Hardly a day goes by that we don't hear some voice of the government bemoaning the sad and unsustainable expense of Social Security. You know the drill: How can it go on with all the baby boomers reaching retirement age?
Here's Bernake at his most daring to date, addressing the Economics Club of Washington, which, we all know, wields much more influence than AARP: ''Reform of our unsustainable entitlement programs'' should be a priority. "The imperative to undertake reform earlier rather than later is great.''
But hold it a moment. Haven't all those baby boomers watched the Federal Government neatly extract FICA payments from their paychecks for the forty or so years they've worked?
So where's the money?
If you really take into consideration that the number of retirees will always pretty much equal the number of people who were recently working and kicking in their share of taxes toward Social Security, you arrive at the conclusion that all this talk about the unsustainable expenditure on "entitlements" as fiscally irresponsible is, in fact, an unsustainable bit of chicanery.
You may ask, What about inflation? Isn't it a factor? Of course, but, hey, what's new about that?
So we arrive at this very puzzling question? Why is it that with more people retiring, there is not more money available?
Don't tell me the FEDS raided the till for other priorities?
Anyway, bottom line is, if we burned up the retirement funds of the boomers on bombs and idiotic wars, it's time to moderate those expenditures, so the money that was slipped out of Social Security to fund those various insanities can be slipped back into it.
We promise not to notice its temporary absence.
______________________________________________________________
Resource:
Tom Attea, humorist and creator of NewsLaugh.com, has had six shows produced Off-Broadway. Critics have called his writing "delightfully funny," "witty," with "good, genuine laughs" and "great humor and ebullience."
News and information concerning the many issues Baby Boomer's face as we age.
Showing posts with label Social. Show all posts
Showing posts with label Social. Show all posts
Tuesday, May 29, 2012
Monday, May 14, 2012
Social Security Part 2: Claiming Strategies for Couples and Divorced Spouses
Category: Financial and taxes in retirement
Note: This is the 2nd in a 2 part series called “Social Security: What You Think You Know Might Hurt You”. Part 1 provided an overview of the program, how your benefit is calculated, and strategies for optimizing your benefits. This segment will concentrate on strategies for couples to maximize their benefits, rights and benefits for divorced spouses, and some of the more common misconceptions/FAQs about Social Security.
May 8, 2012 — As we discussed in Part 1, the decision to file for Social Security benefits is a personal one that means balancing several inputs. But for married couples, these factors get even more complicated. One spouse might be younger than the other. One person in the couple often has a higher earning record for social security, so he or she stands to collect more. They each might have different ideas about when to stop working and start collecting. And finally, and most importantly – when the first spouse dies the surviving spouse is entitled to their own benefit or that of the spouse, whichever is larger. Although people don’t tend to think about it, most of these same factors apply to the disability benefits that Social Security pays.
We attended a recent seminar organized by the Oakley Wing Group, where guest speaker Kurt Czarnowski offered 3 very smart claiming strategies for couples. We will share them here, using Ward and June Cleaver, a couple familiar to just about every baby boomer, as examples.
1. File and Suspend
Ward reaches Full Retirement Age (66) and files for Social Security benefits, then suspends (thus declining to take benefits at this time). If June is at least 62 she can now file and be eligible to start collecting the spousal benefit, 50% of Ward’s FRA benefit. Her benefit will not increase from this point, other than from COLAs.
Strategy: Ward’s benefit will continue to increase at 8% per year while he does not collect, and if he is working, he might further increase his benefit. Yet June can start collecting now, bringing money into the family without much downside to the higher earner’s potential benefit.
2. Claim Some Now, Claim More Later
Ward files at any age he is eligible and starts collecting. June waits until she reaches Full Retirement Age and begins collecting the spousal benefit (50% of Ward’s). By delaying her own benefit, and if she continues to work, she can increase her monthly benefit.
Strategy. The lower earner can start collecting early, preserving and maximizing the higher earner’s higher benefit.
3. Combination to Maximize Benefits for Both
Assumes both spouses have reached Full Retirement Age. Then one spouse files for benefits and immediately suspends (does not start collecting). The second spouse can now collect the spousal benefit on the first spouse. Later on the suspended spouse can start collecting his/her higher benefit (which will have increased by waiting), and the spouse taking the spousal benefit can file for their own benefit if higher.
