Tag: social security bailout

Three ways to increase your Social Security check

So you may have looked at your Social Security statement recently and you may be a little disappointed. You may have paid into the system for a long time and when you check up on it by logging into http://www.ssa.gov/mysocialsecurity you’re just not feeling the love. Do not despair gentle reader! Here are 3 ways to possibly boost your benefit for your golden years:

1) Easiest is work longer! Your numbers are based on a formula that takes into your top 35 earnings years. So like any average low numbers or zeros are going to pull that number down drastically. On the third page it will show you your earnings records based on your income tax returns throughout your lifetime. So if you worked at the ice cream shop down the street as a 20 yr old back in 1979 there’s a possibility that number may be very low and needs to be replaced. If there’s zeros because you stayed home with your children or if you worked at your brother’s landscaping company and got paid “under the table” then those numbers need to be replaced. Remember those “under the table” jobs? What happened to them? If you can replace the low ones, it will help you exponentially.

2) What if the SSA’s numbers are wrong? Can the government make mistakes? NO they’re always right aren’t they? So take a good long look at that 3rd page and really think back to where you were working, where you lived, who you were dating, etc…anything to jog your memory. If you worked at Wang Labs full time in 1986 and there’s $4,000 notated then there’s probably a mistake. The onus on correcting the aforementioned mistake is COMPLETELY on you! You have to go back to your tax returns if you saved them. If you didn’t save them then you have to go back to Wang which is now Getronics out of San Rafael CA to get your W2 to get the SSA to fix the error. If you are a high earner, then there will be a disparity between your Medicare earnings which includes all earned income and your Social Security earnings which are capped year to year- 2020 is $137,700.

3) The numbers you read on the statement are estimates and are pre-tax. If you make over $44K for most sources(if you want to know the exception call me at 866-770-6953 and I’ll try to help) then you have to report 85% of your benefit. This tax legislation dates back to 1993 from the Clinton administration and the income has NEVER been indexed for inflation. Seems crazy. So just try to live/move to a state that is retirement friendly like Florida(warm) or New Hampshire(not so warm). There are 13 states that don’t tax Social Security or have graduated tax brackets that limited state taxation. Usually these states favor your other retirement income like pensions and IRA/401k withdrawals.

4) One bonus point! If you feel as though you haven’t saved enough for retirement, then maybe your next job could be for a company that has a pension plan. Truthfully, there’s more of a chance of a pterodactyl landing in your driveway. These plans are very rare and getting more and more scarce because they are almost always funded with corporate dollars. When they were instituted in this country many years ago no one lived that long. Now people are living well into their 80’s and 90’s on a regular basis which makes the pension payments go on and on. However there are some companies that still offer these plans like Coca Cola, Johnson and Johnson(also pays your health insurance for life), hospitals, colleges, states and government agencies. An internet search could probably help with this.

So get your statement and take some time out to really consider it. They provide these statements to you for a reason. And so gentle reader and/or soon to be retired citizen, that’s it for now.

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When is it the best time to take your Social Security benefits early?

Everything you read is wait, wait, to take your benefit check. It will be bigger the more time you can hold off and maybe you should. However there can be times when taking it early does make sense.

If you hold off until age 70, you can get in some cases a 32% higher check amount, so why not suck it up and grind on to hold off and get paid more? There’s a few reasons and here they are:

1) Your health is not so great. If you wake up in the morning and go to the kitchen to get the plastic weekly pill box out of the cupboard and think to yourself, “OK it’s Tuesday right? I’ll take the blue one with coffee, the white one with lunch and the last 2 with dinner.” Maybe taking it early is a good idea. If you take your benefit at age 62, you will getting 75% of a check than if you waited until you’re full retirement age–let’s say that’s 66 years old. Are mom or dad still alive? Siblings? What you doing here is trying to handicap or project your life expectancy? Cancer survivor, heart attacks, high blood pressure…whichever it is no one here gets out alive.

If you added up the total checks if you take it early compared to taking it at full retirement age –66- if you take it early and die before you’re 75, you picked the right one. If you take it at 66, and died after 75, you picked the right one. Its the total amount that you receive that is the measuring stick here.

