Category Archives: Social Security

Should I Delay Taking Social Security?

SSA-image-2My Comments: When do you plan to die? If you can’t answer that question, and instead assume you will live a long and productive life, then chances are you’ll want to delay the start of your monthly social security checks.

There are, however, valid reasons beyond an early trip to the grave to justify taking them sooner rather than later. Among those reasons are you can’t stand your job, your health is eroding as a result of your job, you have successfully accumulated enough savings so that you can easily say ‘take this job and stuff it’, and probably some more.

by Walter Updegrave @CNNMoney October 12, 2016

I understand that if I delay taking Social Security, I’ll receive a larger benefit. But while I’m waiting for that bigger benefit, I’ll have to withdraw more from my retirement savings, which means I’ll miss out on the investment gains those larger withdrawals would have earned. Given those lost investment earnings, am I really better off by waiting for a bigger Social Security check? –M.A.

It’s true that if you retire but wait to take Social Security to qualify for a bigger monthly check down the road, you’ll have to replace the income you would have received from Social Security had you taken it right away. Which means you’ll have to draw more from savings. So initially at least, the value of your nest egg will decline faster than it otherwise would have due to those larger withdrawals.

But while waiting for a bigger Social Security check will indeed result in a loss of investment earnings potential on your savings in the short-run, remember that you’ll be able to reduce the withdrawals from your nest egg when those bigger Social Security payments kick in.

So to gauge the effect on the value of your savings by starting Social Security early rather than later, you have to take a longer view. And you have to consider what you think you can reasonably earn on your retirement assets as well as how long you might live.

Here’s an example: Let’s assume you plan to retire at 62, at which point you qualify for a Social Security benefit of $1,500 a month, or $18,000 a year, an amount that will increase with inflation each year. And let’s further assume that you have $750,000 in savings from which you plan to withdraw an initial 4%, or $30,000, a figure you’ll also increase by the inflation rate each year. If you go through with this plan, you’ll have annual income of $48,000 ($18,000 in Social Security plus $30,000 from your nest egg) that will rise with inflation to help maintain your purchasing power throughout retirement.

Or, you could choose to postpone Social Security in order to qualify for a bigger benefit later on. Generally, your Social Security benefit rises by roughly 7% to 8% for each year you delay between age 62 and 70, after which you receive no increase for waiting. So if you hold off claiming benefits for four years until age 66 — the full retirement age for people born between 1943 and 1954 — you would receive $2,000 a month in today’s dollars, or $24,000 a year, which is a third more than what you would get at 62.

But if you decide to hold off for a higher benefit and still want to match the $48,000 in annual inflation-adjusted income above, you would have to get that entire amount from your savings for the four years until you begin collecting that higher Social Security benefit.

There’s no doubt that, initially at least, your nest egg will be smaller and thus have less potential to generate investment earnings if you opt to wait for the larger Social Security benefit. After all, you’ll be withdrawing $48,000 a year adjusted for inflation instead of $30,000. But after four years, the withdrawals from savings required to hit your annual income target will drop off by roughly half when your higher Social Security benefit kicks in. And at that point and every year afterward, you’ll be withdrawing about 20% a year less than what you would withdraw from savings with the lower Social Security benefit.

So the question is, if you opt to wait for the higher Social Security benefit, how long would it take until the lower withdrawals that start after four years of retirement and continue afterward allow the value of your nest egg to recover and eventually exceed what its value would be had you opted for the lower Social Security benefit that started sooner? Or, to put it another way, how many years does it take for you to come out ahead by waiting for a higher Social Security benefit?

The answer depends in large part on how much you think you can earn on your retirement investments after inflation. Basically, the higher the real, or inflation-adjusted return, you earn, the longer it takes to come out ahead waiting for the higher Social Security benefit.

For example, if inflation cruises along at roughly 2% or so a year and your investments earn 6% — a real, or inflation-adjusted, return of about 4% — it would take until age 83 or so for you to come out ahead by opting for the larger Social Security benefit. In other words, you’ll end up with the same retirement income plus a larger nest egg as long as you make it to age 83. If, on the other hand, inflation runs at 2% but you earn, say, 7% on your retirement investments — a real return of about 5% — it would take another few years, until age 86, for the higher Social Security benefit option to pay off.

Of course, you could delay taking benefits even longer in hopes of a still higher Social Security payment. In the scenario above, for example, waiting until age 70 to collect rather than age 66 would result in a benefit in today’s dollars of $31,680, compared with $24,000 at 66. But holding off from age 66 to age 70 would require more years for you to come out ahead. Assuming an annual real rate of return of 3% to 5%, you would have to live until your mid-to-late 80s to early 90s to be better off waiting for the higher benefit.

Given those ages, does it make sense to hold off for a higher Social Security benefit if doing so might leave you with a smaller nest egg unless you live into your early-to-late 80s? Obviously, that depends a lot on the state of your health and whether you come from a family that has a history of long lifespans. But generally people nearing or entering retirement in decent health have a pretty good shot at living into their mid-80s and beyond.