Strategy: Allows both spouses to maximize the benefit from their earning record by delaying benefits past FRA, up to age 70. Also allows the couple to start getting 1 spousal benefit at FRA, but without jeopardizing the benefit they can get from their own earning record.
These 3 strategies are fairly complex and of course, the rules could always change. We recommend consulting a professional before implementing to make sure our assumptions are correct. But if one of these fits your particular situation, it could represent a very effective tool for you. This page at the Social Security site, “Benefits for Your Spouse“, helps to explain spousal rights quite clearly.
Rights of Divorced Spouses
If you are divorced you are probably entitled to the spousal benefit from your former spouse (or your own benefit entitlement if you prefer). These conditions apply:
- You were married for at least 10 years to that person
- You are at least 62 and unmarried
You don’t have to wait for your former spouse to file – you can collect 50% of their current entitlement (or take your own). The fact that you are taking benefits based on your former spouse’s record has no impact on his/her benefit.
More frequent questions and misconceptions about Social Security
Q: Didn’t Social Security stop sending out those helpful benefit statements? Is there any way to get your statement?
A: Yes. They did this as a money saving idea. However, people over 60 years of age will start getting them again this year (2013). Furthermore, Social Security has 2 wonderful online tools to help:
Online Estimator:
Use this tool to estimate how much your benefit will be, based on your actual payments into the system and when you intend to start collecting. You will need to enter some personal information into the system to prove that it is you using the tool.
Online Statement
(Note: We have had trouble reaching this page using Firefox, so you might want to try it in another browser). If you create an account and provide the tool with your personal information, it will give you the same online statement you are used to getting in the mail.
Q: Will Social Security run out of money?
A: There are a lot of people looking for the answer to this question. According to a 2012 report from the public trustees of the Social Security program, the system will not be able to pay 100% of promised retirement benefits beginning in 2033 (and the disability component will have that problem beginning in 2016) – unless Congress does something to fix the program.
However, this does not mean that Social Security is flat broke in 2033 if Congress fails to act. That’s because Social Security is a pay as you go program. FICA payments from people who are currently working will be coming into the system, and that will permit the Agency to pay at least 75% of promised benefits.
Q: Is the money that I paid into Social Security there in some specific account with my name on it?
A: No. As mentioned before, this is a pay as you go system. As designed, the taxes paid by current workers finance the payments to current retirees.
Q: What is behind the shortage looming in 2033?
A: There are 2 main factors:
1. Most importantly, it is demographic. There are so many baby boomers about to retire, they will outnumber the baby bust generation who are working to pay for them.
2. Life expectancy keeps going up. When Social Security began the average life expectancy was much less than it is now. And most workers had physically demanding jobs. The result is that the program is paying benefits for more years per worker than when it started.
The program clearly needs some minor adjustments to planned benefits and the ages at which people become eligible to overcome factors 1 and 2. Let us see if Congress will rise to the task!
More Questions
The Social Security website, ssa.gov, has a tremendous reservoir of Frequently Asked Questions. It is definitely worthwhile spending some time going through the various categories.
About Czarnowski Consulting
Kurt Czarnowski is currently the principal in “Czarnowski Consulting,” a retirement planning company which provides “Expert Answers to Your Social Security Questions.” Czarnowski is the former Regional Communications Director for the Social Security Administration (SSA) in New England, a position he held from December 1991 until his retirement at the end of 2010.
About this conference
This conference was organized by the folks at the Oakley Wing Group at Morgan Stanley Smith Barney in Essex, CT, an asset management team who specializes in helping baby boomers coordinate and oversee their financial affairs leading up to and throughout retirement. The team is available to help clients learn more about the preparations necessary to make a financially sound transition into retirement. You can call or email 860-447-4847 or William.james.mills@mssb.com. The event sponsor was Transparent Value, an asset management company within Guggenheim Partners, a private global financial services firm. in Essex, CT.
