Category Archives: Social Security

Ready to retire? Don’t rush your Social Security start date

My Comments: A major determinant for when you should start taking your Social Security benefits comes down to when you plan to die. If you plan to die soon, then start the payments as early as possible; if you plan to live to be 100, and have enough money now, then delay the start of payments as long as possible.

March 31, 2016

For most Americans, Social Security is a big part of their retirement income

An estimated 91% of Americans aged 65 or older receive Social Security benefits—the average annual benefit for a retiree is about $16,000. For most of these retirees (64%), Social Security represents a significant portion of their income. Even for affluent retirees (those aged 60–79 with at least $100,000 in financial assets), Social Security accounts for 29% of total retirement income, on average. Given that Social Security provides a base level of guaranteed income for most retirees, it’s an important benefit for investors and their advisors to consider when designing a comprehensive plan for retirement income.

By delaying Social Security, retirees can stretch their savings

In the past, the decision as to the “right” time to claim Social Security has often been based on a break-even analysis of a retiree’s expected benefits versus his or her life expectancy. That approach, however, ignores two key features of Social Security, namely: Once you start receiving it, it’s paid for the rest of your life, no matter how long you live, and is adjusted upward for inflation. A big concern for most retirees is the risk of outliving their savings.

For many retirees who can afford to do so, deferring Social Security for a few years (even past their “full retirement age”—defined by Social Security according to one’s birth year—to the maximum annual benefit at age 70) greatly increases their lifetime monthly benefit. Given that at age 65, more than 50% of women can expect to live past age 88 (and 50% of men past 85), delaying Social Security can provide powerful longevity protection.

Social Security acts like an inflation-protected annuity

The act of delaying the claiming of Social Security is analogous to purchasing an inflation-protected deferred income annuity. Benefits increase by up to 8% in real terms for every year that claiming is delayed. The chart below  demonstrates the effectiveness of a deferred claiming strategy both for increasing guaranteed income and for providing longevity protection. Also, in the case of a married couple, one of whom, for instance, delays claiming until age 70 (for maximum benefit), a surviving spouse receives the larger of the two Social Security benefits—thus further demonstrating Social Security’s role in protecting lifetime income.

Thoughtful claiming strategies can help retirees make the most of their benefits

A careful review of Social Security regulations, your financial situation, and any health considerations you may have are crucial to developing a strategy to maximize income during retirement. (Note that the regulations can be complex, and you may benefit from seeking professional advice.) For individuals in poor health or with little or no other financial resources, early Social Security claiming may be appropriate, but for most retirees, the increase in guaranteed income gained by deferring Social Security makes waiting to start benefits an appropriate strategy. The accompanying chart shows the potential impact on a couple’s lifetime Social Security income of three different approaches: both spouses claiming at 62 (the earliest possible age), a hybrid strategy where one spouse claims at age 62 while the other delays until age 70, or both spouses delaying until age 70 to accumulate the maximum amount of delayed retirement credits.

Do the recent changes in Social Security rules allow you to file and suspend?

Social Security cardMy Comments: A critical date is fast approaching for those of you who have not yet signed up to receive your Social Security benefits, for one reason or another.

This writer clearly knows his stuff and if you have questions of me, I’ll do my best to answer them. None of this may apply to you but if you think it does, find out soon. You only have a few days left.

Click on the image above and it’ll take you to the article.

BY Laurence Kotlikoff  April 11, 2016


Can I File and Suspend My Social Security Benefits?

SSA-image-2My Comments: This is a hot topic. No one likes to leave money laying on the table. Given the chance you will live longer than expected and don’t have the financial reserves you thought you might have, taking advantage of everything possible from the Social Security system is critical for many of us.

By Dan Caplinger Published April 10, 2016

Social Security has many complex provisions, and smart retirees have used some of those provisions over the years to create useful strategies to enhance their retirement income. One of those strategies is called file and suspend, and late last year, lawmakers identified the strategy as offering a loophole that they didn’t want to leave open. As a result, the file-and-suspend strategy will disappear soon, but there’s still an opportunity for some people to take advantage of the strategy before it goes away.

