4 Reasons You Shouldn’t Worry About Social Security

July 19, 2017

It’s that time of year again, when the Social Security trustees release their annual report, leading to a slew of bad news headlines: “Social Security’s grim prognosis,” “Social Security trust fund projected to tap out in 17 years,” etc. But what do these headlines really mean and should you worry about whether you’ll actually receive any of that 7.45% of your pay that you send to the fund in the future? I’m a perpetual optimist, so I tend to look for the story behind the clickbait and what I see is that this is definitely not something to get too worked up about at this point.

Here are 4 reasons why:

  1. We’ve been hearing about this since at least 1999. Little-known fact: I was Miss Kalamazoo County 1999, and during my interview for the Miss Michigan pageant, the judges asked me how I felt about the fiscal woes of Social Security. I remember because I gave a bit of a flippant answer — I said, “I know it won’t be there when I retire, so I just look at it as another tax to pay.” Whether or not that is the reason I didn’t make it into the Top 10 will never be known, but now that I know more about the issue, I realize I was wrong. I fully expect to receive some type of benefit from Social Security, I just don’t know yet if the logistics will be the same as they are today.
  2. The fund won’t be bankrupt, it just won’t be able to pay what it’s paying today. The current estimate is that as of 2034, the fund will only be afford to pay about 70% of what it owes to people at that time (although a Social Security spokesperson actually told me it was closer to 77% in a meeting last year). But that also assumes that the rules around claiming benefits will remain the same, which is what politicians mean when they talk about “reforming” Social Security. They aren’t saying they’re going to stop paying it to people who are receiving it, they mean they want to change some of the rules so that the fund can continue to pay 100% of what it owes to people well beyond 2034.
  3. This is better news than it was a couple years ago. When I first started at Financial Finesse, all of our workbooks and online guidance pointed out that the SS trust fund is projected to run out in 2033. Notice that the projection is now 2034. Like many long-term estimates, the prognosis changes over time as reforms are made and the world changes. It’s similar to the fact that if you run a retirement projection when you’re 40 and it shows you falling short, but then you increase your savings — over time, you’ll get on track. If there’s anything we’ve learned over the past several years of last-minute action to keep the lights on in Washington, our Congressional leaders are terrible procrastinators. Perhaps I’m being overly optimistic, but I have a hunch that by the time 2034 rolls around, people currently collecting SS won’t be planning for a 30% pay cut.
  4. I probably won’t receive what’s currently projected as my benefit. It’s safe to say that by the time I reach my 60’s, the rules around claiming Social Security will be different. Here are some of my own personal predictions, which are 100% my opinions based on nothing more than my own knowledge (aka I’m just putting ideas out there).
    • Right now the earliest age to start collecting is 62 — if I had to guess, I’d say that age will be bumped up.
    • Today you can claim your benefit regardless of other income or savings, although your benefit may be taxed — I suspect that eventually there will be means testing, where people of a certain income or wealth level will not even be able to claim a benefit.
    • Depending on when you were born, full retirement age ranges from 65 to 67 — I won’t be surprised if that age is closer to 70 and that late retirement age isn’t pushed back to 72 or later at some point.

What does this mean for you?

At this point, we have to go with what we know when projecting our own future retirement projections. If the Social Security trustees are saying that in 2034 that benefits will have to be cut to 70% in order to keep things going, then that’s the best we have to go on for now. Some people elect to not even factor SS in to their retirement projections, preferring instead to rely on their own savings, which they have more control over. I personally just take my projected benefit and multiply it by .7 to get the amount I use in my projections. Until we hear something different or major reforms are passed, that’s truly our best guess.

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Widowed? How Social Security Can Help

March 13, 2017

Spouses who lose a partner are faced with a myriad of financial decisions at a time when they feel least equipped to deal with them. What resources are available to you as a surviving spouse? For most Americans, available resources include Social Security.

If you are a worker’s widow or widower, you — and your minor children if you have them — may be eligible for Social Security Survivor benefits. According to the Social Security Administration’s guide to How Social Security Can Help You When a Family Member Dies, the first and most important step is to contact the SSA to make sure your family gets all the benefits for which you are eligible. Benefits are based on what the late worker paid into Social Security and for how long. You cannot file online for survivor benefits. The best way to get a specific benefit information is to contact your local Social Security office or call 1-800-772-1213.

