Tag Archives: social security benefits

When to Take Social Security: The Complete Guide

My Comments: Social Security is a complicated issue for almost everyone in the retirement planning process. There are so many variables it’s hard to get your arms around what is in your best interest. Many people just say to hell with it and sign up at age 62.

And that can be a huge mistake. You’ll probably end up with less money over your lifetime, not because you’ll get less in total from the Social Security Administration, but because it may cause you to pay more in taxes. And if you have a surviving spouse, it could hurt them too.

What you pay in taxes cannot be used to pay your bills. And retirement is all about being able to pay your bills and enjoy your life.

By Amy Fontinelle | March 12, 2018

If you’re about to retire, you might be wondering if you should start claiming your hard-earned Social Security benefits. If you need the income and you’re at least 62 – the minimum age to claim – the answer is obvious. But if you have enough other income to keep you going until you’re older, how do you decide?

Benefit Amount
The size of your monthly benefit payment depends on the year you were born and your age when you start claiming, down to the month. You receive your full monthly benefit if you start claiming when you reach full retirement age. To find your full retirement age, see the chart below.

Let’s say your full retirement age is 66. If you start claiming benefits at 66 and your full monthly benefit is $2,000, you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, your benefit will be reduced to 75% of your full monthly benefit (also called your primary insurance amount). In other words, you’ll get 25% less per month and your check will be $1,500. You’ll receive that reduced benefit not just until you turn 66, but for the rest of your life (though it will go up slightly over time with cost-of-living adjustments). The easiest way to do the math for your own situation is to use the Social Security Administration’s (SSA) Early or Late Retirement calculator (scroll down the linked page to find it).

If you wait until you’re 70 to start claiming benefits, you’ll get an extra 8% per year, and in total, you’ll get 132% of your primary insurance amount, or $2,640 per month, for the rest of your life. Claiming after you turn 70 doesn’t increase your benefits any further, so there’s no reason to wait longer.

The SSA’s many retirement calculators can also help you determine your full retirement age, the SSA’s estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, actual projections of your retirement benefits based on your work record and more.

The longer you can afford to wait, the larger your check will be. But you’ll also have no money coming in from Social Security during the months when you postpone claiming. Waiting as long as possible to start claiming benefits doesn’t necessarily mean you’ll come out ahead overall, though, for several reasons: expected longevity, spousal benefits, taxes, investment opportunity and health insurance.

Expected Longevity
So much of our strategizing about how to maximize Social Security retirement benefits depends on guesses about how long we’ll live. Any of us could die in a car accident or get a terminal cancer diagnosis next week. But putting aside these unpredictable possibilities, how long do you think you’ll live? What is your health like now, and what has your relatives’ longevity looked like? Have you had a physical and blood work lately? How are your blood pressure, cholesterol, weight and other markers of health? If you predict an above-average life expectancy for yourself, you may come out ahead by waiting to claim benefits. If not, you might want to claim as soon as you’re eligible.

To make an educated guess about how to come out ahead, you’ll need to do a break-even analysis. What do we mean by breaking even? It’s the point where your lifetime benefits are the same given different initial claim ages. The question is this: Will you be better off – that is, will you get a higher total lifetime payout – getting more checks for a smaller amount (by claiming at 62, for example), or fewer checks for a larger amount (by claiming as late as age 70)?

The Social Security website will tell you that regardless of when you start claiming, your lifetime benefits will be similar if you live as long as the average retiree. The problem is that most people will not have an average life expectancy, hence all the different claiming strategies.

Spousal Benefits
Being married further complicates the decision of when to take Social Security because of the program’s spousal benefits. Certain divorcees are also entitled to benefits.

Spouses who didn’t work or who didn’t earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouse’s work record. As with claiming benefits on your own record, your spousal benefit will be reduced if you claim benefits before reaching full retirement age (though not at the same rate as claiming your own benefits early). The highest spousal benefit you can receive is half the benefit your spouse is entitled to at their full retirement age.

While spouses will get a lower benefit if they claim before reaching their own full retirement age, they will not get a larger spousal benefit by waiting to claim after full retirement age – say, at age 70. But a nonworking or lower-earning spouse can get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost benefits.