2) You’re out of work and just need the income. Completely understandable. You have to live. So if you’ve been downsized out of your job at age 63 and there’s not appearing to be a lot out there, maybe it’s a good idea. There is a 12 month window where you can stop it. Let’s say you got downsized, unemployed and you opted to start receiving benefits. then your friend calls and tells you to come down to his office that’s 3 miles away from your home, you know just about everyone there, the money’s right and they are the hiring manager. You get the job and all is well but then you remember you have your Social Security check still coming in which now you don’t need thanks to your new employment. You have 12 months after the date of the first check to stop your benefits. However you must pay back everything you received and the Social Security Administration will expunge your record like it never happened and you go on paying into the system.

3) Your spouse didn’t work or didn’t contribute to the system. Let’s say your spouse is older than you and their benefit at 66 is $350. If you take your benefit early than they could get their spousal benefits which could be and probably would be higher than claiming on their own record.

Handicapping your own life expectancy can sound like an unpleasant thing to do. Imagining your own demise is practical and necessary when contemplating when to take your benefits. Maybe consult your doctor, look at your family, and really kind of face the facts. Financially you could be better of claiming early.

All for now gentle reader. Until next time so long.

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Another good year keeps the Social Security system on life support

Contrary to popular belief, the Social Security System actually makes money….sometimes. The only things the trust fund assets are allowed to invest in is treasury securities which they refer to as “interest bearing special issue” bonds. So when interest rates go down, the value of these bonds and notes go up therefore raising the value of the Social Security trust fund. It has happened fairly often in the 10 years or so which typically adds more time to the D-Day moment of when the benefits may have to lowered without some kind of legislative intervention. If the “special issue” bonds go up in value, it generally means the system can stay solvent for another year.

The Social Security Administration comes out with their annual report every year around this time and according to the newest report the above mentioned is exactly what’s happened. They give the prognosis for the program for the next 10 years and the next 75 years using a host of different economic numbers and stats like wage growth, population, mortality and immigration to try to get a handle on how many future claimants there will be.

The harbinger of bad things to come is what’s they call the “net-cash outflows” which means after everything that comes in and costs are taken out, the administration had to dip into the trust fund reserves to cover the shortfall. Recently they’ve been warning that this could happen but at the end of 2018, 3 billion of unexpected income made it profitable.

For 2019, the margin was a little slimmer. At the beginning of 2019, the total was $2,895,174, 945,000(almost 2.9 trillion) and it ended the year at $2, 897, 492, 826, 000 — $2.3 billion higher. So the system didn’t have to dip into reserves to cover the 64 million checks it issues to it’s recipients. However as positive as that is, it was the lowest gain since 1982. What about 2020?

Well I ‘m glad you asked. The Administration’s projections for 2020 not so rosy. A lot of people blame Social Security’s woes on the baby boomers but they might be just part of the problem. Here are some other contributors:

1) People are living longer. The system was never meant to pay people for 20 yrs after retirement. More 80 yrs olds out there than ever.

2) Immigration is down. Usually the people who are immigrants are typically younger and will pay into the system longer ergo supporting more of the older recipients.

3) Birth rates are down. People are not having as many babies as they did in the past. Younger workers pay into it and the older workers’ payments stay funded.

4) More high earners collecting more. These beneficiaries are getting a higher payout than the system has ever paid. And they usually live longer.

There’s a Connecticut democrat named John Larson who introduced legislation that would raise the payroll taxes from 6.2 % to 7.4% and added other rules about any beneficiary with income under $49,000 would not have to report their Social Security income. That was back in 2013– there’s been calls to vote on whether to vote on it(yes that’s really how it works in Congress) to no avail. Social Security has been a 3rd rail for politicians but with the upcoming shortfalls acting sooner than later would be advisable.

That’s all for now. More to come in this brave new decade.

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Why should you delay taking your Social Security benefits?

Many people can plan to take their retirement stipend in their 60’s but if you put it off until you are 70, you receive “delayed credits” insofar that your benefit grows at 8% simple interest over the years that you wait to apply for the monthly check. There are many reasons to not take your Social Security benefit early or even at your full retirement age or FRA as the government refers to it and use these upgrades to your advantage. ALL of them are personal and only can be germaine to you and your life.

One of the first reasons could be you just don’t need the income. what if you continue to work into retirement. My client Joan supervises a team of visiting nurses. She’s phenomenal at it and is very recognized as a star in her field by many. She called the other day and said, ” Hey remember that income idea we talked about the other day? I just got a new job so I don’t need the money now.” Joan is 83. Just got a new job. Seems crazy but she keeps right on rolling and apparently is in demand. She took her benefit at age 70 because she had to. Maybe you’re Joan.