For example, a 62-year-old man in average health has a 53% chance of living to 85, a 34% chance of making it to age 90 and a 26% shot at making it to age 92, while a 62-year-old woman’s chances are 64%, 46% and 37% respectively. The chances are significantly higher for 62-year-olds in excellent health. You can see your chances of making it to various ages based on your current age, sex and how healthy you are by going to the American Academy of Actuaries’ and Society of Actuaries’ Longevity Illustrator tool.

A few caveats: Postponing Social Security probably isn’t a good idea if poor health is likely to shorten your life expectancy (although it can still make sense if your spouse will be depending on your benefit after you die).

Delaying also may not be a smart move if doing so would cause you to deplete all or virtually all of your retirement savings, leaving you with no savings to fall back on for unanticipated expenses and emergencies. (If that’s the case, however, you may not have adequate savings to retire and thus should consider working longer to bulk up the size of your nest egg.)

I’d also caution against overconfidence when it comes to investing. I get lots of emails from people who tell me they’re better off taking Social Security early and investing it rather than waiting for a larger benefit because they’re confident they can earn a high rate of return. People can disagree about what constitutes a realistic rate of return for someone in retirement. But given today’s low yields and predictions of modest returns in the years ahead, I’d say that a real return of 3% to 4% a year—that is, the return in excess of inflation—is probably reasonable for most retirees. You can shoot for higher gains, but doing so inevitably means taking on more volatility, which raises the possibility that your nest egg could be so decimated by a severe market setback that it might never completely recover.

Clearly, deciding when to take Social Security is no simple decision, especially for married couples, who may be able to boost their benefits by coordinating when they claim. So at the very least it makes sense to familiarize yourself with the options available to you, which you can do by reading the Boston College Center For Retirement Research’s Social Security Claiming Guide. For help in sorting out those options, you may also want to consider checking out a service like Maximize My Social Security or Social Security Solutions, both of which rely on sophisticated software programs to make their recommendations.

Or you may want to consult a financial planner who can also factor the effect of income taxes into the analysis (which, to keep things relatively simple, I didn’t do in the examples above).

But the bottom line is this: If you can manage it, you’re generally better taking Social Security later rather than sooner, as a higher benefit that’s pegged to inflation acts as a form of longevity insurance that can help you maintain your standard of living throughout retirement, regardless of how the financial markets and your retirement investments perform.

How To Explore The World On Social Security Income Alone

My Comments: Let me know how this works for you…

Suzan Haskins and Dan Prescher – 09/06/2016

Sometimes it just pays to retire overseas … not only can you live much more affordably overall, but you can treat yourself to experiences you might not have access to or be able to afford at home …

One of the biggest advantages we’ve discovered in our 15 years of living overseas is the constant availability of travel and adventure … and a big benefit is how remarkably little it costs.

We’ve written before about the low cost of bus travel in Ecuador, where we live. For about $2.50 we can travel by bus from our home in Cotacachi in northern Ecuador to the capital city of Quito, two hours to the south. If we want to hire a private driver, we’ll typically pay $50 to $60 for that. Domestic airfares are low, too. You’ll rarely spend more than $50 to $70 to fly anywhere in the country.

So if, on a whim, we want to take a weekend junket to the city…or to the Amazon basin and one of Ecuador’s many rainforest lodges, or to a Pacific coast beach town … we can do that both easily and affordably.

Case in point … a few weekends ago, we took a Sunday trip — from 7 a.m. to 6 p.m. — to visit a national park in Ecuador’s Carchi province that’s home to one of the most unique ecosystems on the planet.

This tour cost just $25 apiece. (The U.S. dollar is Ecuador’s official currency, in case you’re wondering.) This included our transportation and driver/guide. We spent another $10 for our park entry and our eco-guide.

Along the way, we stopped for a breakfast of grilled cheese toast, eggs, fruit, yogurt and granola, coffee, and fresh-squeezed juice — just $4. Lunch was a choice of fresh-fried trout or grilled chicken with salad, rice and potatoes, more delicious juice, coffee, and homemade ice cream for dessert. The grand total for that feast was just $6 apiece.

Of course, just living outside the U.S. can be a daily adventure for a couple of U.S. Midwesterners like us, and we suspect the same is true for most North Americans we know who have moved abroad. But the opportunity to spend the day or weekend visiting someplace amazingly exotic and seeing something that you’ve never seen before … often right on your doorstep and often for less than the price of a fancy dinner back home … sets the adventure bar pretty high for us.

This most recent adventure took us up into the high-elevation Andes Mountains to explore an ecosystem that only exists between 11°N and 8°S latitudes, mostly in the northwest corner of South America. It’s called the páramo, and it’s a kind of alpine tundra that exists between 9,000 to 15,000 feet above sea level … from down where the trees start to get weird and stunted up to where the permanent snow line starts and almost nothing grows.

