Category Archives: Social Security

When It Comes to Claiming Spousal Benefits, Timing Is Everything

Family and fenceMy Comments: The questions surrounding Social Security are almost endless. It’s a complicated system and as more and more of us reach eligibility, it is clear that simply signing up as soon as you are eligible will cost you and your family lots of money and options over the years.

Philip Moeller / Sept. 9, 2014

Seemingly straightforward questions about claiming Social Security spousal benefits can wind up becoming complicated in a hurry. Here’s one answer.

Recently I received a question from a reader that opens up all sorts of concerns shared by many couples:

I am four years older than my husband. I have reached my full retirement age (66) in June 2014. My own benefit is very small ($289/month), since my husband is the bread earner. I have been mostly a stay-at-home mom.

Should I just claim my own benefit now and wait four more years for my husband to reach his full retirement age, then apply for spousal benefits? That means he will get about $3,000/month, and I will get half of his benefit.

Or should my husband apply for early retirement now, at age 62, so I can apply for my own spousal benefits? He can then suspend his benefit and wait four more years until his full retirement age to get more money.

Please advise.

First, your husband should not apply for early retirement at 62. If he does so, his benefit will be reduced by 25% from what he would get if he waits until age 66 to file, and a whopping 76% less than if he waits to age 70, when his benefit would hit its maximum.

Further, if he does file at 62, he cannot file and suspend, as you suggest. This ability is not enabled until he reaches his full retirement age of 66. So if he files early, he will be triggering reduced benefits for the rest of his life. And because his benefits are set to be relatively large, this reduction would involve a lot of money.

If your household absolutely needs the money now, or if your husband’s health makes his early retirement advisable, he could file early and then, at 66, suspend his benefits for up to four years. They would then grow by 8% a year from their reduced level at age 62 – better than no increase, but not nearly as large a monthly benefit as if he simply files at age 66 and then suspends.

I normally advise people to wait as long as possible to collect their own benefits. But this is probably not the best advice in your case. Here’s why:
When your husband turns 66 in four years, it’s clear that you should take spousal benefits based on his earnings record. You say he would be entitled to $3,000 a month at that point and that you stand to get half of that, or $1,500 a month. That $3,000 figure seems a little steep to me, so I’d first ask you to make sure that is his projected benefit when he turns 66 and not when he turns 70.

In either event, however, it’s clear that your spousal benefit based on his earnings record is going to be much, much higher than your own retirement benefit. Even if you waited to claim your own retirement benefit until you turned 70, your spousal benefit still would be much higher.

Thus, you’re only going to be collecting your own retirement benefit for four years, from now until your husband turns 66. Even though your own retirement benefits would rise by 8% a year for each of those four years, those deferred benefits would never rise enough to come close to equaling the benefits you will get by filing right away.

So, take the $289 a month for four years, and have your husband wait until he’s 66 to file for his own retirement benefit and enable you to file for a spousal benefit based on his earnings record. He may decide to actually begin his retirement benefits then or, by filing for his benefit and then suspending it, earn annual delayed retirement credits of 8% a year, boosting his benefit by as much as 32% if he suspends until age 70.

If he does wait until 70, he will get his maximum monthly benefit. But you also will benefit should he die before you. That’s because your widow’s benefit would not just be equal to your spousal benefit but would equal his maximum retirement benefit. So, the longer he waits to file, the larger your widow’s benefit will be.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Source file: http://time.com/money/3306319/social-security-spousal-benefits/

Social Security Survivor Benefits: What Advisors (and clients) Should Know

My Comments: By now you know that I provide financial advice about Social Security and about ways to maximize your SSA benefits. That all happens when you are alive. Inevitably, someone in a married relationship is going to leave the building, as Elvis did. Then what happens?

 

by Paul Norr / AUG 18, 2014

Social Security survivor benefits have some unique rules which can be especially hard to remember. Survivor benefits can seem similar to other parts of the Social Security system, but they actually have some significantly different features and regulations. Following is a summary of those unique features and and how survivor benefits differ from the more common Social Security benefits.