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouse’s benefit, but not both. That’s why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasn’t reached full retirement age, he or she will be entitled to prorated amounts starting at age 60. At full retirement age, the surviving spouse is entitled to 100% of the deceased spouse’s benefit or to their own benefit, whichever is higher.

A claiming strategy called file and suspend used to allow married couples of full retirement age to receive spousal benefits and delayed retirement credits at the same time. This strategy, which ended as of May 1, 2016, helped some couples receive tens of thousands more from Social Security.

Here’s the next-best thing for older, dual-income couples: Individuals who turned 62 by January 1, 2016, can use a strategy called restricted application. Spouse A claims benefits first; spouse B claims spousal benefits. Once spouse B turns 70, spouse B claims their own benefit instead. Spouse A then claims spousal benefits, which are now higher than their own benefit because of how much spouse B’s benefit has grown by waiting to claim until age 70.

Social Security benefits become taxable at rather low income thresholds. No matter how much you make, the first 15% of your benefit payments are not taxable. But income from interest, dividends and taxable retirement accounts such as 401(k)s and traditional IRAs can quickly push you over the tax threshold.
The Social Security Administration calculates your “combined income” as follows:

Your adjusted gross income
+ Nontaxable interest (for example, municipal bond interest)
+ ½ of your Social Security benefits
= Your “combined income”

If you file your federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.

If you’re married filing a joint return and you and your spouse’s combined income is $32,000 to $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you may have to pay income tax on up to 85% of your benefits.

Because the math isn’t at all straightforward, the best way to calculate your tax liability is to use a calculator like the Motley Fool’s Social Security tax calculator. It gives you a detailed breakdown of how the result is calculated after you enter your numbers.

Let’s say you receive the maximum Social Security benefit for a worker retiring at full retirement age in 2018: $2,788 per month. Your spouse receives half as much, or $1,394 per month. Together, you receive $4,182 per month, or $50,184 per year. Half of that, or $25,092, counts toward your “combined income” for the purpose of determining whether you pay tax on part of your Social Security benefits. Let’s further assume that you don’t have any nontaxable interest, wages or other income except for your traditional IRA’s required minimum distribution (RMD) of $10,000 for the year.

Your combined income would be $60,184 (your Social Security income plus your IRA income), which would make up to 85% of your Social Security benefits taxable because $60,184 is more than $44,000. Now, you’re probably thinking, 85% of $50,184, is $42,656, and I’m in the 22% tax bracket, so my tax on my Social Security benefit will be $9,384. Fortunately, that’s completely wrong. By using an online calculator, you’ll see that your tax will really be a mere $340. You can read all about the taxation of your Social Security benefits in IRS publication 915. A Roth conversion could help you lower your tax bill.

How do all of these tax calculations affect when you should apply for Social Security benefits? You’ll lose less of your Social Security benefits to taxes if you can wait until your income is lower to claim.

Investment Opportunity
Are you a disciplined, savvy investor who thinks you can earn more by claiming early and investing your benefit than by claiming later and receiving Social Security’s guaranteed higher benefit? Then you may want to claim early instead of waiting until age 70.

Most investors, however, are neither disciplined nor savvy. People take early benefit payments intending to invest the money, then use it to tour Europe instead. And even savvy investors cannot predict how their investments will perform over the first decade or two of their retirement.

If you claim early, invest in the stock market and average an 8% annual return – which is far from guaranteed – you will almost certainly come out ahead compared with claiming late, according to an analysis by Dan Caplinger, director of investment planning for Motley Fool. But if your returns are lower, if you receive reduced Social Security benefits because you continue working past age 62, if you have to pay taxes on your Social Security income or if you have a spouse who would benefit from claiming Social Security benefits based on your record, then all bets are off. Most people, in other words, will not benefit from this strategy – but it is a strategy to be aware of in case you’re one of the few who might.

Effect on Health Insurance
Here’s another factor to consider: Do you have a health savings account (HSA) that you want to keep contributing to? If so and if you’re 65 or older, receiving Social Security benefits requires you to sign up for Medicare Part A. The problem with signing up for Medicare Part A is that you’ll no longer be allowed to add funds to your HSA.