In Ecuador’s El Angel Ecological Reserve, the local páramo is an amazing wetland thanks to a convergence of air currents that brings fog and rain almost daily. A two-hour walk through the park takes you through two of the three main zones of a páramo ecosystem—first a walk through a stunted, twisted, shaggy barked forest of polylepis trees, some of the slowest-growing trees in the world—trees that only grow at high elevations. Climbing up, the forest soon gives way to a zone of grasses and stunted frailejones, a plant that looks like a cross between a dwarf palm tree and a cactus.

We thankfully didn’t walk up into the third zone of the paramo up near the snow line…but we could see it high above us.

Aside from the fact that the páramo only exists in very few places on the planet, it is even more special because, here in Ecuador, it forms a kind of huge geological sponge. The plants and soils trap the constant upper-altitude rain and fog and release it slowly into streams and rivers that flow down into Ecuador’s Andean valleys, supplying much of the fresh water for entire regions of the country.

In fact, there are places in the El Angel Ecological Reserve that look like broad, grassy avenues—a kind of Alpine mirage. Beneath the pathways, underground waterways flow through fine sandy mud…you can jump on the ground and feel it quiver and shake as though you’re walking on a sponge.

The opportunities to visit places like this in Ecuador are legion thanks to the little country’s geography and latitude. The Andes Mountains run right down Ecuador’s spine, from north to south. From the beaches at sea level on the Pacific coast, the country rises eastward to some of the highest mountain peaks on the planet before descending again into jungles from which spring major headwaters of the Amazon River basin.

The diversity is incredible, which makes for some really diverse and amazing opportunities to visit places unique on the globe. And luckily for us, it’s more than affordable to explore Ecuador. It’s easy enough to find comfortable hostels — yes, with private bathrooms — for anywhere from $20 to $40 a night, breakfast included. And you can spend more for more luxurious digs with all meals and tours included.

This isn’t just true of Ecuador, of course. Expats living overseas all have a world of such adventures to choose from. In eastern Mexico, the ruins of the entire northern Maya empire are day trips apart…and they sit atop an amazing geographical region of underground rivers and cenotes to explore. In Belize, the second-largest reef system on the planet lies just a few hundred yards offshore. In Costa Rica, a significant portion of the entire country is national parkland with some of the most bio-diverse flora and fauna anywhere.

The list of amazing places that expats have access to is as vast and diverse as the places they settle. It’s part of what makes retiring overseas such a worthwhile experience … it can be easy and affordable to indulge your inner explorer.

Social Security Tips For Working Retirees

SSA-image-3My Comments: Again, more useful insights about the Social Security benefits system. Even if you consider yourself already retired, understanding the ins and outs of the Social Security program might be very helpful to you. Reach out to me if you are still confused.

Fidelity Viewpoints – 04/20/2016

Do you plan to work in retirement? If so, you need to be aware, if you’ve begun taking Social Security benefits, of how your Social Security income may be taxed—and the earned income thresholds that determine the level of your taxes and any reductions in benefits.

Thirty-seven percent of people in a recent AARP survey indicated that they plan to work either full time or part time during retirement. Why? In addition to the financial benefits, many older workers find that a job can add valuable structure to their day and provide the mental stimulation that comes from interacting with co-workers, clients, and other work associates.

Among those who plan to work in retirement out of financial necessity, a survey by the Transamerica Center for Retirement Studies found 43% expected to use the money to cover essential expenses, 37% to pay for health care, and 20% to save more for retirement.

Whatever your reason for considering working in retirement, it’s a good idea to know how doing so will affect your Social Security benefits and your tax bill. Here are the facts plus some strategies to consider.

Temporary benefit reductions for earned income

Note that “earned” income includes wages, net earnings from self-employment, bonuses, vacation pay, and commissions earned—because they are all based upon employment. Earned income does not include investment income, pension payments, government retirement income, military pension payments, or similar types of “unearned” income.

The earliest age at which you are eligible to claim Social Security benefits is 62. If you claim your benefits and continue to work, there is an earnings restriction until you reach your full retirement age (FRA) of 66. If you have earned income in excess of $15,720 in 2016, your benefits will be reduced by $1 for every $2 of earned income over the $15,720 limit.

If you reach your FRA during 2016, the limit for earned income rises to $41,880 and the benefits reduction is $1 for every $3 earned over the limit until the month you reach your FRA. After that, there are no earnings limits and no benefit reductions based upon earned income.

For example, if your monthly benefit was $2,000, here is how much your benefit would be reduced for various levels of earned income at certain ages:

Income tax implications

Social Security benefits are subject to federal income taxes above certain levels of “combined income.” Combined income consists of your adjusted gross income (AGI), nontaxable interest, and one-half of your Social Security benefits. (See: “Income Taxes And Your Social Security Benefits ,” for more information.)

For individual filers with combined incomes of $25,000 to $34,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $34,000, then up to 85% of your Social Security benefits could be taxed.

For joint filers with combined incomes of $32,000 to $44,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $44,000, then up to 85% of your Social Security benefits could be taxed.

Regardless of your income level, no more than 85% of your Social Security benefits will ever be subject to federal taxation.

Additionally, 13 states also tax your Social Security benefits. The rules and exemptions vary widely across this group so it is wise to research the rules for your state or consult with a tax professional if this affects you.