The formal title of the Social Security program, Old Age, Survivor and Disability Insurance (OASDI) provides an immediate clue that the Survivor program is distinct from the “old age” portion of the system to which most of us are usually referring when we say Social Security. The Disability portion of the program has its own trust fund and is totally separate program. The Old Age and Survivor programs, however, have a hybrid relationship, sharing the same trust fund while operating under some significantly different rules.

OLD AGE VS. SURVIVOR BENEFITS
The differences between the spousal benefits of the Old Age program and survivor benefits are the heart of the issue. Spousal benefits are benefits based on a living spouse’s (or ex-spouse’s) work history. Survivor benefits are benefits based on a deceased spouse’s (or ex-spouse’s) work history.

Here are the primary differences between Survivor and Spousal benefits:

1) Survivor Benefits are much higher, as much as twice as high. Maximum survivor benefits are 100% of the deceased worker’s last Social Security benefit. Maximum spousal benefits are only 50% of the worker’s SS benefit.

2) The worker’s benefit used to calculate benefits could be different in each case. Survivor benefits are based on the deceased’s Full Retirement Age (FRA) benefit plus any delayed retirement credits the worker may have accrued by waiting as late as 70 before filing for their benefits. Spousal benefits are based only on the worker’s FRA benefit and are not enhanced by any delayed retirement credits for the worker.

3) File before the Full Retirement Age (FRA) and either benefit will be reduced, although not in the same way. At the earliest allowable age for spousal benefits of 62 one will only get 35% of the worker’s benefit. A widow claiming survivor benefits at the earliest possible age of 60 (two years younger, another difference) will get 71.5% of the deceased worker’s benefit.

4) The window for a Full Retirement Age at 66 is slightly different. For spousal benefits FRA is formally 66 for people born between 1943 and 1954. For survivor benefits FRA is 66 for people born between 1945 and 1956. If you are born in 1944 or 1955 you will have a different FRA for each benefit.

5) The minimum length of marriage required in order to qualify for either benefit differs, 12 months for spousal benefits but only nine months for survivor benefits. There are different exceptions to each of these.

6) If one is divorced and collecting benefits on the work record of the ex-spouse, remarrying may affect benefits differently. Remarriage will completely nullify any spousal benefits based on the ex-spouse, no matter the age at which the person remarried.

If the ex-spouse has died however, and the survivor remarries after the age of 60, they can keep the survivor benefit even though they are now remarried. This sets up an interesting situation where the remarried person will ultimately have the option of choosing between three benefit options: a survivor benefit on the ex-spouse, a retirement benefit on their own work record or a spousal benefit based on their current spouse.

It may also present some important planning opportunities. For instance, if a woman collecting survivor benefits on her ex-husband is 59 and planning to remarry, she might want to delay the wedding bells until her 60th birthday in order to keep receiving the survivor benefit based on her decrease ex-husband.

Finally, the benefit calculations for the two benefits are independent of each other. For instance, filing for one benefit before FRA will not affect the filing for the other benefit. For instance, a person can apply for survivor benefits before FRA thereby reducing their survivor benefits. This early survivor filing will not affect their application for their own old age retirement benefits. They would still be eligible to collect their full benefit at 66 or even accrue Delayed Retirement Credits by waiting until age 70.

These are most of the important differences between survivor and spousal benefits. It gets confusing and hard to remember so you might want to keep this summary handy. I know that I will.

Paul Norr is a financial planner in Thousand Oaks, Calif. and writes about retirement and planning issues. His website is www.paulnorr.com.

Social Security: Boost Benefits for Both Spouses

Social Security cardMy Comments: Helping potential clients with an analysis of coming Social Security benefits is big business across the country these days. And I’m doing my share of it. Thank you very much.

But in spite of my being closely aligned with this process for the past 15 months, I’m still confused by the myriad of ways to extract the most you can from the system. How are old are you now, have one of you started taking benefits already, how different are your ages, does one of you have a divorced spouse who has not yet started taking benefits and earned more than you did but you are not yet remarried?