The Social Security Administration cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D. If you are still receiving health insurance from your employer, you might not have to enroll in Medicare yet.

The Bottom Line
You don’t have to take Social Security just because you’re retired. If you can live without the income until age 70, you will ensure the maximum payment for yourself and lock in the maximum spousal payment. Just be sure you have enough other income to keep you going and that your health is good enough that you are likely to benefit from the wait. When you’re ready, you can apply for benefits online, by phone or at your local Social Security office.

Source article: Read it HERE!


Listen to the IMF’s new warning, economist says, and cut your exposure to US stocks

My Comments: The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of “189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

They recognize that market crashes happen from time to time, and that influences the amount of money they have in reserve to deploy around the world.

I see a parallel between their need to preserve their ability to deploy money under their mandate, with your ability to pay your bills in retirement. I encourage you to pay attention and position your money with this in mind.

by Holly Ellyatt @ CNBC

U.S. markets are “going it alone” and investors are underestimating the amount of risk in the economy, the chief investment officer at Danish investment bank Saxo Bank, told CNBC on Wednesday.

“What we’re saying (to investors) at a bare minimum, is do acknowledge the fact that the U.S. is expensive by reducing (exposure to) the U.S.,” Steen Jakobsen told CNBC Europe’s ‘Squawk Box.’

“And if you don’t want to reduce overall equity exposure go to the MSCI World (a global equity index that represents just over 1,600 large and mid-cap companies across 23 developed markets countries) or take a little bit of risk in emerging markets.”

“For now, we’re pretty much saying to customers, be aware that the market is underestimating risk,” he added.

Jakobsen’s comments were made of the same day the International Monetary Fund (IMF) warned that “a further escalation of trade tensions, as well as rising geopolitical risks and policy uncertainty in major economies, could lead to a sudden deterioration in risk sentiment.”

If that happened, the fund said in its latest ‘Global Financial Stability Report,’ it could trigger “a broad-based correction in global capital markets and a sharp tightening of global financial conditions.”

U.S. markets are fretting but concerns are centered on rising U.S. interest rates, particularly this week after a strong set of economic data last week that could prompt the U.S. Federal Reserve to hike rates further and faster.

Volatility is ‘artificially low’

Jakobsen, who’s known for his bearish view on the U.S. economy, said it was “very prudent and right of the IMF to do this warning.” “It’s very rare that I (hold) sway with any policy institute globally but I absolutely think they’re (the IMF) right,” he said.

“We have three drivers of tighter monetary conditions, one being the price of energy, of course with this bi-product of inflation risk, but we also see the price of money…and the quantity of money, globally, is collapsing. So, in other words, the credit keg is lower so it’s absolutely prudent of the IMF to do this.”

Jakobsen believed that U.S. markets were buoyant because of tax changes introduced by President Donald Trump which lowered corporate taxes and incentivized companies to repatriate overseas profits, with a one-time repatriation tax. The changes were also criticized for increasing the U.S. budget deficit, however.

Saxo Bank’s economist said the tax reforms had enabled U.S. companies to initiate share buyback programs, in which a company purchases its own stock from the marketplace, reducing the number of available shares and thus increasing its share price. Goldman Sachs said in August that U.S. companies are expected to buy back $1 trillion worth of shares in 2018.

Jakobsen said this scenario meant the U.S. market was diverging from the rest of the world, “going it alone.”

“I think they’re (the IMF) pointing to, especially in the Stability Report that just came out, the fact that the U.S. market is on its own, and the reasons it’s on its own is because the tax plan in the U.S. has meant a massive amount of repatriation into the U.S. economy,” Jakobsen said.

“The buyback program in the U.S. this year is $1 trillion and that is basically $1 trillion used to reduce the amount of floating stocks in the world. Why is that relevant? Because it makes the volatility artificially low in the U.S. stock market. It’s (the U.S. market) is almost going it alone,” he said, adding;
“So what the IMF is really doing is just pointing out that, if you exclude the U.S., the world is already moving to the brink. Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having this projectory of higher rates,” he said.