Social Security and Medicare taxes

In addition to federal and possibly state income taxes, you will pay Social Security and Medicare taxes on any wages earned in retirement. There is no age limit on these withholdings, nor any exemption for any sort of Social Security benefits status.

The good news is that these earnings can also count toward the calculation of your benefits: Social Security checks your earnings record each year and will increase your benefit, if appropriate, based on these additional earnings.

What if you are making much less in retirement than before? Could it hurt your benefits? The answer is no, because the benefit payment is still based on your 35 highest years of earnings. At worst, there would be no impact; at best, it could help if this replaces any of the lower 35 years.

The big decision: When to claim Social Security

When to claim Social Security benefits will be one of the most important decisions that you make regarding your retirement, along with how to take retirement income from your various retirement accounts and how you will fund your health care needs in retirement. The following chart shows the difference for someone turning 62 in 2016. Let’s assume his or her annual salary at retirement is $100,000. The first set of numbers on the chart shows the benefit amounts he or she would receive by claiming at various ages.

The bottom row of the chart expresses the differences as a percentage of the benefit amount received by claiming at your FRA for someone born in the years from 1943 to 1954.

A change in the rules in late 2015 closed the door on the popular claiming strategy for couples that allowed one spouse to file and suspend his or her benefit while the other spouse files a restricted application for a spousal benefit based on the first spouse’s earnings record. This option ended as of April 30, 2016.

You should also be aware of a special rule for the first year of retirement. This rule allows you to get a full Social Security check for any whole month you’re retired, regardless of your yearly earnings. This helps people who retire in midyear or later who have already earned more than the annual earnings limit.

Going back to work—meet James

In our hypothetical example, James, age 64, retired at 62 from a plumbing supply company in the Chicago area, and claimed Social Security benefits as soon as he was eligible, at 62. James misses not having some structure in his day. He loves home improvement and helping people, so he found a job at a big box retailer. His wife, Arlene, age 61, is still working part time. Both have FRAs of age 66.

Three Social Security options for James to consider

1. Social Security do-overs are allowed within 12 months of commencing benefit payments. In James’s case, he missed this window for a do-over. You are allowed one lifetime do-over, or withdrawal of benefits, and you must repay all benefits received. This includes, in addition to your own benefits, any benefits received by other family members based upon your earnings record, whether or not they are living with you; any monies withheld for Medicare payments; and any garnishments that may have been withheld from your benefit payments. When you resume benefits at a later date, they will be at the starting amount for your age and earnings record at that new time.

2. Suspending your benefit is allowed once your reach your FRA. James can do this when he turns 66 if he chooses. The advantage is that his benefit will be suspended at the level at the time of suspension, and it can now grow until he resumes taking it at any point up until age 70, when it reaches its maximum level. The advantage for James is the accrual of delayed retirement credits, which will result in a higher benefit level when he resumes his benefit. However, he will pay taxes on earned income. Under the new rules, once James suspends his benefit, no one, including his spouse, can receive a benefit from his earnings record.

3. Filing a restricted application. Since Arlene did not turn 62 prior to December 31, 2015, she would not be eligible to file a restricted application for a spousal benefit based upon James’s earnings record once she reaches her FRA, to allow her own benefit to continue accruing. She would have to choose between filing a spousal benefit or her own benefit when she files. This might be advantageous for the couple, and could provide a reason for James to continue drawing his benefit.

Benefits of working longer

Working into retirement can help in your retirement planning, especially if your savings are running a bit behind your goals. Continuing to work allows you to keep building retirement savings. If you meet the eligibility requirements, you can contribute to a 401(k) or other tax-deferred workplace savings plan, a health savings account (HSA), and an IRA, even if you are collecting Social Security. You can also make catch-up contributions, which enable you to set aside larger amounts of money for retirement. The combination of the added savings, tax-deferred growth potential, the ability to delay claiming Social Security benefits, and the ability to defer tapping into your savings can be powerful, even at the end of your working career.

Don’t Fall for These 7 Social Security Myths

SSA-image-3My Comments: It must be Tuesday because here is something about Social Security. It’s an incredibly valuable and complex system, started over 80 years ago to provide a financial safety net for Americans who reach an age when working is/was not really an option. Today, society has evolved to where it’s a critical piece of the financial pie for almost everyone.

Many myths have surfaced during the years that influence are acceptance of it and how we should avail ourselves of the safety net. Here are seven.

BTW my next series of workshops on Social Security starts on October 11. Go here to see what it’s about and how to register.

By Jane Bennett Clark – Kiplinger, September 2016

Social Security provides critical benefits to more than 50 million people a year; almost 170 million workers contribute a chunk of their paycheck, to the tune of $900 billion annually, to keep those benefits flowing. You’d think with all the people and money involved that we’d all understand exactly how the program works.

Not so. The complexity of the system, its evolution and a shift in demographics that threatens its solvency have created confusion over what Social Security can and will deliver . . . and even whether it will continue to exist. Here are seven of the most common myths and misconceptions, along with explanations that set the record straight.

