Tag Archives: social security benefits

Social Security Cost-of-living Adjustments Projected to Increase Slightly in 2015

Social Security cardMy Comments: Those of us old enough to be taking SSA benefits have experienced minimal increases in the last few years. That’s because the ‘official’ numbers for inflation have been low. There is an argument they should be even lower as a way to keep the so-called SSA reserves from going to empty. In my opinion, that would be a stupid way to correct the problem.

Most of us who are interested in this issue know there are much less painful remedies available. With the SSA system now in place for over 80 years, much of the US economy has adjusted with large segments of the population relying on it as we age. To disrupt that could have dramatic consequences.

If you are near 62 or beyond and have not yet signed up for benefits, get in touch with me for a comprehensive analysis of how and when to put yourself on the receiving end of a monthly check. You’ll be surprised how big a mistake it can be if you do it wrong.

By Mary Beth Franklin / Oct 1, 2014

Social Security benefits are likely to increase by 1.7% in 2015, slightly more than this year’s 1.5% increase but still well below average increases over the past few decades, according to an unofficial projection by the Senior Citizens League.

The Social Security Administration will issue an official announcement about the 2015 cost-of-living adjustments for both benefits and taxable wages later this month.

Based on the latest consumer price index data through August, the advocacy group’s projection of a 1.7% increase in Social Security benefits for 2015 “would make the sixth consecutive year of record-low COLAs,” Ed Cates, chairman of the Senior Citizens League, said in a written statement. “That’s unprecedented since the COLA first became automatic in 1975.”

Inflation over the past five years has been growing so slowly that the annual increase has averaged only 1.4 % per year since 2010, less than half of the 3% average during the prior decade. In 2010 and 2011, benefits didn’t increase at all, following a 5.8% hike in 2009.

Although the annual adjustment is provided to protect the buying power of Social Security payments, beneficiaries report a big disparity between the benefit increases they receive and the increase in costs. The majority of Social Security recipients said that their benefits rose by less than $19 in 2014, yet their monthly expenses rose by more than $119, according to a recent national survey by the advocacy group.

Social Security beneficiaries have lost nearly one-third of their buying power since 2000, according to a study by the organization. Low COLAs affect not only people currently receiving benefits, but also those who have turned 60 and who have not yet filed a claim. The COLA is part of the formula used to determine initial benefits and can mean a somewhat lower initial retirement benefit.

A 1.7% increase would increase average Social Security benefits by about $20 next year and boost the maximum amount of wages subject to payroll taxes by nearly $2,000 above this year’s $117,000 level.

Despite the fact that Social Security benefits are not keeping up with inflation, COLA reductions remain a key proposal under consideration in Congress to reduce Social Security deficits. A leading proposal would use the “chained” consumer price index — which grows more slowly — to calculate the annual increase.

The group warned that the “chained COLA” proposal may come under debate again soon. The Social Security Trustees recently forecast that the Social Security Disability Trust Fund is facing insolvency by 2016, and that changes to the program will have to be made to avoid a reduction in disability benefits.

The organization supports legislation that would provide a different measure of inflation by using the Consumer Price Index for the Elderly, which would likely result in higher annual increases than under the current method.

Hidden Bonus: Taking Early Social Security Payments

retirement_roadMy Comments: I’ve said it before and I’m sure I’ll say it again: when to claim Social Security benefits is a complex question. On one hand, if you know you will live to life expectancy, it’s a fairly simple math question. But on the other hand, if you don’t know when you will die, or when your spouse will die, it’s another matter.

Added to this uncertainty is the differential in your respective ages, how much other money you have that you can draw upon until the optimal date, your respective work histories, which determine, along with your age, how many actual spendable dollars you will get. And on and on.

This is another look at this issue.

By John Wasik,  July 11, 2014

Suppose you didn’t need to live off of Social Security, and took the “early” payments at 62?

You may do better using this strategy in terms of total lifetime payments rather than waiting until your “normal” retirement age (depends upon when you were born) or age 70 — when Social Security pays you the largest-possible payment.

The “early saver” strategy works best, of course, if you can get a decent return on your money — you don’t lose principal — and have other sources of income to support your lifestyle. It may even trump waiting until age 70, when Social Security will pay you their highest-possible benefit.

Hannah Alexander, who teaches at the University of Missouri, sent me some compelling numbers on how this strategy could work:

“The assumptions are that the person does not work (or else would not be allowed to collect Social Security), and that this person does not need the money right away, and can wait for it to grow. I agree that this person will get more money per month by waiting, but not enough to make up for the loss of not being paid for the 8 years between 62 and 70. Over a lifetime this person will make less money by waiting. And if that person indeed does not need the money, and can put it in corporate bonds at 4%, she will make even that much more over a lifetime.”
SSA 2009-2083Future payouts of Social Security Benefits in the US from 2009-2083. Source: Social Security Administration. (Photo credit: Wikipedia)

How much more? This is what Prof. Alexander figures:

“I’m using your supposed life expectancy of 85 (as the average between men and women) and your monthly payment ($1,000 for 62, and $1,320 for 70). Starting at 62 will translate to an extra $38,000. Even in a 20% tax bracket the numbers favor an early start with $30,000 extra. “

In order for this strategy to make the most sense, the additional returns need to be compounding until age 94 for the additional savings to exceed the amount you’d receive by waiting until 70 for the higher benefit.