The point is there is typically a lot more money on the table for you than appears at first glance. Just because you can start taking benefits based on YOUR history as soon as you reach age 62 is not necessarily the best decision. But it might be.

by Miriam Rozen AUG 12, 2014

Peg Eddy, a founder of San Diego-based Creative Capital Management, joins the ranks of others advisors who stress spouses should coordinate when they “trot down” to their local Social Security agency branch to make sure they’ve calculated a schedule accurately and most cost effectively.

Here’s the example, Eddy wants them to consider: Both spouses in a couple worked and earned Social Security credits, each in their own accounts. Both plan to defer seeking Social Security benefits until they reach 70 so they may each earn the 8% annual return the government promises to those who wait.

But nonetheless, that couple should not overlook the window of opportunity for spousal benefits for one spouse before full retirement age, Eddy warns. After after reaching full retirement, between ages 66 and 67, spousal benefits are available under the current rules for one spouse per couple, without jeopardizing maximized pay outs for both spouses at age 70.

Assuming the couple is the same age, or the higher earning spouse is older, at full retirment the higher earning spouse applies for Social Security retirement benefits but then requests to have the payments suspended so he or she can continue to earn delayed retirement credits (that 8%) until 70.

Meanwhile, the other spouse, when he or she reaches full retirement, applies for the spousal benefits without requesting his or her own work-earned benefits. The spouse requesting the spousal benefits may also continue working and still receive some benefits. But, as the government agency notes on its own website: “Only one member of a couple can apply for retirement benefits and have payments suspended so his or her current spouse can collect benefits.”

Financial advisors must factor in the age and pre-retirement income levels of each spouse before calculating who should apply for and then defer benefits and who should claim spousal benefits at full retirement between age 66 and 67. The higher the pre-retirement income, the higher the spousal benefit, but also significant are the ages of each spouse since that will determine the number of years he or she will earn spousal benefits before applying for his or her own earned Social Security benefits.

“It is legal and each spouse maximizes benefits,” says Eddy. She typically tells clients “make an appointment and visit the Social Security office in person” before they reach full retirement so they verify all the timing.

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.

What You Don’t Know About Social Security—but Should

retirement-exit-2My Comments: You may not agree with me but Social Security is a complicated issue. If you hope to find a quick and easy summary of what is implied by the title, you’ll be disappointed.

My assumption is that if you haven’t yet applied for Social Security benefits, that day will come, and statistics tell us you will be receiving those benefits for many years. The total dollars flowing into your family pockets over those years will be substantial.

To some extent, the flow of money will be determined by which of the 97 months you have to choose from to start your benefits. Each will result in a different number at the other end. So choosing the best month for you and your family could mean gaining or losing well over $100,000 before it’s all over.

To find out for yourself and get a free report to help you make your best choice, call or email me and I’ll provide you with some of the answers. It’s in your best interest if money means anything to you.

By Glenn Ruffenach / June 22, 2014

Imagine that you’re about to accept a new job, and it’s time to talk salary. You sit down with your boss, who begins as follows:

“Actually, our payroll system is impossibly complicated. You can pick from dozens of different ways to be paid and hundreds of different start dates, and each will produce a different salary. We offer some guidance, but we’re short-handed. As such, deciding when and how to collect a paycheck is essentially up to you.

“So…what would you like to do?”

Welcome to Social Security.

Each day, thousands of Americans apply for the first time for Social Security benefits. And each day—if questions from our readers and the stories we hear from financial advisers are any indication—many applicants have no idea what they’re getting into. They know little or nothing about the program’s complexity, the myriad ways to collect benefits and the Social Security Administration’s staffing and service problems.

As such, they’re putting their retirement—and, in many cases, their spouses’ future—at risk.

“People spend more time planning a vacation than they do planning for 20 or 30 years of Social Security benefits,” says Barry Kaplan, chief investment officer for Cambridge Wealth Counsel in Atlanta. Those benefits, he notes, are insurance against market downturns, hyperinflation and living longer than you anticipate. But would-be beneficiaries, he says, typically “go into this without a clue.”
SS summary JUL2014If you and/or your spouse are weighing your options about Social Security, here’s a look at some of the biggest issues—involving both the agency and the benefits program—that could shape your retirement for better or worse.

