people could switch to chicken. However, economists point out that there are no substitutes for many of the expenses that elderly people face, such as medical care and energy costs.

Usually, changes in the way the COLA is calculated can be made administratively, but some, such as adopting the chained CPI, require Congressional action. President Obama raised the possibility of making the change, but it was not included in the budget recently passed by Congress.

If the chained CPI were adopted, the change would be small at first because recent COLAs have been small. The COLA for 2013 was 1.7 percent and for 2014 is 1.5 percent. A monthly Social Security check of $1,250 increased to $1,271.25 using the current CPI. With a chained CPI, the increase would have been 1.4 percent for 2013 or $3.75 less a month or $45 a year, according to AARP.

But the COLA is compounded each year. Using the chained CPI, a slightly reduced COLA would be applied to a slightly reduced Social Security check. The reductions would snowball over time impacting retirees in the future to a larger extent.

The National Women’s Law Center calculated the average beneficiary would lose $8,100 total by age 80 and $19,245 by age 90.

“Most economists think the chained CPI more accurately reflects the increases in the cost of living,” says Gary Burtless, an economist with the Brookings Institution in Washington and a former economist with the Department of Labor. The bipartisan Simpson Bowles Commission created by President Obama recommended the change.

Others argue Social Security benefits should not be reduced in any way. Democratic Massachusetts Senator Elizabeth Warren is a leader in the fight to preserve Social Security and Medicare benefits.

“Supporters of the chained CPI say that it is a more accurate way of measuring cost of living increases for seniors. That statement is simply not true. Chained CPI falls short of the actual increases in costs that seniors face, pure and simple,” she says. “Chained CPI is just a fancy way of saying ‘cut benefits.’”

The National Committee to Preserve Social Security and Medicare also has fought the proposed change.

“We were pleased to see that it was not in the recent budget deal,” says Pamela Causey, director of communications, “but the battle is not won. Unfortunately, this will come up again. This is a time period when benefits need to grow and expand. The chained CPI will dramatically reduce benefits over the course of time.”

Restricted Application for Social Security Benefits

Social Security 3My Comments: Years ago, it was simply a matter of waiting to reach 65, showing up at the Social Security office and then waiting for a check to appear in the mail. Today, that idea is quaint and naive.

As the baby boomers reach age 62 and beyond, it’s become a chore to figure out the many options. Of the possible 97 months you can apply for benefits, which one is going to work out best for you and your spouse, assuming you have one. Increasingly, financial planners such as myself are being asked to help.

Which is why I’ve become knowledgable and aligned myself with someone who can provide a personalized Social Security Maximization Report that quantifies the best options, always assuming you live to your full life expectancy. If you don’t, then all bets are off and unfortunately, by then it’s too late to make changes. You have to play the odds and hope for the best.

If you aren’t confused yet, you will be by the time you finish reading this.

By Dana Anspach

In many cases to get the most out of your Social Security benefits you will need to use something called a restricted application.

As there are different types of Social Security benefits you may be eligible for, a restricted application, sometimes referred to as “restricting the scope” of your application, specifies to the Social Security office that you are not simultaneously applying for all benefits you are eligible for.

To understand why you would do this first take a look at some of the types of Social Security benefits you may be eligible for:
• A benefit based on your own earnings record, referred to as a Retirement Insurance Benefit (RIB)
• A benefit based on a spouse or ex-spouse’s earnings record, referred to as a spouse’s insurance benefit (SIB)
• A benefit based on a deceased spouse’s or deceased ex-spouse’s earnings record, referred to as a Widow/Widower’s Insurance Benefit (WIB)
• A benefit if you are disabled referred to as disability insurance benefits (DIB)

How might you use these rules to boost your benefits?
If married, or eligible for a benefit on an ex-spouse’s record, once you reach full retirement age, you can use a restricted application to claim a spousal benefit, while letting your own benefit continue to grow. You would then switch to your own higher benefit amount when you reached age 70.

In Social Security’s online Programs Operations Manual System (POMS) their Scope of the Application section says:
“A claimant may choose to limit or restrict the scope of the application to exclude a class of benefits he/she may be eligible to on one or more SSNs for any reason (except where deemed filing applies). The reason may be to receive higher current benefits or to maximize the amount of benefits over a period of time, including the effect of delayed retirement credits (DRCs).”

Here are a few key points to note about the restricted application rules:
1. A spouse must be full retirement age to file a restricted application for spousal benefit only
2. A widow/widower, or survivor of a deceased ex-spouse, may file a restricted application even if they have not yet reached full retirement age.
3. A claimant who is caring for child (under age 16 or disabled adult child) who is entitled to child’s benefits may have the option to restrict the application to spouse’s benefits only even if they have not yet reached their full retirement age.
4.
Regarding item number one above POMS says (GN 00204.020D.1):
“In fact, a spouse claimant at or past Full Retirement Age (FRA) has the right to restrict the application to exclude RIB. However, always take a RIB application in a reduced benefit situation when the spouse is insured for RIB as the “deemed filing” provision applies.”

A “reduced benefit situation” means if you are filing before you reach full retirement age. When you file before you reach full retirement age if your spouse has already filed for their benefits (in the cases of an ex-spouse they have to have reached age 62, but do not have to have filed yet) you are deemed to be filing for spousal benefits at the same time you file for your own retirement benefits. Doing this prevents you from using claiming strategies that might otherwise allow you to later switch between benefits.

If your spouse has not already filed for benefits, you would not be deemed to be applying for a spousal benefit, however, if they subsequently file for their own benefits before you reach your full retirement age, the deemed filing rules would kick in, and your future choices would be limited if you had filed before your own full retirement age.
Regarding item number two above, POMS says (section GN 00204.020E.4.a):

“A widow(er) or surviving divorced spouse may wish to exclude a reduced RIB from the scope of the application and defer filing for an unreduced RIB because of the increasingly greater amount payable after FRA because of DRCs,” and that in order to do so the Social Security office needs to take get a statement such as “I do not wish this application to be considered an application for reduced benefits on my own record.”

This means if your spouse or ex-spouse is deceased, and you are eligible for a widow/widower’s benefit on their earnings record, you have greater leeway to restrict the scope of your application, even if you have not yet reached full retirement age.

Regarding item three above POMS says (GN 00204.020F.2.a):
“A claimant who is between the age of 62 and FRA, has in his/her care a child (under age 16 or a disabled adult child) of the NH (number holder) who is entitled to child’s benefits, and is filing for spouse’s benefits is not deemed to have filed for reduced RIB. He/she may exclude RIB from the scope of the application for spouse’s benefits by a clear declination.”

In addition to item three above there are also special provisions when you are eligible for a disability insurance benefit that may allow you to file for spousal benefits, while not yet applying for your own retirement benefits. It is beyond the scope of this article to go into details about such disability or child benefit strategies.
Because the rules are complex, some couples seek the advice of an attorney to advise them on their best claiming options.

If you are married, or a widow/widower, a Social Security calculator (online software) can often provide you the needed Social Security strategy.

If you have dependents, multiple ex-spouses, may be eligible for disability benefits, or have other complexities, the services of an attorney may be appropriate.