References:
Part 1: What You Think You Know About Social Security Might Hurt You
Comments: Please let us know what you think about these strategies in the Comments section below. What tactics are you using to maximize your legal benefits. Please also see the Comments made in Part 1 of this series.
View the original article here
Note: This is the 2nd in a 2 part series called “Social Security: What You Think You Know Might Hurt You”. Part 1 provided an overview of the program, how your benefit is calculated, and strategies for optimizing your benefits. This segment will concentrate on strategies for couples to maximize their benefits, rights and benefits for divorced spouses, and some of the more common misconceptions/FAQs about Social Security.
May 8, 2012 — As we discussed in Part 1, the decision to file for Social Security benefits is a personal one that means balancing several inputs. But for married couples, these factors get even more complicated. One spouse might be younger than the other. One person in the couple often has a higher earning record for social security, so he or she stands to collect more. They each might have different ideas about when to stop working and start collecting. And finally, and most importantly – when the first spouse dies the surviving spouse is entitled to their own benefit or that of the spouse, whichever is larger. Although people don’t tend to think about it, most of these same factors apply to the disability benefits that Social Security pays.
We attended a recent seminar organized by the Oakley Wing Group, where guest speaker Kurt Czarnowski offered 3 very smart claiming strategies for couples. We will share them here, using Ward and June Cleaver, a couple familiar to just about every baby boomer, as examples.
1. File and Suspend
Ward reaches Full Retirement Age (66) and files for Social Security benefits, then suspends (thus declining to take benefits at this time). If June is at least 62 she can now file and be eligible to start collecting the spousal benefit, 50% of Ward’s FRA benefit. Her benefit will not increase from this point, other than from COLAs.
Strategy: Ward’s benefit will continue to increase at 8% per year while he does not collect, and if he is working, he might further increase his benefit. Yet June can start collecting now, bringing money into the family without much downside to the higher earner’s potential benefit.
2. Claim Some Now, Claim More Later
Ward files at any age he is eligible and starts collecting. June waits until she reaches Full Retirement Age and begins collecting the spousal benefit (50% of Ward’s). By delaying her own benefit, and if she continues to work, she can increase her monthly benefit.
Strategy. The lower earner can start collecting early, preserving and maximizing the higher earner’s higher benefit.
3. Combination to Maximize Benefits for Both
Assumes both spouses have reached Full Retirement Age. Then one spouse files for benefits and immediately suspends (does not start collecting). The second spouse can now collect the spousal benefit on the first spouse. Later on the suspended spouse can start collecting his/her higher benefit (which will have increased by waiting), and the spouse taking the spousal benefit can file for their own benefit if higher.
Strategy: Allows both spouses to maximize the benefit from their earning record by delaying benefits past FRA, up to age 70. Also allows the couple to start getting 1 spousal benefit at FRA, but without jeopardizing the benefit they can get from their own earning record.
These 3 strategies are fairly complex and of course, the rules could always change. We recommend consulting a professional before implementing to make sure our assumptions are correct. But if one of these fits your particular situation, it could represent a very effective tool for you. This page at the Social Security site, “Benefits for Your Spouse“, helps to explain spousal rights quite clearly.
Rights of Divorced Spouses
If you are divorced you are probably entitled to the spousal benefit from your former spouse (or your own benefit entitlement if you prefer). These conditions apply:
- You were married for at least 10 years to that person
- You are at least 62 and unmarried
You don’t have to wait for your former spouse to file – you can collect 50% of their current entitlement (or take your own). The fact that you are taking benefits based on your former spouse’s record has no impact on his/her benefit.
More frequent questions and misconceptions about Social Security
Q: Didn’t Social Security stop sending out those helpful benefit statements? Is there any way to get your statement?
A: Yes. They did this as a money saving idea. However, people over 60 years of age will start getting them again this year (2013). Furthermore, Social Security has 2 wonderful online tools to help:
Online Estimator:
Use this tool to estimate how much your benefit will be, based on your actual payments into the system and when you intend to start collecting. You will need to enter some personal information into the system to prove that it is you using the tool.
Online Statement
(Note: We have had trouble reaching this page using Firefox, so you might want to try it in another browser). If you create an account and provide the tool with your personal information, it will give you the same online statement you are used to getting in the mail.