The Social Security Administration isn’t your financial adviser.

A fair amount of the mail we receive from readers with questions or complaints about Social Security goes something like this: “My Social Security office never told me about….” About a particular strategy for claiming benefits. About a little-known rule. About the consequences of starting one’s payouts at a particular point in time.

No, the Social Security Administration isn’t perfect. (More about this in a moment.)
But its primary job is delivering a service, paying 59 million beneficiaries, and not financial planning. The agency provides loads of information about benefits on its website http://www.ssa.gov/and does its best to answer the public’s questions in its field offices and by telephone. But a comprehensive talk about the nuances of Social Security and your financial future? That’s not going to happen.

Indeed, the Social Security Administration doesn’t know about—and it isn’t the agency’s job to know about—your household budget, your health, your savings, life insurance, plans you might have to work in retirement. In short, all the variables that should go into a decision about filing for benefits, says Mr. Kaplan in Atlanta.

So, the onus is on you to learn about, or find help in deciphering, the basics: how benefits work, claiming strategies, possible pitfalls. And if you’re hellbent, for instance, on grabbing a payout at age 62 (the earliest possible date for most people) and locking yourself—and perhaps your spouse—into a permanent reduction in benefits, the agency isn’t going to stop you.

The Social Security Administration is stretched increasingly thin at the worst possible time.

In March, Carolyn Colvin, the agency’s acting commissioner, didn’t mince words in a report tied to President Barack Obama’s request for additional funding for the Social Security Administration.

“Our service and stewardship efforts [have] deteriorated,” she said. “In fiscal year 2013, the public had to wait longer for a decision on their disability claim, to talk to a representative on our national 800 number, and to schedule an appointment in our field offices.”

The agency, in short, is overextended. In the past three years, it has lost 11,000 employees, or about 12% of its workforce; by 2022, about 60% of its supervisors will be eligible to retire. Meanwhile, budget cuts have resulted in the consolidation of 44 field offices, the closing of 503 contact stations (mobile service facilities) and a delay in plans to open eight hearing offices (where appeals about agency decisions involving retirement and disability benefits are heard) and one call center.

And that 800 number? According to a report in December from the agency’s inspector general, wait times in 2013 exceeded 10 minutes, an increase of more than five minutes from 2012.

The point: The Social Security Administration is grappling with its own problems just as the baby-boom generation, with about 75 million members, is moving full speed into retirement. (The oldest boomers are turning 68 this year.) The demands on the agency mean that you might not be able to find, or find in a timely fashion, the information or help you need. That said…

More services outside Social Security are offering more help.

The Social Security Administration is the first to acknowledge that benefits are complicated. The opening paragraphs of the agency’s “Social Security Handbook,” a guide to the benefits program, state plainly: “The Social Security programs are so complex it is impossible to include information [in the handbook] about every topic.”

Fortunately, a growing number of tools and services—some free, others for a cost—are available to help people navigate these waters.

In recent years, AARP, the Washington-based advocacy group for older Americans, and T. Rowe Price Group Inc., the Baltimore-based mutual-fund company, have introduced sophisticated online calculators that help users determine how and when to claim benefits. Both are free. (The Social Security Administration has several calculators, also free, that can help determine the size of your benefits, but not necessarily when to claim them for maximum effect.)

Among the services that charge a fee: MaximizeMySocialSecurity.com, from Economic Security Planning Inc.; SocialSecurityChoices.com, from SocSec Analytics LLC; and SocialSecuritySolutions.com, all started by academics. Our review of several Social Security tools last fall singled out Social Security Solutions for its ease of use and Maximize My Social Security for its flexibility.

Finally, check out weekly columns at the Public Broadcasting Service website from Laurence Kotlikoff, an economics professor at Boston University and the developer of Maximize My Social Security. The articles, published each Monday, address a wide range of issues about Social Security (including numerous “secrets” and “gotchas”) and answer questions about benefits. In short, invaluable reading.