He believed the Fed was ignoring the inflows as a result of tax reforms and could be hiking rates too quickly. “For my part, I think the Fed is doing a mistake by ignoring this massive inflow on the back of the tax plan in the U.S. and doing so, they do a policy mistake.”

Source: https://www.cnbc.com/2018/10/10/listen-to-the-imfs-new-warning-economist-says-and-cut-your-exposure-to-us-stocks.html

4 Signs You’re Thinking About Social Security Benefits the Wrong Way

My Comments: For millions of us, Social Security has become a critical source of income if we expect to continue our current standard of living into the future. For those of you not yet claiming benefits, these four items are critical to your future retirement success.

Christy Bieber \ Oct 7, 2018

Social Security benefits are a major source of income for retirees, but far too many seniors have no clear idea how these benefits work. Even worse, many seniors have major misconceptions about Social Security benefits that could affect their plans for retirement in adverse ways.

To make sure you’re not one of the millions confused about how Social Security will provide for you as a senior, consider these four signs you’re thinking about Social Security benefits the wrong way.

1. You’re expecting Social Security to provide all the retirement income you need
Social Security benefits are designed to replace about 40% of your pre-retirement income, while most financial advisors suggest you’ll need at least 70% of the money you were earning prior to retiring.

If you aren’t saving money to supplement Social Security, you’re putting yourself into a position where your Social Security benefits may be your only source of funds as a senior. This is a recipe for financial disaster, as living on Social Security alone will leave you close to the poverty level.

Don’t count on Social Security to provide you with all you need. Instead, invest in a 401(k) or an IRA so you’ll have supplementary savings. Ideally, try to invest at least 15% of your income. If you can’t start there, at least set up small automated contributions to make sure you’re saving something. You can increase contributions over time as you get used to living on slightly less or when your income increases.

2. You’re counting on taking Social Security at age 65 or later
As many as 70% of workers think they’ll take Social Security benefits at age 65 or later according to Employee Benefit Research Institute. Almost 20% plan to wait until age 70, which is the last age at which you can earn delayed retirement credits to increase monthly Social Security income.

The reality, however, is that 62 is the most common age to claim Social Security, while age 63 is the median age at which retirees claim benefits. If you anticipate waiting to claim so you can increase your monthly income from Social Security, you could find yourself short of cash if illness or unemployment forces you to leave the workforce early.

To make certain you don’t end up with a shortfall, assume you’ll receive the monthly benefit amount you’d get at 62, and plan accordingly when deciding how much additional income you need from savings. If you’re lucky enough to be able to work longer and put off claiming benefits, you’ll simply have extra income — which is far better than having too little.

3. You aren’t considering your spouse when you make your plan for Social Security benefits
If you’re planning on simply claiming Social Security benefits under your own work record, you could potentially be missing out on a higher payment if you’re eligible for widow or spousal benefits. If your spouse earned more, you should carefully consider whether claiming under his or her work record could provide you with more funds than claiming on your own work history.

You can claim spousal benefits even after divorce as long as you were married for at least 10 years, so don’t assume claiming under your own work record is your only option, even if you’re currently single.

If you’re the higher earner, you also need to think about your spouse when making a decision on claiming benefits. When one spouse dies, the surviving spouse could opt to earn either widow’s benefits or their own benefits– whichever is higher. If you’ve claimed your benefits early instead of waiting to earn delayed retirement credits, you’ve reduce the widow’s benefits your surviving spouse would otherwise have received. This could leave your spouse with insufficient funds once you’re gone.

4. You think taking Social Security at 62 won’t impact your benefits over the long-term
Many people who retire at 62 have a major misconception about what claiming benefits before full retirement age does. In fact, 39% of pre-retirees think if they claim reduced benefits early their benefits will increase to a standard benefit at full retirement age.

This isn’t the case, and the reduction in benefits that occurs when you claim before full retirement age affects your annual Social Security income throughout your retirement. Your future cost of living adjustments are based on your lower starting benefit amount, and your monthly income will never be as high as it would’ve been had you waited.