Another reason is perhaps you feel as though you haven’t saved enough for retirement –very common fear right now. If you are 67 yrs old and you will receive $2000 per month if you wait until 70 and get the delayed credits, you can increase your annual amount by $5, 760. Not a huge windfall but every little bit helps. They say 64% of the American public has less than $10k saved for retirement; this could be very tough for a lot of people as their lifestyle would change pretty heavily after the paychecks stop.

If you are one of those people who feel as though you may not have saved enough for retirement, do not despair. Obviously you can’t go back and get a do-over however if you were to get a job at a hospital, college, or a company that has a defined benefit plan also called a pension plan, that would help you immensely. Let’s say you work at one of those places for 5 or 6 years; they would have to pay you something in your retirement. Let’s say it’s $1000 per month– 12K per yr. How much of a lump sum would you have to save to generate that much interest? $250,000 at 5% would do it. Is it easy to save up $250,000? Not hardly right? There is a more likely chance of a pterodactyl landing in the parking lot than you finding one of these. So you really need to be diligent. Coca Cola, Liberty Mutual and others still offer a plan like this one. Usually older companies would still have this benefit. It’s a financial home run to get this if you can.

Thirdly if you have longevity in your immediate family- are you parents still alive? Who do you take after physically? Do you smoke, have steak and eggs for breakfast and a pint of whiskey every night? Maybe your pharmacist knows you by first name? These may be signs that longevity is not in the cards for you. If you are healthy and expect to live into your 80’s then waiting would be a good idea. If you take it early at 62 and if you added up all the payments and you died at age 75-77, you probably picked the right option- meaning you would have collected more if you took it at 66.

If you took it at 66 or FRA, and you die at age 83-84, the aggregate payments would be more even if you had waited to age 70. While your monthly payments would be higher initially at 70, the totals would not be as much if you took it early because of your unfortunate demise at 84.

If you take it at 70 and live past 84-85, then the payments start high and your longevity makes the totals higher than all other options regardless as to how long you’ve been collecting. If you go to the gym a lot, riding your bicycle or walking, eating right, etc maybe waiting is the right idea for you. if you find these numbers/concepts confusing then find a financial professional to break this all down. We have very robust software that enables us to handle all the algebra easily in a very understandable way.

That’s enough for now. I will continue to fill this new year with more Social Security fun for all the gentle readers out there.

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7 ways you can sabotage your retirement

So you’re approaching your “golden years”….you’re out raking the leaves or driving somewhere and it hits you— this will be a major lifestyle change for you. You would are absolutely correct about that. You will have a lot of time on your hands so you may need some money and it will have to last you for the next 20 to 40 years. No matter how much money you have or have saved there are some really bad decisions you can make that could make your retirement a disaster of epic proportions! Here’s just a few:

Firstly – a late in life divorce can cost you both in money and emotional hardship. My client Tom after his divorce became a bit of a recluse and was not terribly interested in having a relationship with anyone but his dog. The betrayal he felt from his ex wife’s extra curricular activities and the way friends and family received the news of his divorce has weighed pretty heavy on his psyche not to mention his 401K which now looks like a 201K comparatively. The Pew Research Center reported in 2017 that the divorce rate for those over the age of 50 has doubled since the 1990’s. Further, for those 65 and older, the divorce rate tripled from 1990 to 2015.  Suddenly Tom had to move out of his home that he paid for over the last 30 plus years and his income took a hit as his ex wife got a portion of his assets. Depressed and broke is no way to go through retirement.

Second– Helping your children financially is a tough one because most parents want to help their children if they need something like a few thousand. But when it comes to ten thousand or 50K or higher, it of course can compromise your lifestyle in retirement. If you’ve got a child livig on the street somewhere or they go through a divorce or they need bail money–these are all very tricky propositions. You want to help but at what cost to you and your personal happiness?

Third– Taking Social Security at the wrong time is a killer. If you take it early with out regard to your life expectancy and how not waiting could effect your benefits. The Social Security website is much improved and there are calculators to use to estimate benefits and when to apply for them. Also have you paid into the system long enough? You need 35 years paid into Social Security to get your full benefits. If you don’t have 35 years paid in then you have zeros on some years which can pull down your monthly benefit in a very bad way.

Fourth– Taking your Social Security at the wrong time can be very detrimental to you but also not including your spouse can lead to missing out of some of the very useful benefits that could lead to a Social Security check coming in the household with the opportunity to allow some portion of another spouse’s benefits to increase over time. All while collect something in the meantime. Even if you’re divorced, the spousal benefits can be available.