The earnings test deters people from working in retirement—and shouldn’t.

Social Security’s earnings test, in which benefits are reduced if a person is collecting benefits and income at the same time, generates numerous questions and much confusion. But the apparent penalties aren’t what they seem.

If you are under your full retirement age when you first receive Social Security benefits and if you have earned income, $1 in benefits will be deducted for each $2 you earn above an annual limit. In 2014, that limit is $15,480. In the year you reach your full retirement age, the penalty shrinks; after you reach full retirement age, the deductions end completely.

The good news: Money lost to the earnings test isn’t really lost. Once you reach full retirement age, Social Security recalculates—and increases—your future benefits to account for any dollars withheld.

Most beneficiaries, though, aren’t aware of that; as such, they typically “work up to the [annual] limit—and stop,” says Andrew Biggs, a resident scholar at the American Enterprise Institute and former deputy commissioner at the Social Security Administration.

The earnings test, Mr. Biggs says, “should not be a disincentive to work.” Rather, “think of the test as delaying benefits until later in retirement,” he says. “Over your lifetime, your total benefits will come out the same.”

Spouses, at a minimum, should be aware of three claiming strategies.

Couples have a tremendous amount of flexibility in how they can claim benefits. But the options can quickly become overwhelming, which prompts many spouses to default to the easiest choice: grabbing a payout at age 62.

Before you do that, consider these three claiming strategies. Many couples aren’t aware of these options or don’t think they can benefit from them. Do yourself a favor: Run the numbers. (Fidelity Investments recently did a nice job of explaining these and other claiming strategies.)

Maximize survivor benefits: If you claim benefits before your full retirement age, you could be locking your spouse into a low survivor benefit when you die. The longer you wait to claim, the larger the survivor benefits.

Claim and suspend: Once you reach full retirement age, you can claim your benefit and then suspend it. (In other words, you stop payments before they begin.) This allows for two things: Your spouse, if he or she is 62 or older, can begin collecting spousal benefits from Social Security. (This assumes that the spousal benefit is larger than the spouse’s own retirement benefit. More on this in a moment.) Second, your own benefit, when you eventually claim it, will have increased in size. (Thanks to “delayed retirement credits.”)

Claim a spousal benefit, then later claim your own benefit: At full retirement age—if you are eligible for a spousal benefit and your own retirement benefit—you have the option of claiming just the spousal benefit. At a future point in time, you can then jump to your own benefit, which will have increased in size.

And speaking of spousal benefits…

“Deemed filing” can box you in.

It’s a frequent question: A husband who is already collecting Social Security (or weighing the claim-and-suspend strategy) asks if his wife can take just a spousal benefit at age 62—and then switch to a (presumably larger) benefit based on her earnings record in the future.

The answer: Nope.

If the wife, in this case, applies for benefits before her full retirement age, she is “deemed”—in the eyes of the Social Security Administration—to have filed for both benefits: the benefit based on her work record and a spousal benefit.

She will receive the higher of the two figures, but she will be locked into that reduced benefit going forward. (Reduced because she is claiming benefits before full retirement age.)

Again, as discussed above, if the wife waits until her full retirement age to file for benefits, she would have a choice: She could apply for just a spousal benefit. Then, a few years down the road, she could switch to a payout based on her earnings history.

William Meyer, founder of SocialSecuritySolutions.com, says the “deemed filing” rule trips up innumerable applicants. “We hear about it all the time,” he says.

The lesson is clear and critical: Claim benefits before full retirement age, and your options are limited; claim benefits after full retirement age, and you have more flexibility—and bigger payouts.

Divorced spouses and survivors don’t know what they don’t know.

Ask almost any financial adviser about Social Security slip-ups, and stories about ex-spouses, widows and widowers come tumbling out.

Mr. Kaplan in Atlanta recalls a woman—age 67, divorced and still working—who walked into his office and simply had no idea that she could have been collecting benefits for the previous five years based on her former husband’s earnings.