If you are the surviving spouse

You may be eligible to receive monthly Social Security survivor benefits if you are:

  • A widow or widower age 60 or older
  • A disabled widow or widower age 50 or older (and the disability started before or within seven years of the worker’s death)
  • A widow or widower of any age caring for the deceased’s child who is under age 16 or disabled

If your late spouse had not yet filed for Social Security retirement benefits, your survivor payment will be based on what your late spouse would have received at full retirement age (FRA), adjusted for various factors, such as your age when you file. The survivor benefit is based on what your late spouse paid into the Social Security system as well as their age at death. The more they paid into Social Security, the higher your monthly benefit would be. See If You Are The Worker’s Widow Or Widower.

Retirement claiming strategies for survivors

When you retire, you are able to receive surviving spousal benefits or your own benefits (whichever is greater). You may only receive one benefit at a time, but there are strategies for maximizing what you receive. You may be able to claim survivor benefits at age 60, then switch to claiming based on your own work record at your full retirement age or later, up to age 70. If your benefit at full retirement age or later is greater than your survivor benefit, you would maximize your overall Social Security benefits by claiming survivor benefits early and deferring your own benefit until full retirement age.

However, if your spouse was a much higher earner than you, the reverse would make sense: claim Social Security retirement benefits at 62 based on your own earnings record and then claim survivor benefits later on when the benefit equals your late spouse’s FRA. If you are still working, you can claim survivor benefits but your earnings may reduce your total benefit amount. See this article for a more detailed description of claiming strategies.

Benefits for minor or disabled children

Unmarried, minor children of a worker may be eligible to receive Social Security survivors benefits:

  • An unmarried child of the deceased under age 18
  • An unmarried child of the deceased up to age 19 if he or she is a full-time student in an elementary or secondary school
  • A child of any age, who was disabled before age 22 and who remains disabled
  • A stepchild, grandchild or adopted child under certain circumstances

Surviving dependents of the deceased spouse may receive a monthly benefit of 75 percent of the deceased worker’s benefit amount. (See If You’re The Worker’s Minor Or Disabled Child.) There’s a cap on how much a family can receive in total between surviving spouse and children, generally 150 to 180 percent of the deceased spouse’s benefit amount.

If you are a surviving divorced spouse

If you were married to your ex-spouse for at least 10 years but are now divorced and have not remarried, your surviving spousal benefits are not affected by your divorce. If you are caring for your ex-spouse’s minor (under 16) or disabled child, you do not have to meet the “length of marriage” test. See If You’re The Worker’s Surviving Divorced Spouse for more information.

What if you remarry?

If you remarry after age 60 (age 50 if disabled) your remarriage will not affect your eligibility for Social Security survivors benefits. This also applies to surviving ex-spouses.

How to calculate your benefits

Use the benefit calculators on SSA.gov to estimate your Social Security benefits. See also Social Security Survivors Benefits Planner.

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

What to Do If You Have a Life Insurance Claim

March 06, 2017

When someone you love passes away, the last thing you want to deal with is paperwork and bureaucracy. At a planner meeting recently, my fellow planner Cyrus Purnell, CFP®, MBA and I were discussing the guidance we would offer on how to navigate the process of settling a life insurance claim. Here’s what we had to say.

Are you a beneficiary?

In the event of the death of a loved one, it is necessary to determine if you are the beneficiary of any insurance policies. If you are named as a beneficiary, collecting the funds can occur in a timely manner but you have to be proactive in order to get your payout.

Find the life insurance company or insurance agent’s name

The policy can be looked up if you know the name of the company. If you are not sure of the name of the insurance company, you may be able to track it down by locating the agent.

Supply the death certificate

You will need to supply either an original death certificate or a certified copy when you submit your claim.

Complete the claim paperwork

Contact the insurer to get the proper paperwork. If the policy was purchased from an agent, they may be able to help you with the paperwork. Typical claim forms ask for basic details about you and the deceased person and how you would like to be paid.

Choose how to receive your benefit

You can choose to receive your benefit in the form of a lump sum if you have specific goals for the money or if you want total investment control. You can also receive the benefit in installments over time if you prefer a check coming in on a regular basis. There are generally four methods in which the installments can be paid.

  • Fixed period: The insurer makes regular payments on the principal and interest for a designated period of time.
  • Fixed amount: The insurer pays a defined amount at regular intervals until the principal and interest are exhausted.
  • Life income: The payout gets converted into an annuity that provides regular payments for the rest of your life.
  • Interest payments: The insurer pays you regular interest on the balance. The principal may then go to your estate upon your death. Rules on your ability to withdraw the principal may vary so check with your insurance company.

Submit the paperwork

Insurers generally pay life insurance claims within a week or two of receiving the paperwork.