How the file-and-suspend strategy works

The idea behind using the file-and-suspend strategy was relatively simple. Under the laws governing Social Security, your spouse isn’t entitled to receive any spousal benefits based on your work history until you decide to file for your own retirement benefits. This isn’t a problem as long as you want to take your benefits now. However, many people would prefer to defer taking retirement benefits until a later date, letting them earn delayed retirement credits and boost their eventual monthly payments.

The file-and-suspend strategy allowed couples to get the best of both worlds. Under the filing part of the strategy, you would file for your benefits, thereby activating spousal benefits for your spouse. However, you would then immediately suspend your retirement benefits. The old rules allowed you to keep earning delayed retirement credits during the period of suspension. The net result was that one spouse could get benefits now, and the other could wait and get larger benefit checks later.

Why the file-and-suspend strategy is going away

Late last fall, lawmakers agreed to do away with the file-and-suspend strategy, characterizing it as an unintended loophole. Once the law goes into effect, if you suspend your benefits, your spouse will no longer be able to get spousal benefits based on your work history. That means that in order to activate spousal benefits, you’ll have to file and actually receive your retirement benefits, and you won’t be able to earn delayed retirement credits once you file.

The law’s effective date was set for six months after its passage. That works out to May 1, and because that’s a Sunday, most planners are recommending that people take action by April 29.

The problem is that you’re not eligible to file and suspend until you reach full retirement age, which is currently 66. Those who won’t have turned 66 by the late-April deadline therefore won’t have any opportunity to get the benefits of the file-and-suspend strategy.

However, if you are eligible, then you’ll be able to enjoy the advantages of filing and suspending even after the effective date of the law. Grandfathering provisions will allow your spouse to receive spousal benefits even if you’ve suspended your benefits — as long as you did so before the deadline. If you decide to unsuspend your benefits after the deadline, then that’s a one-time decision, and you won’t be able to unmake it.

What you can still use file and suspend for

Even after the new law takes effect, there are still situations in which filing and suspending benefits can make sense. The most common is if you filed for early benefits and later decide that you would prefer to have largely monthly payments, you can suspend those benefits once you reach full retirement age. You can then earn delayed retirement credits that will boost your benefit when you decide to start taking it again. Given that many people regret their decision to take early Social Security, this is an option that has some value.

Still, the main reason why most people used file and suspend will no longer work once May comes. At that point, the strategy will simply be the latest in a series of things people did to enhance their retirement income.

Read This Before You Take Social Security Benefits

My Comments:Social Security card Social Security is a complicated topic. If you are not yet 70 years old, and/or have not yet committed to how you will take your Social Security benefits, you should read this.

With so many variables, the typical process for making a good decision is total confusion for most people, even financial planners. The net effect is that for many of us, there is money left on the table at the end of the day. This author reduces much of the confusion to simple concepts that are a great starting point. If you are still confused, or have more questions, call me.

By Dan Caplinger Published March 13, 2016

Many retirees rely on Social Security for most or all of their income in retirement. Before you make a decision that will have major financial implications for the rest of your life, it’s important to know everything at stake in the timing of when you take your benefits. Here are a few things to consider.

Fewer big payments vs. more small payments

Most people have what amounts to an eight-year window to claim Social Security. Earliest eligibility is at age 62, and 70 is the latest age at which Social Security provides any financial incentive to wait. The key decision with Social Security is whether to take a reduced benefit that will give you the maximum number of monthly Social Security payments, or whether to wait and take a higher monthly benefit but receive it for a shorter period of time.

You can find plenty of articles discussing the trade-offs involved with claiming at age 62 versus waiting until full retirement age (currently 66) or age 70 to claim. But a lot depends on your individual situation. For instance, single retirees who won’t have anyone else claiming on their work history can look solely at their own personal situation to make a smart decision about when to take Social Security. For those with family members who will receive spousal or survivor benefits, decisions that might make sense solely from your point of view might not be the best for your family as a whole. You can run numbers projecting which choice will result in your receiving more total money.

But only you can make a personal assessment whether the true value of that extra money is worth the trade-off of having to wait for it. The important thing is not just to make a knee-jerk decision but rather to consider all the factors involved and what they mean to you and your life.