Fifth– Having big debts going into retirement. How nice is it to have the mortgage paid off and no car payments? Are those payments going to go away if you decide to retire? You call the mortgage company and tell them you’re retired and you’re not going to pay them anymore? How would that go over? Are they going to say, “oh ok yeah well don’t worry about it then. Enjoy your retirement!” Probably won’t go that way. Saving for retirement is important but having no debt is a part of a successful retirement.

Sixth– Not paying attention to income taxes. Distributions from your retirement plan are taxable as ordinary income. In retirement many folks lose a lot of their tax preference items; that is to say the mortgage interest, children at home, business deductions etc may not be available to write off against one’s income making taxes higher. There are ways to structure your income on your non-qualified assets to pay much less in income tax which could be very beneficial.

Seventh — Not having adequate health insurance. According to a study done by Fidelity the average couple will spend $285,000 on health care in retirement(not including long term custodial care costs). Just as a reminder Medicare only covers about 80% of retirement healthcare costs. Plan to purchase supplemental insurance or be prepared to pay the difference out of pocket. Most people pay a supplemental policy commonly called a Medicare Advantage plan or a Medigap policy to cover the costs.

Of course there are plenty of other ways to sabotage your retirement. Spend all of your money investing in swampland somewhere, lose all of your money in the stock market, lend money to people who will never pay you back, living to high, etc. There are plenty of ways to NOT sabotage your retirement too. I hope this list was helpful. More to come. So long for now.

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What are the 3 most crucial things you should do BEFORE you take your Social Security benefit?

What do they say…a pound of prevention is worth 100 pounds of cure? Sound advice I’d say. This old axiom goes a long way with regard to Social Security. Some simple planning looking forward to what could happen is very important. Remember this is a lifetime benefit so you want to get it right.

Number one– Retiring without considering how that effects your benefits. What happens if you don’t have enough quarters paid into the system? Your check is going to be less. At age 62 they will look at your top 35 years that you’ve paid into the program; they call it your AIME or average indexed monthly earnings. Does the government like to abbreviate things? Yeah just a little bit. If you haven’t paid in for 35–doesn’t have to be consecutive- then you can get a zero for the years in which there were no payments. This brings the average down in a most punitive way costing you potentially many thousands in income. If you don’t pay in 10 years or 40 quarters then you don’t get any retirement benefits at all from Social Security. Ouch! Even if you’ve paid in the whole 35 years what if there’s some years that are lower amounts like when you were 22 and worked at Dairy Queen? Could those numbers be easily replaced even with a part time job in this day and age? Most certainly they could and that would make your benefit higher.

Number 2 — The government is always right aren’t they? How about NOT! Can they make mistakes? Of course they can because the US government is made up of people and people aren’t perfect and they do screw up sometimes. So is it possible they can make a mistake on calculating or reporting your earnings record that’s considered for your Social Security payments? Of course it’s very possible. So go to the website and get your statement. They will proof you vigorously during this process which is good. Then take a look at the 3rd page. This is your earnings record. Sit down, get a drink, some place quiet preferably and really think about what you were doing for a job in 1994 or 1988. Try to go back in your mind and remember what you got paid etc. Are the numbers right? If they aren’t the onus is on you to change them…old w2’s or old 1099’s etc. and old tax returns. These numbers reflect what you paid in and can ABSOLUTELY effect your monthly check so they must be corrected if they are wrong.

Number 3 — Make sure to take advantage of spousal benefits if possible. If you take you benefits early for example at age 62 your reduction in benefits is 75% and if you were born after 1960 the reduction is 70% but if you wait until your full retirement age which is 66 yrs old if you were born before 1960 and 67 after which your benefit check would be higher. If you wait until your are 70 the amount grows at 8% simple interest –these are called delayed credits– which would lead to a higher income in your golden years.

You can however if you plan ahead of time with your spouse by coordinating benefits, the lower earning spouse could take benefits early so there’s a least one check coming into the house while a higher earning spouse lets their benefits build up with delayed credits and then the spouse that filed earlier can switch over. When they switch over to the higher spousal benefit, it’s half of whatever the amount was at the higher earning spouse’s full retirement age as the delayed credits are not eligible for the spousal benefit. When the higher earning spouse takes their benefit and the lower earning spouse switches to the higher check, its a nice pay raise for everyone. A very happy 70th birthday indeed!