Q: Will Social Security run out of money?
A: There are a lot of people looking for the answer to this question. According to a 2012 report from the public trustees of the Social Security program, the system will not be able to pay 100% of promised retirement benefits beginning in 2033 (and the disability component will have that problem beginning in 2016) – unless Congress does something to fix the program.
However, this does not mean that Social Security is flat broke in 2033 if Congress fails to act. That’s because Social Security is a pay as you go program. FICA payments from people who are currently working will be coming into the system, and that will permit the Agency to pay at least 75% of promised benefits.
Q: Is the money that I paid into Social Security there in some specific account with my name on it?
A: No. As mentioned before, this is a pay as you go system. As designed, the taxes paid by current workers finance the payments to current retirees.
Q: What is behind the shortage looming in 2033?
A: There are 2 main factors:
1. Most importantly, it is demographic. There are so many baby boomers about to retire, they will outnumber the baby bust generation who are working to pay for them.
2. Life expectancy keeps going up. When Social Security began the average life expectancy was much less than it is now. And most workers had physically demanding jobs. The result is that the program is paying benefits for more years per worker than when it started.
The program clearly needs some minor adjustments to planned benefits and the ages at which people become eligible to overcome factors 1 and 2. Let us see if Congress will rise to the task!
More Questions
The Social Security website, ssa.gov, has a tremendous reservoir of Frequently Asked Questions. It is definitely worthwhile spending some time going through the various categories.
About Czarnowski Consulting
Kurt Czarnowski is currently the principal in “Czarnowski Consulting,” a retirement planning company which provides “Expert Answers to Your Social Security Questions.” Czarnowski is the former Regional Communications Director for the Social Security Administration (SSA) in New England, a position he held from December 1991 until his retirement at the end of 2010.
About this conference
This conference was organized by the folks at the Oakley Wing Group at Morgan Stanley Smith Barney in Essex, CT, an asset management team who specializes in helping baby boomers coordinate and oversee their financial affairs leading up to and throughout retirement. The team is available to help clients learn more about the preparations necessary to make a financially sound transition into retirement. You can call or email 860-447-4847 or William.james.mills@mssb.com. The event sponsor was Transparent Value, an asset management company within Guggenheim Partners, a private global financial services firm. in Essex, CT.
References:
Part 1: What You Think You Know About Social Security Might Hurt You
Comments: Please let us know what you think about these strategies in the Comments section below. What tactics are you using to maximize your legal benefits. Please also see the Comments made in Part 1 of this series.
View the original article here
Sunday, May 13, 2012
What You Think You Know about Social Security Could Hurt You – Part 1
Note: As we wrote this the public trustees of the Social Security programs reported that its fiscal health has significantly worsened. See our companion story in our Blog, “Social Security Crisis Worsens“.
We were vain enough to consider ourselves experts on when and how to start collecting social security. That is, until we heard a talk last week by Kurt Czarnowski. Boy, the things we didn’t know, and the others so misunderstood! This article will give a brief background on Social Security and then dive into successful strategies for optimizing your return from this important safety net.
Part 2 of this series will focus on issues related to claiming strategies for couples, the rights of divorced spouses, and frequent misunderstandings/questions about Social Security.
About Czarnowski ConsultingKurt Czarnowski is currently the principal in “Czarnowski Consulting,” a retirement planning company which provides “Expert Answers to Your Social Security Questions.” Czarnowski is the former Regional Communications Director for the Social Security Administration (SSA) in New England, a position he held from December 1991 until his retirement at the end of 2010.
First, let’s start with a quote from Kurt Czarnowski: “The myths and misunderstandings about Social Security are staggering”. This from a man who spent 34 years within the Social Security Administration, the last of those as a Communications Director. Given all the misinformation, it is important that we all address this topic with an open mind. Note that this article was prepared from notes as well as our observations. If there are any errors they undoubtedly stem from our misunderstanding and not as any reflection on Mr. Czarnowski.
Social Security – A Safety Net
This 76 year old program was designed as a safety net for seniors, widows, and the disabled. It was never meant to be the sole source of retirement income; rather it was meant to be the base to help supplement income from pensions, savings and investments, and other income.