“Even if the person does not invest the money, or even if he/she spends it right away, and does not save a dime, this person will still be better off taking it early, because over a life time she will make more money just from the Social Security checks alone,” Dr. Alexander adds.

There’s also a huge wild card on how you invest your Social Security payments (if you choose to do so): If you take a lot of risk, it could blow up. For example, if you put all of the money in Treasury bonds, you could lose money if inflation or interest rates rise. Stocks also have their own risks.

You also have to keep in mind that many people have little or no skill investing long term, so they may fall prey to an undiversified, unhedged strategy that could diminish their Social Security nest egg. It also gets complicated with a spouse because then you are examining the value of spousal and survivor benefits.

But it’s possible to make it work if 1) you find a risk-adjusted strategy that works over time and 2) you stick to the plan through various market turns. Discipline is essential in retirement investing. If you don’t have it, hire a certified financial planner to run the numbers and keep you on track. You can also experiment with Social Security’s many online calculators. http://www.ssa.gov/oact/anypia/anypia.html

John F. Wasik is the author of 13 books, including Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist. He contributes to Reuters, The New York Times and Morningstar.com and speaks around the country.

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.

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.”

3 Retirement Planning Essentials to Understand

retirement-exit-2My Comments: I’ve now reduced retirement years to three types of years. They are “go-go”, “slow-go” and “no-go”. Planning for them before you reach retirement is a matter of attempting to get as many $ in the pot as possbile.

After that, it’s a timing issue that is driven by health, the expected life style, and the nature of your bucket list. Plan to spend more in the “go-go” years than you will in the “slow-go” years and they dry up in the “no-go” years.

by: Rachel F. Elson / Financial Planning / Monday, June 9, 2014

HOLLYWOOD, Fla. — Longevity increases and cultural shifts have changed the way Americans plan for retirement — and advisors need to make sure they’re keeping pace.

That was the message from Lena Rizkallah, a retirement strategist at J.P. Morgan Asset Management, at the Pershing Insite conference here on Thursday.

A generation ago, said Rizkallah, the mantra was “be conservative” — whether in lifestyle or in investment decisions. “Now, though, boomers have a bucket list,” she said. “They want to retire in good condition financially but also have goals for themselves.”

That changes some of the calculus for advisors said Rizkallah, who joined Elaine Floyd, a director of retirement and life planning at Horsesmouth, for an energetic discussion of retirement planning.

Among the recommendations they made:

1. Make sure clients have a retirement plan.

“I call this the heart attack slide,” Rizkallah said, posting a chart that mapped a client’s age and current salary against retirement savings benchmarks. “It helps clients gauge where they are.”

She encouraged advisors to talk frankly about both saving rates, for those still in the workforce, and spending plans. In general, she said, spending tends to peak at age 45, then decline in all categories except health care.

But she added a big caveat: “Note that housing continues to be 40% of spending. … More people are entering retirement with a mortgage.”

2. Know the threats to a secure retirement.

Rizkallah outlined three big risks for retirees.

Outliving life expectancy. Remember, she cautioned, that as we age our life expectancy gets longer. There is now a 47% chance that one spouse in a 65-year-old couple will live to 90,” she said, pointing out that the likelihood had increased even during the last year.

Not being able to keep working. People may think they’re going to bolster their retirement plan by working longer, but not everyone can control the timing, Rizkallah said, citing such issues as poor health, family care needs, and layoffs and other workplace changes. “There is a disparity between people’s expectations and the reality,” she said, encouraging advisors to tell clients: “You want to keep working? Great. But don’t make that part of the plan.”

Facing higher costs of health care. Costs continue to rise, she pointed out, adding that there’s a lot of uncertainty around future costs. “It’s really crucial to have this conversation,” she said. “Say, ‘Because we’re seeing this, let’s talk about saving, let’s talk about diversifying.'”

3. Do the math on Social Security.

It’s critical that advisors understand — and are able to communicate to clients — the real impact of delaying Social Security benefits, Floyd told listeners.

She cited as an example a maximum earner who turns 62 this year, noting that if the client takes Social Security at 62, he or she will have collected $798,387 by age 85. But by deferring until age 70, that same client will have $1,035,653 by 85. If the client lives to 95, Floyd added, the deferral would have a more than $600,000 payoff.

Other Social Security nuances are important as well, said Floyd, who received the lion’s share of questions during the Q&A period at the end of the panel. “We are getting lots of questions about the earnings test … which suggests that people are continuing to work and filing for Social Security” — something she said clients “just shouldn’t do.”

Advisors should understand whether their clients are eligible for spousal benefits, whether and when clients can change their minds and undo a Social Security election, and how to maximize benefits for a surviving spouse. That last part gets particularly tricky given boomers’ penchant for divorce, Floyd added: “Social Security rules can get really complicated when there are multiple divorces.”

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.