If you’re working and claim early, Social Security could take back your benefits anyway

The worst result in many people’s eyes is to start collecting Social Security benefits only to have the government take them away. Yet that’s what happens to some people who continue to work in their early 60s and choose to take early benefits.

If you haven’t yet reached full retirement age, there’s a limit on how much you can earn before Social Security forces you to forfeit benefits. If you will not reach full retirement age this year and earn more than $15,720, then you’ll lose $1 in annual Social Security payments for every $2 above the limit you earn. For those who hit full retirement age during the year, a higher limit of $41,880 applies to earnings before the day of the year you reach full retirement age, and the forfeiture is $1 for every $3 above the limit.

This forfeiture doesn’t result in a complete loss, because the Social Security Administration treats you as if you had delayed taking Social Security for any full month of forfeited benefits. But if that’s what’s going to happen anyway, it can make more sense just to delay filing until your income will be under the threshold — or until you reach full retirement age.

You can get a do-over on your decision, but only for a limited time

Many people regret their decision on when to take Social Security after the fact. There is a way to undo your claiming decision, but you have only a limited time to do so, and there are some key requirements that pose a hardship for many.

In order to get a do-over, you have to use a strategy that’s known as withdrawing your Social Security applications. Form SSA-521 provides for this request, and it provides space for you to indicate the reason for the withdrawal and other related information. You can only file Form SSA-521 once in your lifetime, and it’s only available within the first 12 months after your initial application for Social Security benefits.

The hardest part of the withdrawal application is that if approved, you have to return any money you received from Social Security since you claimed benefits. Many retirees aren’t in a position to pay back up to a year’s worth of Social Security payments, and that can make the strategy impractical for them.

The decision of when to take Social Security is a key one. Being informed is the first step toward making sure you do the best thing for your situation.

Grab This Social Security Benefit While You Still Can

My Comments: Social Security has for many years been a critical financial component in the lives of almost every citizen of the US who is aged 62 or older. I know it is for me and my wife.

Changes are going to happen to help maintain it’s viability as the population demographics change and society evolves. What you read below may confuse you, but if some of the variables described apply to you, you need to understand this rule change as it could mean lots of money for you, both good and bad.

Philip Moeller February 18,2016

Q: I plan to file for Social Security in November 2016. I will turn 66 on November 24, 2016, and my wife will turn 66 on February 24, 2017. We had planned to have my wife file a restricted application for Social Security as of February 2017 and, at age 70, switch to her retirement benefit. In consideration of changes to the law, will this option still be available to us as of February 2017? — Ken

A: Yes, this strategy will still be valid under the new law. Because your wife was already 62 at the start of 2016, she is grandfathered under the new regulations. Once you’ve filed for your benefit, she will be able at her full retirement age (FRA) to file a restricted application just for her spousal benefit and then at age 70 file for her own retirement benefit. Assuming it will be larger than her spousal benefit, she should receive an additional payment that is roughly equal to the amount by which her retirement benefit exceeds her spousal benefit.

Under the old rules, you would have been able to file and suspend at your FRA. That would have permitted her to file a restricted application and allowed both of you to defer your own retirement benefits and thus earn delayed retirement credits. The ability to file and suspend will no longer be provided to people who have not reached full retirement age by the end of April (April 29, to be exact, which is the last business day of the month).
These new changes add yet another layer of complexity to what was already a challenging set of Social Security claiming decisions. And wishing the system were simpler won’t make it so. Still, by asking the right questions, as Ken has done, it’s still possible to arrive at the best outcome.

Everything You Need to Know About Social Security

retirement-exit-2My Comments: The monthly income my wife and I get from SSA is a significant part of our financial freedom. We paid into the system for 50 plus years and while I like to think I’m just getting my money back, it’s really much more than that.

As a financial planner and investment advisor for the past 40 years, arguments that I could have done much better had I been given a choice to invest it myself fall on deaf ears. Of the several hundred clients I’ve had, virtually NONE of them had the necessary discipline to save enough on their own, much less invest successfully. All these arguments are offered by those who have not yet reached retirement age.