To be eligible for a retirement benefit you first need to become “vested”, which means you have to have earned 40 credits from Social Security. In 2012 you get 1 credit for each $1130 you earn, with a maximum of 4 credits per year. Employees currently pay 4.2% on their earnings (up to a maximum of $110,100 in 2012). In addressing a question from the audience, Mr. Czarnowski commented that for an individual who has not earned their 40 credits, it might be worth while taking a job to do so, given the potential value of the payout over time (including some considerations about your Part B premiums).
How Social Security determines your benefit
It is worth knowing how the Social Security Administration calculates your retirement benefits, once you become eligible and decide to start collecting. These are the 3 steps in determining your benefit:
1. Adjust prior year earnings to current dollars. This neutralizes your early year earnings, which are unreasonably low in today’s dollars.
2. Take the average of your 35 highest earning years. Non-working years are counted as 0's.
3. Adjust the benefit according to income. This progressive approach means is that lower earners get a higher percentage benefit (56%) relative to their earnings than do middle earners (41%). The highest earners get the smallest percentage (34%).
The average monthly Social Security retirement benefit paid in 2012 is $1,229, or $14,748 per year – hardly enough for a comfortable retirement by itself.
How much you collect depends on when you start collecting
The age you have attained when you start collecting has a major impact on the size of your monthly check. The program is designed to be neutral no matter when you start – assuming an average life expectancy.
For workers born between 1943 and 1954 (the baby boomers and a few years older):
Age 62 Benefit is 75% of the Full Retirement Benefit
Age 66 Benefit is 100% of the Full Retirement Benefit
Age 70 Benefit is 132% of the Full Retirement Benefit
Your benefit increases the longer you wait to start collecting – up to age 70. Note that you can start collecting at anytime after age 62 (for example, 63 years and 2 months). Your benefit will be adjusted according to a formula. Between age 62 and your Full Retirement Age (FRA) – 66 for baby boomers – the benefit goes up .5% per month. Between FRA and age 70 the benefit increases .666% per month, or 8% per year.
Myth busters – working in retirement
How your benefit is affected by working is one of the most misunderstood aspects of Social Security. In general Mr.Czarnowski and other experts all agree that there is no reason not to work, even though your social security benefits might be reduced if you claim your benefits and work before you reach your FRA.
The theory is that it is better to have more money, rather than less.
Between the ages of 62 to 65 there will be a reduction of your benefits of $1 for every $2 you earn above $14,640.
In the year you reach FRA your benefit will be reduced by $1 for every $3 you earn above $38,880.
Once you attain your Full Retirement Age there is no reduction in your benefits, no matter how much you earn.
Taxation of Social Security
About one third of social security recipients pay income tax. If you earn more than $25,000 (individuals) or $32,000 (filing jointly) you are required to pay tax on up to 85% of benefits received. Additionally, there are several states that tax social security (although most do not).
Collection Strategies
Mr. Czarnowski gave us the clearest explanation of various collection strategies we have ever heard. Which is not surprising since he is in demand as a consultant with leading financial planners, assisting individuals in their social security planning. Here are some of the key strategies he discussed.
Delay taking your benefits?
Mr. Czarnowski stresses that the decision on when to take Social Security is yours, but you do need to know the facts before you decide.
Social Security retirement benefits are structured to be neutral, regardless of when you start claiming, assuming that the average person lives to be 78.
If you die before then, you were better off claiming early. If you claim later to get a higher monthly benefit and then live to be 100, you will have hit the Social Security jackpot, because your monthly benefit would have been so much higher for all of those extra years beyond 78.
Factors affecting your decision
There are 4 major factors you need to consider when deciding when to start claiming your social security:
- Your health. If you have a serious health condition that might affect how long you will live, earlier collection is probably better.
- Family life expectancy. Assuming you are healthy, how long did your parents live? How about siblings? If your genes point to living into your 80's or beyond, delaying your claiming date might be wise.
- Do you need the money. If you got laid off and your job prospects aren’t that good, you might need to claim early just to stay afloat. But if you can live using other savings, you still might consider delaying.