Prof. Kotlikoff at Boston University tells the story of a friend who had lost his wife and was convinced that he couldn’t claim Social Security checks as a survivor.
“He told me, ‘I made more [money] than she did,’ ” Prof. Kotlikoff says. “And based on that, he thought, incorrectly, that he wasn’t eligible for a survivor benefit. People just don’t know about this stuff.”

The point: Always err on the side of telling Social Security about your family circumstances and/or a change in those circumstances.

“Tell them about ex-spouses, tell them if you’ve lost a spouse, tell them if you have kids,” Prof. Kotlikoff says. (A surviving spouse with children could be eligible for additional benefits.)
“If you don’t tell them, they won’t know. It’s that simple.”

Delaying Social Security doesn’t just result in a bigger benefit; it also can make good tax sense.

You may have heard the advice countless times: Minimize (or avoid) withdrawals from your nest egg (401(k), individual retirement accounts, etc.) for as long as possible to take advantage of tax-deferred growth. Many investors who follow that advice grab Social Security benefits, typically at age 62, to help pay the bills.

But that advice ignores the possible tax benefits associated with following the opposite course: accelerating withdrawals from savings early in retirement so that you can hold off on claiming Social Security.

The thinking here is tied to the fact that Social Security benefits are taxable. As much as 85% of a married couple’s benefits are subject to tax when their income exceeds $44,000 ($34,000 for individuals); as much as 50% of benefits are taxable at lower income levels.

If you delay claiming Social Security and, as a result, end up with larger benefits, future withdrawals from savings will likely be smaller—a recipe for lower levels of taxable income.

“Many retirees don’t consider the impact of their withdrawal strategy on how their Social Security is taxed,” says Mr. Meyer, the SocialSecuritySolutions.com founder. “Missteps in tapping the wrong account and investments to generate income can significantly increase your taxes.”

6 Social Security Traps to Avoid

Social Security cardMy Comments: (I’ve missed a couple of posts for which I apologize. We went to my 55th high school reunion and met some interesting people. Much more interesting than thay were 55 years ago, assuming I remembered them at all. The prevailing sentiment was to congratulate each other for being upright, breathing and taking noursishment.)

About this post; several months ago, seven years after I qualified to receive full Social Security benefits, I realized how very important it was to pay attention to when you apply for SSA benefits. It was too late to help myself, but not too late to help a lot of other folks.

So I aligned myself with a group located in Topeka, Kansas and started providing clients and anyone who asked, with a comprehensive report to help them decide which of the possible 97 months you can choose from to apply for benefits.

The reports are helpful, to say the least. Call me or email me and I’ll make sure you get one for yourself. There is no cost except a willingness to listen as I explain what it all means to you.

By Kandice Bridges May 6, 2014

If you’re looking forward to turning age 62 so you can begin collecting Social Security benefits and live on Easy Street, you might get caught off guard. Some of the Social Security rules can be frighteningly complex. Because it will likely represent a large portion of your retirement income, it’s important to understand how the government program works.

For instance, there are limits on how much you can earn while collecting benefits, and if you exceed those limits, your Social Security benefits will get cut substantially. That’s just one of the snares that could trip you up.

Make sure you plan appropriately to avoid these six Social Security traps.

Trap No. 1: Social Security may be taxable

If your earnings exceed a certain level, up to 85 percent of Social Security benefits may be taxable. Even income sources that are normally tax-exempt, such as income from municipal bonds, must be factored into the total income equation for the purpose of computing tax on Social Security benefits.

Eric Levenhagen, CPA and Certified Tax Coach with ProWise Tax & Accounting, says to find out whether any of your Social Security benefits are taxable, “Look at your total taxable income plus half of your Social Security benefit. Make sure you add back any tax-exempt interest income.”

When your taxable income, tax-free income and half of your Social Security benefit exceed $25,000 ($32,000 for married couples filing jointly), that’s when you’re in the zone to pay taxes on Social Security income.

Another unexpected income source that could impact taxes on Social Security: proceeds from a Roth conversion.