Social Security Will Go Broke Within the Next 20 Years

Social Security is essentially a pay-as-you-go system. Most everyone contributes 6.2% of each paycheck, and employers kick in an equal amount (self-employed folks pay the full 12.4%). As long as payroll taxes exist, Social Security will never go broke.

Until 2010, payroll taxes brought in more than enough to cover benefits for retirees and other recipients. The surplus went into a trust fund, which is invested in special Treasury securities. The fund also reaps interest on the securities plus taxes on the benefits of some beneficiaries.

Problem: In recent years, more money has gone out in benefits than has come in from payroll taxes. The government has been using the interest on the securities to cover the shortfall but will have to start redeeming the securities themselves by 2020. Failing a fix by Congress to raise taxes or cut benefits, or both, the trust fund will run out of money in 2034.

That doesn’t mean benefits will disappear altogether. Payroll taxes will still be enough to cover 79% of promised benefits. Will a 21% reduction in benefits really happen? Probably not. Much as Congress dislikes confronting hard choices, it is not likely to risk the reaction of millions of Social Security beneficiaries (read voters) to the idea of such a cut. Expect a solution to be pounded out long before 2034.

You Don’t Have to Pay Taxes on Social Security Benefits

For millions of beneficiaries, that’s wishful thinking. If your combined income—that is, adjusted gross income not including any Social Security benefits plus any nontaxable interest plus half your benefits—is between $25,000 and $34,000 for singles and $32,000 to $44,000 for couples filing jointly, you’ll owe taxes on up to 50% of your Social Security benefits. If your combined income exceeds the $34,000 limit for singles or the $44,000 limit for couples, you’ll owe tax on up to 85% of your benefits. Just over half of all beneficiaries paid federal tax on Social Security benefits in 2015.

You may also have to pay state taxes on part of your benefits. Four states—Minnesota, North Dakota, Vermont and West Virginia—tax up to 85% of Social Security benefits. Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island and Utah also tax a portion of Social Security benefits but provide exemptions based on income or age.

Due to Social Security’s Shortfall, You Won’t Get Back the Dollars You Contributed to the System

Reality check: You don’t get back exactly what you put into the system anyway. Benefits are based on your 35 highest-earning years. But Social Security uses a progressive formula that replaces a higher portion of income for lower earners than for high earners—not a dollar-for-dollar match of what each worker pays in. Whether you’ll recoup more or less than the amount of tax you paid into the system depends on your earnings and how much tax you paid during your career, your age when you claim benefits, whether you’re married, and how long you (and your spouse) live to collect benefits.

Even if Social Security did pay a dollar-for-dollar match, the dollars you contributed are not stowed in your personal lock box, awaiting you at retirement. In fact, the money you paid went to fund someone else’s retirement; your benefits come from the payroll taxes of current workers.

Raising the Bar on Earnings Subject to Payroll Taxes Would Fix the System’s Shortfall

Under the current system, workers pay 6.2% of their wages, up to $118,500 in 2016, to fund Social Security benefits; employers kick in another 6.2%. If you’re self-employed, you pay the whole 12.4%, up to $118,500. (You and your employer also pay 1.45% each to fund Medicare Part A, which covers hospital stays. That tax has no income cap.) Some policymakers maintain that raising or eliminating the cap on payroll taxes would generate enough money to get the system back on track.

Not so, according to the Committee for a Responsible Federal Budget, a bipartisan policy group. Although removing the cap would significantly improve Social Security’s finances, it wouldn’t cover the shortfall altogether, partly because benefits are keyed to income. The higher the income subject to payroll tax, the higher the benefits paid out later to high earners (although not as much as the extra amount they put in), reducing the potential savings to the system.

If You Don’t Claim Benefits Early, You Risk Not Getting Your Fair Share

If you claim benefits as soon as you’re eligible, at 62, you get a 25% to 30% reduction in your benefit compared with what you’d get at full retirement age (66 for people born between 1943 and 1954; 67 for those born in 1960 and later). For every year you wait to take it after full retirement age, until you reach age 70, you get an 8% boost in benefits. Social Security actuaries calculate benefits with the goal of equalizing the total amount you get over your life expectancy whether you take benefits early, at full retirement age or at age 70. If you die before you reach your life expectancy, you won’t get your “fair” share regardless of when you claim Social Security. If you live longer than your life expectancy, you’ll get more than your allotted amount.

Fair or not, if you have reason to believe you won’t reach your life expectancy, you might as well take the benefit early and enjoy the money. If you think you’ll live well beyond your expected lifetime, you may be better off waiting until 70 because the bigger benefits over time will add up to much more than if you collected earlier, for a lower amount.

If You Take Social Security and Keep Working, You Must Give Back Most of Your Benefits

It’s true that Social Security beneficiaries younger than full retirement (currently 66) who keep working and earn more than the cap—$15,720 in 2016—lose $1 in benefits for every $2 they earn over that cap. But this rule, known as the earnings test, eases in the year you reach full retirement age. In that year, you give up $1 for every $3 you earn over a much larger cap—$41,880 in 2016—before the month you reach your full retirement age. Starting in the month of your birthday, there’s no limit on how much you can earn. Better yet, Social Security will adjust your benefits going forward with the goal of insuring that, over your life expectancy, you’ll be repaid every dime you lost to the earnings test.