- Are you still working. Since your benefit will be reduced if you earn more than a modest amount before your full retirement age, there is not much point in claiming before your FRA. Plus, if you are in your high earning years, there is even more reason to delay claiming your benefit. That’s because you might be able to drive up your 35 year earning average, which will increase your future monthly payments.
The effect on your surviving spouse also needs to be considered
When the first spouse dies the survivor has two options: he or she can keep their own benefit, or take over their spouse’s. For the couple with a higher earning spouse, the benefit of taking the delayed benefit is magnified. Not only does the higher earner get the higher benefit during his or her lifetime, but the surviving spouse will also benefit as long as he/she lives.
Next time – Issues related to couples and when to take Social Security
Married couples need to carefully consider their options before claiming Social Security in order to maximize their lifetime benefits. We will explore those options and different claiming strategies in more detail in Part 2, along with other issues such as the rights of divorced spouses.
For further reference:
Part 2: Marital Claiming Strategies, the Rights of Divorced Spouses, and Frequent Misconceptions
Exploding 5 Myths about Social Security (Jane Bryant Quinn for AARP)
It Pays to Work in Retirement
When Should You Start Taking Your Social Security Benefits
10 Things You Need to Know Before You Start Taking Social Security
Too Many Boomers Leave Money on the Social Security Table
Social Security Administration: Social Security Benefits Estimator
Comments? What are you thinking about your Social Security claiming strategies? Please share your thoughts in the Comments section below.
View the original article here
We were vain enough to consider ourselves experts on when and how to start collecting social security. That is, until we heard a talk last week by Kurt Czarnowski. Boy, the things we didn’t know, and the others so misunderstood! This article will give a brief background on Social Security and then dive into successful strategies for optimizing your return from this important safety net.
Part 2 of this series will focus on issues related to claiming strategies for couples, the rights of divorced spouses, and frequent misunderstandings/questions about Social Security.
About Czarnowski ConsultingKurt Czarnowski is currently the principal in “Czarnowski Consulting,” a retirement planning company which provides “Expert Answers to Your Social Security Questions.” Czarnowski is the former Regional Communications Director for the Social Security Administration (SSA) in New England, a position he held from December 1991 until his retirement at the end of 2010.
First, let’s start with a quote from Kurt Czarnowski: “The myths and misunderstandings about Social Security are staggering”. This from a man who spent 34 years within the Social Security Administration, the last of those as a Communications Director. Given all the misinformation, it is important that we all address this topic with an open mind. Note that this article was prepared from notes as well as our observations. If there are any errors they undoubtedly stem from our misunderstanding and not as any reflection on Mr. Czarnowski.
Social Security – A Safety Net
This 76 year old program was designed as a safety net for seniors, widows, and the disabled. It was never meant to be the sole source of retirement income; rather it was meant to be the base to help supplement income from pensions, savings and investments, and other income.
To be eligible for a retirement benefit you first need to become “vested”, which means you have to have earned 40 credits from Social Security. In 2012 you get 1 credit for each $1130 you earn, with a maximum of 4 credits per year. Employees currently pay 4.2% on their earnings (up to a maximum of $110,100 in 2012). In addressing a question from the audience, Mr. Czarnowski commented that for an individual who has not earned their 40 credits, it might be worth while taking a job to do so, given the potential value of the payout over time (including some considerations about your Part B premiums).
How Social Security determines your benefit
It is worth knowing how the Social Security Administration calculates your retirement benefits, once you become eligible and decide to start collecting. These are the 3 steps in determining your benefit:
1. Adjust prior year earnings to current dollars. This neutralizes your early year earnings, which are unreasonably low in today’s dollars.
2. Take the average of your 35 highest earning years. Non-working years are counted as 0's.
3. Adjust the benefit according to income. This progressive approach means is that lower earners get a higher percentage benefit (56%) relative to their earnings than do middle earners (41%). The highest earners get the smallest percentage (34%).
The average monthly Social Security retirement benefit paid in 2012 is $1,229, or $14,748 per year – hardly enough for a comfortable retirement by itself.