Make sure you aren’t thinking about Social Security the wrong way

Since Social Security benefits are such an important source of retirement income, it’s worth doing your research to ensure you don’t make big mistakes when it comes to your benefits. Check out this guide to Social Security benefits, and ensure you know the answers to five key questions about Social Security before you claim your Social Security benefits as a senior.

Source: https://www.fool.com/retirement/2018/10/07/4-signs-youre-thinking-about-social-security-benef.aspx

How Social Security’s Troubles Could All Just Go Away

My Tuesday Comments on Social Security: Some of us remember what happened in 1983 when Congress was sane and was facing a financial crisis. Within the span of six years, which happened to be the same six year election cycle of the Senate, the system was expected to crash. So bending to common sense, Congress made some changes that resulted in the system we more or less have today.

That was 35 years ago and there is writing on the wall that more changes will need to be made. The changes need not be dramatic and are relatively simple. But it will require leadership committed to the welfare and well being of the people they allegedly profess to lead. Right now I’m unsure about that.

The takeaway here is that my children will arrive at a point in time when Social Security will become a critical part of their ability to pay their bills and live what to them is a normal life. They are going to have to learn that if that is to happen, they have to vote for candidates who will work on their behalf.

by Dan Caplinger, August 19, 2018

The release earlier this year of the Social Security Trustees Report brought about the usual set of headlines explaining the financial crisis that the retirement and disability benefits program faces. The latest projections confirmed expectations that if nothing changes, the Social Security Trust Funds will be out of money by 2034. That could force an immediate and dramatic benefit cut for tens of millions of Social Security recipients at a time in their lives when they’re least able to weather an income cut.

Yet when you look at the report, you’ll find several instances within its 270 pages in which the trustees say that things might well turn out OK. Actuarial projections in these cases work out positively throughout the next 75 years, and Americans are able to keep getting their benefits without any threat to the trust funds. Under this rosy scenario, no changes to Social Security end up being necessary in order to assure the survival of the program and full benefits for all.

That raises an obvious question: What has to happen for this favorable outcome to happen? You’ll find the answer in the report, in its discussion of what it calls the low-cost assumptions for Social Security.

Projecting the future of Social Security
To make the sophisticated actuarial projections that go into producing the numbers in the Social Security report, those who prepare the report have to make assumptions about key variables that determine how much money Social Security brings in and pays out. But economists can’t be certain about exactly how those factors will play out. As a result, Social Security uses three different sets of assumptions: low-cost, intermediate, and high-cost.

These three sets of assumptions work the way you’d expect. The low-cost assumptions are generally optimistic, predicting quicker recoveries from economic downturns, expecting stronger economic growth over the long haul, and seeing other factors work out favorably from the standpoint of funding Social Security. The high-cost assumptions take a more pessimistic view, expecting weaker growth and prolonged recessions along the way. The intermediate assumptions split the difference.

In particular, here are a few of the assumptions that the low-cost model makes, compared to the intermediate scenario:
• Fertility rates of 2.2, compared with 2.0 under the intermediate assumptions.
• A rise in economic productivity at an ultimate average annual of 1.98%, rather than 1.68%.
• A rise in the consumer price index at an average of 3.2% annually, rather than 2.6%.
• An expected growth rates in average earnings of 5.02%, compared with 3.8%.
• Long-run real wage differentials of 1.82%, versus 1.2%.
• Larger working-age populations and labor force participation than in the intermediate model, with unemployment rates of 4.5% compared with 5.5%.
• GDP growth of 3.2% rather than 2.4%.
• Real interest rates of 3.2% versus 2.7%, based on nominal interest rates of 6.4% compared to 5.3%.

How all these factors interact gets complicated quickly. But in general, using the low-cost assumptions, things work out well for Social Security. Relatively lower life expectancies reduce the length of time retirees collect benefits, and a lower number of married couples cuts the burden of spousal and survivor benefits on Social Security’s shoulders. Higher interest rates let the trust fund balances generate more income.