For every retired person who has enough to maintain their standard of living without Social Security, I’ll wager there are several hundred who can’t. It’s not just a matter of skill; luck and timing are equally, if not more, critical to financial success. (that’s for another blog post someday)
Yes, there are existential threats that need to be addressed. But I suspect they will be addressed though perhaps not in my lifetime. Unless you plan to die before you retire, you need to know and understand Social Security.

Kristin Wong 10/21/15

If you pay taxes and you plan on retiring in your golden years, you should probably know a thing or two about Social Security. No doubt you’ve heard of it, maybe in the context of politicians yelling about how to fix it. But why is it broken in the first place, and what exactly is it all about? We’ve got your answers right here.

What Is Social Security?
In the U.S., Social Security is a government benefit dedicated to three general groups of people: retirees, families of disabled or deceased workers, and people with disabilities.

When you get a paycheck, you’ve probably noticed a little cash going to something called FICA. This is the Federal Insurance Contributions Act tax, and it’s what funds Social Security. Your money goes into a pot, and current Social Security recipients (your grandparents, perhaps?) are paid from that pot. When it’s time for you to retire, your benefits will come from the same pot, which will be funded by future generations who pay taxes (maybe your grandchildren!)

The pot is made up of two different trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) trust fund. When the money coming into the pot exceeds the amount they need to give out, the Social Security Administration (SSA) has a surplus. That money earns interest, the same way you might save your extra money at a bank. Meanwhile, the government is allowed to use that money, the same way your bank might use your savings for loans.

What Happens When You’re Eligible
When you reach your 60s, you’ll probably start thinking about retiring. That means applying for Social Security as a source of retirement income. Hopefully it’s not your only source, though. Ideally, you’ll have been saving money over years and years to fund your retirement—whether through an employer-sponsored 401(k) plan or an Individual Retirement Account. You may also have a pension.

But Social Security can be a helpful addition to your retirement income. The maximum benefit for Social Security is $2,663, which isn’t much, and most people are eligible for even less than that. How much cash you’re actually eligible for will depend on a few different factors:
• Your age: You can start receiving social security as early as 62, but actual “full retirement age” is 65 (or older, you can check your own retirement age here) If you retire before that time, your monthly benefits could be reduced by up to 25% for the rest of your life. This makes sense, because you’re getting money earlier—so it’s the same amount, just reduced because it’s spread out over a slightly longer period. Similarly, if you retire after your full retirement age, you could get 8 percent more until age 70.
• Your wage over the years: The Social Security Administration takes the 35 years that you earned the highest income to calculate something called your Average Indexed Monthly Earnings (AIME). From there, they use a formula based on that number to decide how much you’ll be paid.
• Whether you worked for the government: If you worked for the government and received a pension, the SSA uses a different formula to calculate your benefit.
The SSA has a useful calculator to help estimate what your retirement payments will be. You can also get an estimate of future earnings by signing up at the My Social Security website.
Here are the average monthly Social Security benefits as of July 2015, according to the SSA:
• $1,336/month for retired workers;
• $1,282/month for widows or widowers over age 60;
• $1,165/month for disabled workers;
• $1,979/month for a disabled worker, spouse and one or more young children;
• $2,631/month for a widowed mother and two children.

If you’re ready to start receiving payments, whether it’s for retirement, disability, or survivor’s benefits, you can start by calling the SSA, visiting an office, or applying online. The SSA offers pretty straightforward instructions here.

The Real Problem with Social Security

You’ve probably heard that Social Security is doomed, and we’re going to completely run out of Social Security money within the next couple of decades and you’ll get screwed out of your benefits. This is actually untrue. However, it doesn’t mean things are completely rosy, either.

Another common misconception is that the government keeps borrowing money from the Social Security fund, which is causing us to run out. That’s not the problem either.

The problem is simple: we have more going out of Social Security than we do coming in.

Social security, in theory, is a great idea: you pay taxes now to ensure your retirement later. The problem is, it doesn’t work out that neatly in practice because the money you pay goes to an entirely different generation—it doesn’t come directly back to you. The Baby Boomer generation is retiring now, which means we have a lot of retirees, and thus are paying out a lot of money in Social Security. At the same time, we have fewer workers paying taxes and funding Social Security. So, we have less money coming in than going out: Investopedia calls it a declining “worker-to-beneficiary” ratio. It isn’t a problem right this second, because we have a surplus, but that surplus is running out.