How much you collect depends on when you start collecting
The age you have attained when you start collecting has a major impact on the size of your monthly check. The program is designed to be neutral no matter when you start – assuming an average life expectancy.
For workers born between 1943 and 1954 (the baby boomers and a few years older):
Age 62 Benefit is 75% of the Full Retirement Benefit
Age 66 Benefit is 100% of the Full Retirement Benefit
Age 70 Benefit is 132% of the Full Retirement Benefit
Your benefit increases the longer you wait to start collecting – up to age 70. Note that you can start collecting at anytime after age 62 (for example, 63 years and 2 months). Your benefit will be adjusted according to a formula. Between age 62 and your Full Retirement Age (FRA) – 66 for baby boomers – the benefit goes up .5% per month. Between FRA and age 70 the benefit increases .666% per month, or 8% per year.
Myth busters – working in retirement
How your benefit is affected by working is one of the most misunderstood aspects of Social Security. In general Mr.Czarnowski and other experts all agree that there is no reason not to work, even though your social security benefits might be reduced if you claim your benefits and work before you reach your FRA.
The theory is that it is better to have more money, rather than less.
Between the ages of 62 to 65 there will be a reduction of your benefits of $1 for every $2 you earn above $14,640.
In the year you reach FRA your benefit will be reduced by $1 for every $3 you earn above $38,880.
Once you attain your Full Retirement Age there is no reduction in your benefits, no matter how much you earn.
Taxation of Social Security
About one third of social security recipients pay income tax. If you earn more than $25,000 (individuals) or $32,000 (filing jointly) you are required to pay tax on up to 85% of benefits received. Additionally, there are several states that tax social security (although most do not).
Collection Strategies
Mr. Czarnowski gave us the clearest explanation of various collection strategies we have ever heard. Which is not surprising since he is in demand as a consultant with leading financial planners, assisting individuals in their social security planning. Here are some of the key strategies he discussed.
Delay taking your benefits?
Mr. Czarnowski stresses that the decision on when to take Social Security is yours, but you do need to know the facts before you decide.
Social Security retirement benefits are structured to be neutral, regardless of when you start claiming, assuming that the average person lives to be 78.
If you die before then, you were better off claiming early. If you claim later to get a higher monthly benefit and then live to be 100, you will have hit the Social Security jackpot, because your monthly benefit would have been so much higher for all of those extra years beyond 78.
Factors affecting your decision
There are 4 major factors you need to consider when deciding when to start claiming your social security:
- Your health. If you have a serious health condition that might affect how long you will live, earlier collection is probably better.
- Family life expectancy. Assuming you are healthy, how long did your parents live? How about siblings? If your genes point to living into your 80's or beyond, delaying your claiming date might be wise.
- Do you need the money. If you got laid off and your job prospects aren’t that good, you might need to claim early just to stay afloat. But if you can live using other savings, you still might consider delaying.
- Are you still working. Since your benefit will be reduced if you earn more than a modest amount before your full retirement age, there is not much point in claiming before your FRA. Plus, if you are in your high earning years, there is even more reason to delay claiming your benefit. That’s because you might be able to drive up your 35 year earning average, which will increase your future monthly payments.
The effect on your surviving spouse also needs to be considered
When the first spouse dies the survivor has two options: he or she can keep their own benefit, or take over their spouse’s. For the couple with a higher earning spouse, the benefit of taking the delayed benefit is magnified. Not only does the higher earner get the higher benefit during his or her lifetime, but the surviving spouse will also benefit as long as he/she lives.
Next time – Issues related to couples and when to take Social Security
Married couples need to carefully consider their options before claiming Social Security in order to maximize their lifetime benefits. We will explore those options and different claiming strategies in more detail in Part 2, along with other issues such as the rights of divorced spouses.
For further reference:
Part 2: Marital Claiming Strategies, the Rights of Divorced Spouses, and Frequent Misconceptions
Exploding 5 Myths about Social Security (Jane Bryant Quinn for AARP)
It Pays to Work in Retirement
When Should You Start Taking Your Social Security Benefits
10 Things You Need to Know Before You Start Taking Social Security
Too Many Boomers Leave Money on the Social Security Table
Social Security Administration: Social Security Benefits Estimator
Comments? What are you thinking about your Social Security claiming strategies? Please share your thoughts in the Comments section below.