A low-cost scenario would be great — but don’t hold your breath
The Trustees’ Report shows the benefits of having the low-cost scenario play out. Under those projections, the combined trust funds for the old age and disability trust funds never run out, with the combined funds declining from the 2018 level of about 289% to reach a low point of 113% of expected annual benefits in 2050. From there, a shift back in demographics helps the trust funds build up capital again, topping two years’ worth of benefits by 2095. That’s a far cry from dealing with completely using up both trust funds by 2034.

The challenge with the low-cost assumptions is that they’re unlikely to occur. The fact that projections haven’t deviated much from their course of expecting trust fund exhaustion in the mid-2030s shows that the intermediate assumptions on which those projections are based have generally turned out to be accurate historically. It would take a fundamental shift to make low-cost assumptions more realistic.

Most of the reason the low-cost assumptions are there is to give a sense of how sensitive the results are to economic factors that differ from the intermediate assumptions. Just because the low-cost assumptions exist doesn’t mean that there’s any significant chance that they’ll actually occur. For those who think that the assumptions under the low-cost model represent targets for economic and fiscal policy to strive toward, it’s extremely unlikely that the economy will cooperate enough to fix Social Security without specific and direct action from lawmakers.

New Medicare cards: What to do if you haven’t received your new card

My Comments: I have not yet received mine but perhaps it’ll come in today’s mail.

The idea is that with so much money at stake, there are too many opportunities for the bad guys to game the system. This is an effort to make that harder. I hope it works as planned.

What I know is that without Medicare and what is known as a medi-gap insurance policy, my out of pocket expenses would dramatically exceed what I now pay as my share of the insurance premiums. Hardly a month passes without my spending time with one physician or another.

September 4, 2018 | Leada Gore

More than one million people in Alabama and four other states will be receiving new Medicare cards in the coming weeks.

The new cards no longer contain a person’s Social Security number, replacing it with a unique, randomly-assigned Medicare number designed to protect people’s identities.

“This change not only protects Medicare patients from fraud, but also safeguards taxpayer dollars by making it harder for criminals to use Social Security numbers to falsely bill Medicare for care services and benefits that were never performed,” said Angela Brice-Smith, Regional Administrator for the Centers for Medicare & Medicaid Services.

The new card will not change any of the program benefits and services that eligible people enrolled in Medicare receive.

The cards are currently being mailed to residents in Alabama, Florida, Georgia, North Carolina and South Carolina. If you’ve not received your card, you can log on to your mymedicare.gov account and, if your card has been mailed, you can see your new number or print an official copy. If you don’t have an account, visit MyMedicare.gov to create one.

You can go here and put in your email to see the current status of your card.

You can also call Medicare at 1-800-633-4227.

What Is Missing From Most Retirement Advice

Tony’s thoughts about this: For those of you who have not yet ‘retired’, know that it will be dramatically different from your ‘before retired’ years. Planning for those years, if you expect to enjoy life and consider your retirement a success, is essential.

My days as an active, looking for new clients financial person are on the wane. But my interest in taking care of existing clients and finding ways to help others have not diminished. To that end I offer you these useful comments from Kevin Brock.

Kevin Bock, Impact Partners, July 5, 2018

After nearly 30 years in retirement and legacy planning, I’ve noticed some common threads that could devastate many retirement plans! Most people don’t know where to turn or what to expect as they get closer to retirement, and they may think that they have everything taken care of … Wrong!

Before we proceed, here are some thoughts on the two main professionals who many people think have everything taken care of for them.

If you’ve met with your lawyer and think you have everything taken care of, ask yourself: Are they licensed to give financial/insurance advice? Most aren’t. Do they have a working knowledge of taxes and how to minimize or potentially avoid them? Is their main source of income from retirement and estate planning (not administration), or do they do other things and use wills and estates as just a sideline?

If you’ve been working with an investment advisor, have they coordinated a plan that covers income planning, asset planning, tax planning, health care planning, legacy planning, and legal planning? I believe these are the 6 most important parts of proper retirement and estate planing!

Now: Do you still think everything is taken care of?

As we mature and become retirees, things change. Our needs change; our wants and desires change; our goals change … and our retirement and estate plans need to change to meet these new needs, wants, desires, goals, and concerns!