If you’re thinking about doing a Roth conversion, do so before receiving Social Security benefits, says Steve Weisman, an attorney and college professor at Bentley University. “A lot of people considering converting a traditional (individual retirement account) into a Roth IRA should be aware that if they do that, they will end up paying income tax on the conversion, which will also be included for determining whether Social Security benefits are taxable,” he says.

Trap No. 2: Must take required minimum distributions
Required minimum distributions, or RMDs, must generally be made from tax-deferred retirement accounts, including traditional IRAs, after a person reaches age 70 1/2. The distributions are treated as ordinary income and may push a taxpayer above the threshold where Social Security benefits become taxable.

“This is a double-edged sword,” says Weisman. “If you are over 70 1/2, you are required to begin taking distributions from IRAs (except Roth IRAs) and other retirement accounts.”
“Here again, you take half of the Social Security benefits plus all other income to determine whether Social Security benefits are taxable. RMDs will be included and drive that up,” says Levenhagen.

You can’t avoid required minimum distributions, but you can avoid being surprised at tax time.

Trap No. 3: Some workers don’t get Social Security
Most people assume Social Security is available to seniors throughout the U.S., but not every type of work will count toward earning Social Security benefits. Many federal employees, certain railroad workers, and employees of some state and local governments are not covered by Social Security.

“Some of my clients have participated in retirement programs offered by employers that don’t pay into Social Security,” says Charles Millington, president at Millington Financial Advisors LLC in Naperville, Ill. “If your employer does not participate in Social Security, then you should be covered under the retirement program offered by your employer.”

However, certain positions within a state government may be covered by Social Security.
Find out whether your employer participates in Social Security or not and if not, whether your position may be covered by Social Security. Make sure you understand where your retirement benefits will be coming from.

Trap No. 4: Early benefits could be a big mistake
If you opt to take Social Security as soon as you are eligible, you may be doing yourself an injustice.

“If you delay taking benefits until age 70, you will see as much as an 8 percent increase in benefits for each year you delay,” says Steve Gaito, Certified Financial Planner professional and director of My Retirement Education Center. “In addition to receiving a higher benefit, the annual cost-of-living adjustment will be based on the higher number.”

“It’s hard to find that kind of rate of return on regular investments, so it’s good to delay if you can,” says Weisman.

Of course, life expectancy plays a part in the decision of when to begin drawing benefits. “You generally know how healthy you are and what your family medical history is,” says Ryan Leib, vice president of Keystone Wealth Management. “We advise clients to determine whether they think they will live longer than age 77. If so, delaying until age 70 will net you more in benefits than opting to start collecting benefits early.”

If you’re able to live off other funds and delay taking Social Security, you should seriously consider doing so. “Delaying taking Social Security until age 70 could mean the difference between cat food and caviar in retirement,” says Leib.

Trap No. 5: Windfall elimination provision
If you work for multiple employers in your career, including both employers that don’t withhold Social Security taxes from your salary (for example, a government agency) and employers that do, the pension you receive based on the noncovered work may reduce your Social Security benefits.

“Many people are not aware that their actual Social Security benefit may be lower than the amount shown on their statements or online because the windfall elimination provision reduction does not occur until the person applies for their benefits and (the Social Security Administration) finds out they are entitled to a pension,” says Charles Scott, president of Pelleton Capital Management in Scottsdale, Arizona.

Social Security applies a formula to determine the reduction. In 2014, the maximum WEP reduction is $408. There is a limit to the WEP reduction for people with very small pensions.
If you have worked for both noncovered and covered employers, don’t let the windfall elimination provision catch you by surprise.

Trap No. 6: Limits on benefits while working

You are allowed to collect Social Security and earn wages from your employer. However, if your wages exceed $15,480 in 2014, your Social Security benefits will be reduced by $1 for every $2 you earn above that level.

During the year in which you reach full retirement age — which ranges from age 65 to 67, depending on your birth year — you can earn up to $41,400 before $1 of your Social Security benefits will be deducted for every $3 you earn above that threshold. However, the money isn’t lost forever. You will be entitled to a credit, so your benefits will increase beginning the month you reach full retirement age.