When you hear news about Social Security funds being “depleted,” it doesn’t mean Social Security itself is crumbling and the sky is falling. It just means we’ll run out of that surplus money—money in the piggy bank, if you will. People are still paying Social Security taxes, so we still have money coming in. But it isn’t enough, so if we stay the course where Social Security is headed, future generations won’t get as much money.

For example, the piggy bank for Disability Insurance is projected to be depleted by next year. According to the SSA:
The Trustees continue to project depletion of the Social Security Disability Insurance (DI) Trust Fund in late 2016 if lawmakers take no action. This impending DI funding shortfall, which threatens beneficiaries with sudden and substantial benefit reductions, is but the first manifestation of larger financial imbalances facing Social Security as a whole as well as Medicare.

Once that fund is empty, incoming taxes will only cover about 81 percent of people who are scheduled to receive payments. And you can’t just not pay an entire percentage of people, so to address the problem, the SSA will have to automatically cut everyone’s disability benefits by 19 percent.

And that’s just disability. The rest of Social Security’s piggy bank is expected to be empty by 2034. This doesn’t mean they’ll stop paying benefits, but it does mean everyone will get less. If we stay this course, we can probably expect around 20% in cuts, according to the Motley Fool:
If Congress can’t come to a long-term solution that involves raising additional revenue and/or cutting expenses, benefits for eligible beneficiaries will be cut by 23%. That’s a big problem, and it has seniors and pre-retirees concerned.

Considering the majority of retirees get half or more of their income from Social Security, that’s a huge cut to contend with.

What the Government Is Doing About It
Politicians have all kinds of ideas on how to fix Social Security, but they all boil down to either increasing taxes or reducing benefits. You can browse OnTheIssues to see where any given politician stands, but most ideas fall into one of those two broad categories.

There’s currently a cap the amount of Social Security taxes taxpayers have to fork over. For 2015, the maximum amount of taxable earnings is $118,500, meaning if you earn more than that, you’re only taxed on the first $118.500. A lot of politicians talk about raising this amount, but The Commission to Modernize Social Security wants to get rid of the cap altogether. Member Maya Rockeymoore tells Bankrate that while most of us have seen pretty stagnant wage increases over the past few years, the earnings for the top two percent of wealthiest taxpayers have increased dramatically. By eliminating the cap altogether, high earners would be taxed more on Social Security.

On the other side of the coin, you could raise the retirement age. It would still reduce the full amount of benefits, since you’re postponing retirement, but it doesn’t require a tax increase. We’re already on course to raise the retirement age for future generations to 67 by 2027. One group, the Business Roundtable, wants to increase the age even further to 70.

How to Make Sure You Have Enough to Retire

You’re still going to get some Social Security money, but whether or not it’s enough to fund your retirement is a whole other story. Right now, benefits average about $1,300 a month, so even if that number doesn’t get cut down, it’s not like you’re going to be living it up in Paris on Social Security checks alone.

Your best bet is to safeguard your own retirement with your personal savings. That’s easier said than done, but it’s more reliable than trusting politicians to figure it out. The more you save (and the earlier you start!), the better off you’ll be. To get started, you’ll want to:
• Make sure you’re taking advantage of your employer’s 401(k) match
• Look into opening an IRA
• Learn how to build a basic “set and forget” investment portfolio

In short, the sky is not necessarily falling and Social Security won’t be completely gone by the time younger generations retire. But we may not get as much money as we expect, so it helps to understand what the issue really is, how it’s being fixed, and in the meantime, do what you can to beef up your own savings.

Useful links to more information:

New Social Security Claiming Rules

Social Security cardMy Comments: Social Security has become a fundamental element in the lives of virtually every American on the planet. Those of us old enough to have started taking monthly payments could only gasp if they were taken away. I guess there are some who wouldn’t give a damn. But still…

The rules just enacted limit opportunities to sort of game the system and we can live with that. And steps to make it solvent for my children and grandchildren are relatively simple if there wasn’t political crap to deal with.