Once You Start Taking Social Security, You Can’t Change Your Mind

Actually, you can, in a couple of circumstances.

Here’s the first scenario. Say you file for benefits at 62, when you first become eligible. Because you’re claiming before full retirement age (now 66), you get a 25% lifetime reduction in benefits. Then you get a windfall and no longer need the money. If you withdraw your application within the first 12 months of filing, you can pay back the benefits you’ve received, interest-free, and erase the 25% reduction. When you finally do claim benefits, you get whatever you’re due at the age you apply.

The second scenario: After claiming benefits early, you can ask Social Security to suspend your benefits once you reach full retirement age, up to age 70. You don’t have to pay back the benefits, but neither do you erase the fact you claimed early. Your future benefits will still start from a lower base, but that base can be pumped up by the 8%-a-year delayed-retirement credits you earn after age 66. So, while claiming at 62 cuts your benefits to 75% of the age 66 level, adding four years’ worth of delayed-retirement credits (32%) puts your age 70 benefit at 99% of your full retirement age check.

To learn more about either strategy, contact your local Social Security office and ask how to withdraw your application or suspend your benefit. Be aware that if you’re already enrolled in Medicare Part B, you’ll be billed for premiums that otherwise would have been subtracted from your Social Security paycheck.

7 Tips To Maximize Social Security Benefits From A Former SSA Director

SSA-image-3My Comments: For millions of us, Social Security is our lifeblood. Without the monthly stipend, life as we know it would not happen. Getting your fair share can be a confusing and complicated process.

There is little chance to get it right if you first get it wrong. This demands you pay attention BEFORE you sign up for that monthly check. These 7 points are the best short summary I’ve seen to help you get it right the first time.

by Bernice Napach on September 16, 2016

As many financial advisors know, the devil is in the details when it comes to Social Security. There are many rules to follow — and changes to those rules — in order to maximize benefits. With that in mind, here are some fundamental points that advisors should know, courtesy of a webinar with former Social Security Administration Director Kurt Czarnowski, presented by the Retirement Experts Network.

1. Check the wage history on the Social Security statement

Social Security payments are based on a person’s work history, specifically on the average wage over the 35 highest earning years, adjusted for inflation. A person needs to work 10 years in order to accumulate the necessary 40 Social Security credits for that person or his or her spouse to collect Social Security benefits.

Information about one’s wage history can be found on their Social Security statement, which until two years ago was mailed to most adults annually. Not anymore. Mailings are done only once every five years for those under 60, so clients should set up an account at where they can view their statement at any time.

Wage errors can be corrected anytime so long as proper proof is provided, but correcting self-employment income errors is another story. There’s a statute of limitations. Errors need to be corrected no later than three years, three months and 15 days after end of the year in which the self-employment income was earned.

2. Know the full retirement age

Despite conventional references to 65 as the age of retirement, most people who are not yet collecting Social Security today won’t be able to collect full retirement benefits until age 66 or later.

As a result of amendments passed in 1983, the full retirement age (FRA) for those born between 1943 and 1954 is 66; for those born in 1960 or later, it’s 67. The FRA is 66 plus two months for every year from 1955 to 1959.

Clients can, of course, collect Social Security as early as age 62, receiving 75 percent of their full retirement benefit, or as late as age 70, collecting 32 percent more than their full retirement benefit, or at some age in between.

“If you live until the average life expectancy you’re better off waiting to collect Social Security,” said Czarnowski. In the U.S., the average life expectancy is 84.3 years for a 65-year-old man and 86.6 years for a 65-year-old woman. In addition, said Czarnowski, one in three 65-year-olds today will live to be 90 and one in seven will live to be 95. “Good things come for those who wait.”

He suggested using the Retirement Estimator to calculate expected Social Security payments, keeping in mind that the program was only intended to replace about 41 percent of one’s pre-retirement income.

The average Social Security benefit paid this year is $1,341 per month and the maximum paid is $2,639, said Czarnowski.

3. The benefits and costs of working in retirement

Almost 20 percent of Americans 65 and older are working, according to the latest data from the U.S. Bureau of Labor Statistics, and a recent survey found 70 percent of non-retired Americans plan to work as long as possible during retirement.

But doing so can affect Social Security payments for those who are not yet at their full retirement age. If they earn more than $15,720 this year, every $2 above that threshold will reduce benefits by $1. There is no reduction in benefits for those who have already reached their full retirement age.

Earnings, however, are subject to regular FICA taxes, which finance Social Security and income taxes. But if those annual earnings are higher than the lowest earning years included in the 35-year wage history for Social Security purposes, they will be used instead in that calculation. That could potentially increase benefits.

Another benefit of working longer: it could help delay collecting Social Security until age 70, when benefits are 32 percent higher than they are at full retirement age.

“Good things come to those who work,” said Czarnowski.