View the original article here
Tuesday, May 8, 2012
Social Security Crisis Worsens
The public trustees of Social Security delivered bad news to the country this year: the Social Security trust fund will not be able to pay 100% of promised benefits beginning in 2033, 3 years earlier than previously predicted.
Piling it on, the trustees also predicted that the disability component of Social Security will run out of money 2 years earlier than previously thought (in 2016).
Medicare’s trust funds had no change in the date of their expected exhaustion (2024), although the chief Medicare actuary, Richard S. Foster, that the projections in the report “are probably poor indicators of the future financial status of Medicare” (as based on current law).
Several factors combined to speed up the depletion of Social Security trust funds. For one, this year’s cost of living projections are higher than originally projected (3.6% vs. .7%). Workers’ earnings are growing slower than thought, while stubborn unemployment remains high.
It should be noted that Social Security was meant to be a pay as you go system – taxes paid into it from younger workers are meant to provide current payments for today’s retirees. The current problem is not only an economic one (lower earnings to be taxed), but more importantly a demographic one. The 76 million baby boomers outnumber those in comparable younger segments of the population, so the payments they are receiving overwhelm what is coming into the system.
2033 doesn’t mean the system will pay nothing
Retirees will still receive benefits beginning in 2033 because Social Security is pay as you go. The system will have enough money coming in to pay 75% of promised benefits – assuming Congress does not correct the problem.
Most experts believe that relatively minor tweaks to the program could repair it in time to keep most or all promised benefits. Those changes might include raising premiums and taxable thresholds, and/or delaying benefits by a few months. However, there is universal skepticism that Congress has the guts and/or the ability to compromise to make these repairs. We can only hope!
Medicare situation tricky too
Though there was no change in the estimate of when Medicare will exhaust its trust funds, many experts question the assumptions that led to that conclusion.
For one, many doubt that the payments to doctors will really be cut by 31% beginning Jan. 31, as is stipulated in Affordable Care Act. Others question the health care productivity assumptions that are baked into the current estimate.
Bad news: fixing Medicare will probably prove more complex and difficult than repairing Social Security.
Report from Social Security Trustees
View the original article here
Piling it on, the trustees also predicted that the disability component of Social Security will run out of money 2 years earlier than previously thought (in 2016).
Medicare’s trust funds had no change in the date of their expected exhaustion (2024), although the chief Medicare actuary, Richard S. Foster, that the projections in the report “are probably poor indicators of the future financial status of Medicare” (as based on current law).
Several factors combined to speed up the depletion of Social Security trust funds. For one, this year’s cost of living projections are higher than originally projected (3.6% vs. .7%). Workers’ earnings are growing slower than thought, while stubborn unemployment remains high.
It should be noted that Social Security was meant to be a pay as you go system – taxes paid into it from younger workers are meant to provide current payments for today’s retirees. The current problem is not only an economic one (lower earnings to be taxed), but more importantly a demographic one. The 76 million baby boomers outnumber those in comparable younger segments of the population, so the payments they are receiving overwhelm what is coming into the system.
2033 doesn’t mean the system will pay nothing
Retirees will still receive benefits beginning in 2033 because Social Security is pay as you go. The system will have enough money coming in to pay 75% of promised benefits – assuming Congress does not correct the problem.
Most experts believe that relatively minor tweaks to the program could repair it in time to keep most or all promised benefits. Those changes might include raising premiums and taxable thresholds, and/or delaying benefits by a few months. However, there is universal skepticism that Congress has the guts and/or the ability to compromise to make these repairs. We can only hope!
Medicare situation tricky too
Though there was no change in the estimate of when Medicare will exhaust its trust funds, many experts question the assumptions that led to that conclusion.
For one, many doubt that the payments to doctors will really be cut by 31% beginning Jan. 31, as is stipulated in Affordable Care Act. Others question the health care productivity assumptions that are baked into the current estimate.
Bad news: fixing Medicare will probably prove more complex and difficult than repairing Social Security.
Report from Social Security Trustees
View the original article here
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