I offer this to those of you who are married and turning 62.

November 10, 2015 by Philip Moeller

The budget bill signed last week by President Obama included perhaps the most significant change in Social Security benefits since 1983. Back then, Federal Reserve chairman Alan Greenspan led public hearings that helped usher in key reforms. Last week’s changes, which ended two major Social Security claiming strategies for married couples, occurred with virtually no public government review or hearings.

All of which has left a lot of pre-retirees scrambling. To help you make sense of these changes, and to help you decide how to respond, here are five key points to know:

Married couples will have fewer claiming options.

By Friday, April 29, 2016—about six months after the bill’s signing—people who have not yet filed for Social Security benefits will no longer be able to use the program’s “file and suspend” rule. This claiming strategy has permitted one member of a married couple to file for Social Security, thereby enabling a husband or wife to file for a spousal benefit. (Or other family members to file for ancillary benefits.) The spouse, meanwhile, could suspend his or her own retirement benefit, which then could grow due to delayed retirement credits by 8% a year.

The changes also will end the ability of anyone born in 1954 or later to file what’s called a restricted application and collect only a spousal benefit while letting their own retirement benefits rise by 8% a year for up to four years, until age 70. Instead, filing for spousal benefits will be deemed by Social Security to also trigger a person’s own retirement benefit. The agency will pay only an amount that is roughly equal to the greater of the two benefits. Right now, deeming only applies to benefits claimed before age 66, but the new law will eventually extend it to older filers as well.

There are a few exceptions, though time is running out for some.

Depending on your age, you may have a window of opportunity. First, a person at least age 66 can continue to file and suspend until April 29, 2016. By doing so, your spouse and qualifying family members may be eligible to receive benefits after the law becomes effective. Plus you can continue to receive delayed retirement credits for up to four years. Clearly, if you are 66 or older and intend to do this, you should start the process soon.

Second, people who are 62 or older as of the end of this year are grandfathered and will not be subject to the expanded deeming rules. This means that if you filed (or filed and suspended) for your own retirement benefits (or do so in the next six months), your spouse can still file a restricted application for just spousal benefits. But to qualify for this exception, your spouse will need to be at least 62 by the end of 2015.

Deeming will not apply to a widow or widower, who will still be able to claim a survivor benefit while deferring individual retirement benefits and letting them rise in value. This assumes the survivor has not already filed for individual retirement benefits. It also assumes that benefit would be larger than the survivor benefit—otherwise, there would be no reason to defer and later switch.

What happens after the six months are up?

After the new rules take effect, if you voluntarily suspend your benefit (which now can only be done after reaching age 66) you will not be able to claim benefits based on anyone else’s earnings record and no one will be able to claim benefits based on your record. This will have a significant effect on decisions people need to make about when to claim their benefits. It also will sharply reduce the ability to claim ancillary benefits for spouses, dependent children and others.

The changes also will end the option to suspend your benefits and later claim a cumulative lump-sum, or retroactive payment, equal to all of your suspended benefits. If you suspend your benefits before the end of April, however, you can still un-suspend them and collect retroactive payments.

For those who have already suspended benefits, you can get retroactive payments for up to one day shy of four years. If you don’t claim a retroactive payment, you can continue to earn delayed retirement credits for up to four years.

Why did the Social Security changes happen so suddenly?

Good question. Instead of holding a public debate, Congress tacked these changes onto an emergency bill to avoid a U.S. debt default, bail out Medicare from enormous premium increases next year, and extend the life of Social Security’s disability insurance program, which had been scheduled to run out of money in less than a year. There was no public evaluation or discussion of these changes, and there are still no publicly identified authors of these reforms.

Are online tools available to help me sort out a new claiming strategy?

Many online advice tools are still being updated. Two leading providers of Social Security claiming software, Maximize My Social Security and Social Security Solutions, have posted partial explanations of the changes and urged people to proceed carefully before making any new claiming decisions.

Social Security has not yet posted any notice about the changes on its public site. It is expected to update its formal rules, but this process could take some time.