As we age, we may need others to help us occasionally. We may eventually need help with daily living activities, like eating, bathing, dressing, toileting, transferring, and maintaining continence. Some other considerations may be the need for mental support or companionship, transportation, meal preparation, managing household needs (cleaning, laundry, trash, yard maintenance, etc.), help with medication, finances, and more!

Does your lawyer or advisor have a depth of knowledge in these areas, and can they direct you to quality resources that can help with in-home care, personal care homes, or assisted living placement when staying at home is no longer an option?

So, do you really have everything taken care of?

A good retirement and estate plan should cover most, if not all, of the above areas. You should have a good way to access these resources when needed.

Another area that may be important is protecting your assets from creditors, family members, catastrophic medical expenses, and taxes. For example, did you know that probate and inheritance taxes are optional and can often be reduced or eliminated with proper planning?

So far, is everything taken care of?

Have you ever known someone who was left with a mess when their loved one passed? Their estate may have been substantially reduced by fees and taxes, and the confusion may have taken years to clear up because the family contested a will. The family split up because of arguments, many times because things aren’t spelled out in detail in the last wishes. Most parents don’t want strife after they pass, but fighting and arguing is not a rarity! Simple planning gets simple results. Effective planning gets effective results.

Did you know that when some people die, their estates can become public knowledge at the courthouse? In my experience, I have seen salespeople go to the courthouse to find out who got what, get their personal information, and call them to sell them windows, siding, doors, or whatever else. If you have a will, it will most likely direct your estate into probate, be delayed, and become public knowledge.

Did you know that, with proper planning and beneficiary designations, you could keep your estate private? With proper planning, it can be distributed in a few weeks or months instead of 1-2 years or more!

So, how do you find a professional who can handle most or all of your future needs? It can be difficult. People want more of their needs handled under one roof or with one professional who is knowledgeable about what is available in the categories I mentioned above.

When you are searching for a professional to help you with your retirement journey, ask them how much experience they have with income planning and guaranteed income you cannot outlive, asset planning, tax reduction planning, health care planning, legacy planning, and legal planning. Find a professional with a depth of knowledge in as many of these areas as possible. They don’t have to be a CPA or an attorney, and you may need to include these qualified advisors in your plan. If your main advisor has a working knowledge in all of the above areas, you can potentially reduce holes, gaps, and problems that can derail your wants, needs, goals, and desires in retirement.

In nearly 30 years, we rarely have had someone come into our office who truly had everything taken care of. There is no perfect plan, but there are effective plans that can reduce surprises in the future!

Social Security’s Primary Insurance Amount: What Is It?

Tony’s Comments: Since today is  Tuesday, this is about Social Security. For those of you who plan to retire one day, a basic understanding of Social Security and how it works is a critical element of your overall retirement planning strategy.

This article appeared in Motley Fool, and for whatever reason, does not have an author named or a date applied. At the bottom is a link to the URL where it came from. In the meantime, perhaps this information will help you as your journey through life toward retirement.

It starts here: Do you know how much you’re going to get in Social Security? Probably not. According to a recent survey by Nationwide, 63% of would-be retirees confess they don’t know how Social Security works, and even more scary, the average worker estimates they’ll bring in $1,628 per month in benefits, which is 30% more than current retirees say they collect.

Overestimating your benefit can throw your retirement savings strategy out of whack. To keep that from happening, it can help to understand Social Security’s complex calculation and more specifically, how Social Security determines your primary insurance amount, or the amount of money you can draw from Social Security at your full retirement age.

Let’s clear up the confusion

Social Security is designed to replace 40% of workers pre-retirement income in retirement. However, the way that Social Security is calculated means that the amount you actually receive in retirement may be much higher or lower than that percentage.

A pay-as-you-go program, Social Security payments are financed by payroll taxes on current workers, but not all of a worker’s income is subject to these taxes. In 2018, payroll taxes only apply on income up to $128,400. Because there’s a cap on taxes, there’s also a cap on the amount you can receive in benefits.