At full retirement age, no income restrictions apply. “There is no penalty for additional income earned,” says Gaito.

If you plan on working beyond age 62 and anticipate earning more than $15,480 per year, strongly consider putting off Social Security benefits.

10 Numbers Everyone Should Know About Social Security

SSA-image-2My Comments: Understanding the Social Security system and helping clients make the best choices has become a passion for me.

Before a few months ago, I never realized there were a total of 97 months to choose from when signing up for benefits. I never knew the difference between the best month and the worst month could mean a couple of hundred thousand dollars to me and my family.

I never knew that if my spouse and I were more than a few years apart in age, there were options that might allow us to realize even greater benefits. I didn’t know I could apply for benefits and then suspend them to gain an advantage.

If you are going to reach age 62 in the next few years, or have reached it and have not yet applied for benefits, you need to get in touch with me to get a free report on how to maximize your benefits. Go to the Contact Info tab above and reach out to me.

By Emily Brandon April 10, 2014

If you want to maximize your Social Security payments, you need to familiarize yourself with the rules. The taxes you pay and the age you sign up for benefits play a big role in how much you will receive in retirement. Pay attention to these important components of Social Security.

6.2 percent
Workers pay 6.2 percent of their earnings into the Social Security system, and employers pay a matching 6.2 percent. Self-employed workers contribute 12.4 percent of their pay to the Social Security Trust Fund.

$117,000
This is the income cap for Social Security taxes in 2014. Workers do not pay Social Security taxes on earnings that exceed $117,000 and will notice a bump in their paycheck once they earn above this amount in a single year.

$1,294

Retired workers receive an average Social Security payment of $1,294 in 2014. Retired couples receive an average of $2,111.

$15,480
If you sign up for Social Security benefits before age 66 and continue to work, you can earn $15,480 in 2014 before $1 in benefits will be temporarily withheld for every $2 you earn above the limit. The year you turn 66, the earnings limit increases to $41,400 and the amount withheld drops to $1 for every $3 earned above the limit. After you turn 66, there is no penalty for working and collecting benefits at the same time.

62
This is the earliest age workers can sign up for Social Security payments. However, monthly payments are significantly reduced if you sign up at this age. And if you work and collect benefits at the same time, your Social Security payments could be temporarily withheld if you earn too much.

66
Age 66 is when baby boomers born between 1943 and 1954 are first eligible to collect unreduced Social Security benefits. The Social Security full retirement age is 66 and two months for people born in 1955, and it increases in two-month increments to 66 and 10 months for people born in 1959. The earnings limit for working and collecting benefits at the same time also disappears once you reach your full retirement age.

67
The full retirement age is 67 for everyone born in 1960 or later. Most members of generation X and millennials will not be able to claim unreduced Social Security benefits until a year later than the baby boomers and two years after their grandparents, whose full retirement age was 65.

70
Social Security payouts further increase for each year you delay starting your payments up until age 70. After age 70, there is no additional benefit for waiting to sign up for Social Security.

$34,000
If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits totals more than $34,000 ($44,000 for couples), you will have to pay income tax on up to 85 percent of your Social Security payments. If these income sources are between $25,000 and $34,000 ($32,000 and $44,000 for couples), income tax will be due on up to half of your Social Security benefit.

$2,642
This is the maximum possible Social Security benefit for a worker who signs up at full retirement age in 2014. However, to get this amount, you would need to earn the maximum taxable amount, which is $117,000 in 2014, in each of the 35 years factored into your Social Security payments.

10 Things You Should Know About Social Security

My Comments: It’s no secret that Social Security is a major issue these days. So many people are arriving at the magic number when you can apply. For financial advisors like myself, knowing most of the variables and being able to help clients and others make the best decision for themselves is important. When you start digging, the number of variables is mind boggling and making the wrong choices can be costly.

As before, Kiplinger has put together an interesting slide show for you to follow. The image just below is a screen shot of their page. I’ve set it up so that if you click on the image, you reach the slide show and navigate to all the pages with the blue arrow. All 12 pages. Have fun!
10 things about SSA