If you have never been married then just skip this section as you aren’t eligible for any of it. However if you are divorced, then a version of the same aforementioned benefits can be filed for by you. If you were married for at least 10 years, then you can get spousal benefits. This will not reduce your ex’s check in any way nor will it reduce the checks of their other ex’s or their current spouse. Moreover they will never know you’re doing it either unless you tell them. You both have to be 62 or older and if you’ve been divorce for over 2 years you don’t have to wait for them to file individually. If you were separated and not divorced, that time would count toward your eligibility as its the date on the decree that counts here. But you must remember if you get married again, you will lose these benefits. How does the old saying go “First time for love, second time for money.” Important words to live by.

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What’s one of the biggest mistakes you can make it retirement that no one talks about?

Jean and David had been planning their retirement for many years. They both had pensions at their jobs, had saved a lot in their 401k plans and had paid down their mortgage to the point where they almost owned their home. They had friends and hobbies that they both were looking forward spending more time on when they finally stopped working.

However, David had been playing out with his band at various bars and weddings which is probably where he met his new lady friend. Jean found out and after much drama, they got divorced. Now this new reality threw a major monkey wrench in their well thought out retirement plans.

This is the new reality for so many seniors these days. The Pew Research Center reported in 2017 that the divorce rate for those over the age of 50 has doubled since the 1990’s. Further, for those 65 and older, the divorce rate tripled from 1990 to 2015. A late-in-life divorce create massive challenges financially. Why is this happening?

1) Its easy for couples to grow apart. Maybe both people work 40 plus hours or travel for business where there’s overnights involved. Now suddenly these 2 strangers are living together with all this time on their hands. Either they reconnect or maybe they’ve grown apart so much that they don’t really have anything in common anymore. My client Joan lived in the same house with her ex husband for years because neither could afford to move out. He lives on the second floor that has a private entrance and pays her a small amount of rent to cover the expenses. They still live like this now after 20 years of retirement.

2) No more children at home . A lot of retirees start to figure out they were a “couple” based on the lives they created around their children. Once they become “empty nesters” spouses can realize that’s all they had in common and may feel distant.

3) Retirement. “My husband is driving me crazy” is something you may hear from the wife who has been spending time by themselves and her newly retired husband is disrupting that life at home or leisure. The normal routine is not so normal anymore and life is so different now.

4) Health issues. Maybe a spouse’s health has gone downhill and the “in sickness and in health” vow that was taken is not so important anymore. Maybe someone wants to trade in the old model for a newer one. This can lead to lifestyle differences in which someone wants to go out an do things– hiking, biking, tennis etc while the other is ok with being home and relaxing in front of the computer or Netflix.

5) Mid life crisis. We all have regrets in our lives. Now that you are free and have lots of time on your hands in retirement you may not want to spend the next 20 years tethered to someone who makes you unhappy or isn’t experiencing the same life changes you are. Standing looking back at your life you realize you’ve been living for just work or just family and you’ve had enough. The next 20 years are going to be different and you may feel you need to live more for you. So you get a new hairstyle and a convertible because you’re free free free! There may be a cost to that as a late in life divorce can gut your 401K plan or split that rich pension payment you’ve worked hard for. That beach house with the water view you dreamed of living in when you retired is a condo with a view of the highway.

Do most couples plan on divorce? Usually no. But now there’s alimony to pay, your IRA has been divided up, and you have to find an apartment or another place to live. The amount of income you thought you were going to get has been compromised. Not only that where do you spend the holidays? How do your kids feel about this? Maybe they side with one spouse or the other. Harsh reality but very true.

My client David ended up marrying his new lady friend which led to another divorce. Statistics show that second marriages are less stable than first ones. Now he’s got a new job because he needs the income and seems OK but there’s an unhappiness to him that wasn’t there before. Also there’s a lot of his money that isn’t there anymore either.

Jean on the other hand , has devoted herself more to grandchildren and family and seems to feel like the divorce was a good new beginning to the rest of her life. She spends time with her friends more than she did when she was married so sometimes these things work out. She sold the family home and used the money to generate an income for herself . But once again there’s an underlying feeling of loss that neither she or David ever planned for. As their financial advisor I have to admit I never saw it coming either.

Sorry gentle reader not all of these blogs have a happy ending. I have another client named Stuart-always full of sage advice– who is fond of saying “no matter who you marry, you want to make sure they love you just a little more than you love them.” I will sign off with that choice bit of wisdom.

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