The amount of money you make every year that’s subject to taxes is important, because Social Security ultimately determines how much you’ll receive in benefits based on the average inflation-adjusted income you earned during your 35-highest earning years of work.

Specifically, Social Security begins its calculation by coming up with your average indexed monthly earnings (AIME).

To determine your AIME, your historical annual earnings are adjusted for inflation using Social Security’s average wage index (AWI), an index that tracks national changes in wages with a two-year lag. Specifically, your historical income will be indexed based on the AWI reading for the year two years prior to the age you turn 62 — the earliest age at which you can claim Social Security.

For instance, the historical earnings for a person turning age 62 in 2018 are indexed based on the 2016 AWI figure of $48,642.15. To adjust their historical income, Social Security divides $48,642.15 by the AWI for each year of earnings to get an indexing factor for each year. Once that’s done, it multiplies each year of the person’s earnings by the factor for that year to get an inflation-adjusted earnings amount. Then, it sorts out and sums up the highest 35 years of income and divides that number by 420, or the number of months in 35 years, to come up with your AIME.

What is a primary insurance amount?

Your AIME isn’t the amount you’ll get in Social Security benefits every month, though. To come up with that number, Social Security has to calculate your primary insurance amount.

In this step of the calculation, Social Security applies something called “bend points” at specific thresholds of your AIME to reduce the amount of your actual benefit.

The thresholds are adjusted annually by changes to the AWI, but the percentage reduction that’s applied at each threshold is fixed.

In 2018, the first bend point applies to income up to $895, the second bend point applies to income between $895 tot $5,397, and the third bend point applies to income above $5,397.

For example, applying bend point to a person with an AIME of $5,500 would result in a primary insurance amount of $2,262, which works out to 41% of AIME. The formula for that calculation looks like this: .9(895) + .32(5397-895) + .15(103) = $2,262

For perspective, let’s look at how this calculation would impact a lower income earner and a higher income earner.

If your AIME was $1,800, then your primary insurance amount would be $1,095, or 61% of your AIME: .9(895)+ 0.32(905) = $1,095

Now, let’s say your AIME was $7,500. In that case, your primary insurance amount would be $2,562, or 34% of your AIME: 0.9(895) + 0.32(5397-895) + .15(2103) = $2,562

Finally, if you qualify for the maximum AIME of $9,936 in 2018, then your primary insurance amount would only be 29.5% of your AIME.

When you claim impacts benefits

The primary insurance amount isn’t necessarily the amount you’ll collect every month, either. That’s going to depend on the age at which you begin collecting Social Security.

You can claim Social Security as early as age 62, but you’ll only get your primary insurance amount if you wait to claim until your full retirement age, which varies between age 66 to 67 based on your birth year for people born after 1954. If you claim sooner than full retirement age, then you’ll be penalized with a lower payout because Social Security is designed to pay the same amount out over your lifetime regardless of the age you claim.

For instance, if you were born in or after 1960, your full retirement age is 67. If you begin drawing Social Security at age 62, you’ll collect 30% less than your primary insurance amount.

Alternatively, you can get a bonus of up to 8% per year up to age 70 if you delay taking your benefits beyond full retirement age. If your full retirement age is 67 and you begin drawing benefits at age 70, then you’d collect 24% more than your primary insurance amount.

Things to remember

The calculation is complex, but Social Security does all the heavy lifting for you. You can call Social Security or set up online access on their website to see your actual primary insurance amount and the impact of claiming at different ages. So, don’t let the formula concern you.

What’s important is understanding that you have some control over how big or small your primary insurance amount will be. If you’re an employee, the best way to maximize your primary insurance amount (beyond asking for a raise) is to continue working. If you have fewer than 35 years of work history, Social Security uses zeroes when calculating your AIME, and that reduces your primary insurance amount. Therefore, getting rid of zeroes in your calculation can give you a big boost.

Overall, knowing how Social Security determines your benefit allows you to make smart decisions about your retirement savings plans. If you fail to plan ahead and overestimate how much you’ll get in benefits, you could end up very disappointed.

Source article: https://www.fool.com/retirement/social-securitys-primary-insurance-amount-what-is.aspx