4. Taxing Social Security benefits

Social Security benefits are subject to income taxes for individuals whose modified adjusted gross income (MAGI) tops $25,000 and for couples with MAGI above $32,000. More specifically, up to 85 percent of benefits can be taxed as ordinary income.

About half of those collecting Social Security pay income taxes on their benefits, said Czarnowski.

5. Spousal Benefits

A nonworking or even working spouse can collect spousal Social Security benefits so long as that person is 62 years old and his or her spouse, who’s likely the higher earner, has applied for Social Security.

If he or she has reached full retirement age, the benefit will be 50 percent of the higher earner’s benefits. At 62 years, he or she would collect about 35 percent of those benefits. In either case, the person collecting spousal benefits cannot also collect benefits of his or her own.

Spouses no longer have the ability to collect benefits from the husband or wife who has filed and then suspended his or her own benefits due to a change in the law last year, but there is still a grandfather provision to consider. Anyone born before Jan. 1, 1954 and at full retirement age can file what’s known as a restricted application to collect their spousal benefit while waiting until 70 to collect a more remunerative benefit of their own, but their spouse must also be collecting his or her own benefits.

6. Survivor benefits

Survivor benefits, unlike spousal benefits, are 100 percent of what a spouse was collecting when he or she died. The surviving spouse can collect those benefits or collect his or her own benefits, whichever is greatest. They can potentially maximize benefits by first collecting their survivor benefits and then deferring their own until age 70.

7. Divorced spousal benefits

Even divorced spouses can collect spousal benefits so long as the marriage lasted at least 10 years, the divorce was finalized at least two years earlier and the collecting spouse is 62 or older and has not remarried. The benefit is 50 percent for a divorced spouse and 100 percent for a divorced widowed spouse.

5 Tips to Increase Your Social Security Check

SSA-image-3My Comments: It may be too late to make changes, but if signing up for Social Security benefits is still on your horizon, some of this WILL help you. (Are you listening Eric?)


By Richard Best | August 16, 2016

When Social Security was introduced in 1935, it was never intended to be a primary income source that could support people in retirement. Rather, its sole purpose was to provide a safety net for people who were unable to accumulate sufficient retirement savings. For the next seven decades, the majority of Americans never gave much thought to their Social Security because of shorter life spans and a reliance on guaranteed pensions. Today, an increasing number of people are starting to pay attention to their benefits, and Social Security planning is becoming a vital element in securing lifetime income sufficiency. Although there are many planning options for receiving Social Security benefits, they can be complex and only apply to certain circumstances. At a minimum, these are some planning tips that everyone should follow in order to increase the size of their Social Security checks.

Work the Full 35 Years

The Social Security Administration (SSA) calculates your final benefit amount based on your lifetime earnings covering your highest 35 years of work history. The SSA totals your earnings of your highest 35 years and averages them by using an average indexed monthly earnings (AIME) formula. If you entered the workforce late, or had periods of unemployment, those years will count as zeroes, which will be included in the formula, bringing down the average. Once you have worked 35 years, each additional year of earnings, will replace an earlier year of lower earnings, which will increase the average.

Max Out Earnings Through Full Retirement Age

The SSA calculates your benefit amount based on your earnings, so that the more you earn, the higher your benefit amount will be. Earnings above the annual cap ($118,500 in 2016 and indexed to inflation each year), are left out of the calculation. Your goal should be to maximize your peak earning years, striving to earn at or above the cap. Some pre-retirees look for ways to increase their income, such as taking on part-time work or generating business income. Unaware of the impact on benefits, some pre-retirees scale back on their work or semi-retire, which can lower their Social Security income.

Delay Benefits

Most people know their full retirement age (FRA) – the Social Security age at which they can receive their full Social Security benefits. For most people retiring today, the FRA age is 66. But very few people know that if they delay their Social Security benefits until after they reach FRA, they can effectively earn an 8% annual return on their available benefits. The benefit amount increases by 8% each year that it is delayed until age 70. That is based on the delayed retirement credits (DRCs) earned for each year that you delay your Social Security benefits.

For example, if you are eligible for a primary insurance amount (PIA) of $2,000, or $24,000, at age 66, then by waiting until age 70, your annual benefit would increase to $31,680. In cumulative terms, you would increase your total benefits from $378,000 received by your life expectancy at age 82 to $411,000.

This example doesn’t account for cost of living adjustments (COLAs). Assuming a 2.5% COLA, your delayed benefit would grow to $38,599 and your total benefit amount would increase to $584,000 by age 82.

Claim Spousal Benefits Early

If you and your spouse are 62 years of age or over, one of you can claim spousal benefits while the other delays benefits until age 70. The spouse receiving spousal benefits can then switch to full benefits after attaining FRA. To be eligible, you must have been married for at least 10 years to your spouse or ex-spouse (whoever is to receive the benefit). This option works best where one spouse earned more money than the other, because the spousal benefit amount is based on half of the full benefit amount of the higher-earning spouse.

Avoid Social Security Tax

If you are planning on supplementing your retirement income by working after you start receiving Social Security benefits, then you need to be aware of the tax consequences. Anywhere from 50 to 85% of benefit payment can be subject to federal taxes. To determine how much of your benefits will be taxed, the Internal Revenue Service (IRS) will add your nontaxable interest and half of your Social Security income to your adjusted gross income (AGI). If that total amounts to $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers, up to 50% of your Social Security income is subject to tax. When that amount exceeds $34,000 for a single filer or $44,000 for joint filers, up to 85% of your benefits is subject to taxes. You can possibly avoid paying taxes on your Social Security income by considering ways to spread out your income from various sources so as to prevent any increases that could trigger a higher tax.

Social Security: 10 smart ways to get more benefits

My Comments: For most 21st Century Americans who live long enough to retire, a monthly check from the Social Security Administration is at the core of their future financial freedom. This is a state of mind that says we “have enough money coming in to pay our basic bills for shelter, for food, for transportation, and other basic needs”.

And since we live in a society where more money is better than less money, you owe it to yourself to understand how that monthly check is calculated.

Selena Maranjian, The Motley Fool – July 2, 2016

If you want to improve your retirement, look into how you can get more benefits from Social Security — because it’s a significant retirement income generator for most of us. According to the Social Security Administration (SSA), the majority of elderly beneficiaries get 50% or more of their income from Social Security, while 22% of married elderly beneficiaries and 47% of unmarried ones get fully 90% or more of their income from it.

Here are 10 smart ways to get more benefits from Social Security.

  1. Work for at least 35 years. The formula the SSA uses to compute your benefits is based on your earnings in the 35 years in which you earned the most. If you only earned income in 28 years, the formula will incorporate seven zeros, which will shrink your benefits to some degree. Are you planning to retire after 33 years of work? It might be worth it to work two more years if you want to get more benefits.
  2. Earn more. Since the formula focuses on your 35 highest-earning years, another way to increase your benefits is to beef up your earnings. You may have 35 years of earnings already, but if you’re earning $85,000 now and some of your early years feature incomes of, say, $15,000, you can increase your ultimate benefits by working a little longer so more of your high-income years can be included in the calculations, replacing some low-income years.
  3. Check your record. You can look up the SSA’s record of your income and taxes paid into the Social Security system any time, and see estimates of your future benefits, at the SSA website. It’s worth an occasional visit in order to make sure  your earnings and taxes paid are correct. If they’re not, you might end up receiving smaller benefit checks than you’ve actually earned.
  4. Delay collecting. A simple way to make your Social Security benefits bigger — potentially a lot bigger — is to delay starting to collect them. You can start as early as age 62 and delay up to age 70. Each of us has a “full” retirement age (typically 66 or 67 these days) and for every year beyond that  you delay, your benefits will grow by about 8%. Delay from age 67 to 70, and you’ll get benefits that are 24% bigger.
  5. Start collecting at 62. If you live an average life span, though, you won’t come out ahead much by delaying, because you’ll get fewer checks, in total, than those who started earlier with smaller checks. If you live much longer than average, though, waiting will have been worth it. But if you have reason to believe you will live a shorter-than-average life, or you simply need the money, go ahead and start collecting early.
  6. Collect a spousal benefit. If your spouse has a richer work history than you do, you may be able to collect a “spousal benefit,” based on your spouse’s earnings and not your own. Spouses can collect benefits worth up to 50% of their other half’s benefits. This can be particularly welcome for spouses who never worked or earned very little.
  7. Don’t earn too much if you’re working in retirement. If you’re planning to start collecting benefits before your full retirement age and you want to work some then, too, be careful — because after a certain point, your benefits may be reduced. The SSA explains: “If you’re younger than full retirement age during all of 2016, we must deduct $1 from your benefits for each $2 you earn above $15,720.” The year you reach your full retirement age, the earning limit jumps to $41,880, and the penalty decreases to $1 withheld for every $3 earned above the limit.
  8. Delay your divorce. If you’re divorcing after, say, nine years of marriage, consider staying married until 10 years have passed — if you can. Divorcees may be able to claim benefits based on their ex-spouse’s earnings — even if that ex has remarried — if they were married for at least 10 years. There are a few more rules related to this, so look into them if this might apply to you.
  9. Look into survivor and disability benefits, too. Social Security isn’t just about retirement. There are survivor and disability benefits available, too, as well as retirement benefits for dependents of retirees, in some cases. If your spouse passes away, you may be able to claim survivor benefits — and your children may receive them, too, through age 17. Social Security also offers disability benefits to people of all ages who qualify.
  10. Strategize. There are many more strategies related to Social Security benefits than you may realize. For example, if you’re part of a couple, or if you’ve lost your spouse, look into how much you can collect, and when, on your own record or on your spouse’s, ex-spouse’s, or late spouse’s record. You may be able to collect one early, then switch to another. Don’t be afraid to tap the services of a professional financial advisor, either, as a good one might be able to steer you toward a benefit-maximizing strategy. Favor fee-only financial advisors, whom you can find via referrals from friends or at the website of the National Association of Personal Financial Advisors.

When it comes to Social Security, the more you learn, the more you might collect.