Make Sure There Are No Other Life Insurance Polices Outstanding

There are millions of dollars of unclaimed life insurance benefits. One reason is coverage can go unnoticed. If a spouse or family member passes away, take the time to look for coverage from the following areas:

Individually owned life insurance policies- If you know that your spouse or family member owned an individual policy and you can’t find it, call his or her insurance agent or company to check. It may be wise to review canceled checks to see if you can locate any premium payments to insurance companies.

Group life insurance policies- Group insurance policies may be issued through an employer, bank, credit agency, or other professional or social organizations. Because the group holds the actual policy, the insured person receives a certificate of insurance as proof that he or she is insured. Look for these certificates in your spouse’s or family member’s personal papers, files, and safe-deposit box.

Employer-based group life insurance- In addition to group life insurance from the employer, the deceased may have purchased voluntary coverage. You should check his or her pay stubs and call his or her employer.

Accidental death and dismemberment policy- These policies pay benefits if an insured individual dies accidentally. If your spouse or family member died accidentally, look for such a policy in his or her files or contact his or her employer, bank, credit card issuer, or insurance company.

Mortgage life and credit insurance- Banks and finance companies routinely offer credit life insurance when insurance will pay off the outstanding balance of a loan or account if the insured individual dies. Check with credit card companies, banks, or any other lenders to whom your family member owed money at the time of his or her death.

Social Security benefits– Spouses, former spouses, and minor or disabled children of a deceased person may also be entitled to survivor benefits from the Social Security Administration.

A death in the family can be traumatic, both emotionally and financially. While it won’t solve everything, don’t leave money on the table. Make sure you get what you’re owed.

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

How to Evaluate an Early Retirement Offer

November 07, 2016

You’ve received an offer from your employer with financial incentives to retire early. You’ve got to admit you’re intrigued. Should you consider accepting it? Before you say “yes” or “no,” ask yourself these questions:

Am I ready to leave?

Before running any numbers, be honest with yourself. When you received the offer of early retirement incentives, were you excited, somewhat interested or depressed? The more interested you are emotionally in moving on, the less likely you will regret your decision if you decide to accept the offer.

It’s also important to assess the state of the company. If you decide to stay, are there any reasons your job might be in jeopardy in the near future? Be clear-eyed about all the possibilities, and factor them into your decision.

Can I afford to completely retire now?

Run a retirement calculator to see if you could retire now, based on what you’ve saved so far and your estimated income from Social Security and any pensions and/or other investments.  Make sure you run the worst case scenario, not just the best case scenario. For example, model scenarios assuming a 2% return, a 4% return and a 6% return, and consider running the scenarios through ages 85, 90 and even 100. If the model shows you can retire with a reasonable lifestyle, keep pace with inflation and not run out of money in old age, you will feel more comfortable that you are ready.

What will I do for health insurance?

Health insurance is expensive. Up until now, you’ve participated in a group health plan, with your employer picking up a large part of the cost. If you have family coverage, the typical full cost of coverage is $17,500 per year. If you accept the offer, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Review your options:

  • Continue your group coverage under COBRA for 18 months. You would pay the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have one). If you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA.
  • Get coverage from your spouse’s employer-sponsored plan, if applicable. A spouse losing their coverage is a  qualifying event and they will be able to add you to their insurance.
  • Seek coverage under the Affordable Care Act. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at healthcare.gov to see what is available in your state. Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. In any case, you cannot be turned down for coverage.
  • Look for coverage on the private market. An insurance broker or online marketplaces such as eHealth or GoHealth are helpful places to start comparing plans and prices. Even if you are considering coverage under the Affordable Care Act, it’s a good idea to shop around and compare.

When will I claim Social Security?

The earliest eligible retirees can claim Social Security benefits is age 62. Most workers receiving early retirement incentive offers now would not be eligible for full Social Security benefits until age 66 to 67, depending on current age. If you claim early, benefits will be reduced based on the longer payout period.  Delaying Social Security to full retirement age or even as late as age 70 will increase your monthly benefits.  Factors to consider include:

  • Will you need the money? If you will need the income to make ends meet, you have your answer. However, if you can get by with some additional income from part time work, you’ll be able to receive higher monthly benefits by delaying claiming Social Security.
  • Is your spouse still working or do you anticipate any employment income? If your spouse is still working, you’ll be taxed at their marginal tax rate on your Social Security benefits. Plus, if your family earnings exceeds $15,720 for 2016, you’ll lose $1 for every $2 you earn above the limit. (Note that the benefit isn’t truly lost. You’ll be able to recoup that once you hit full retirement age).
  • How’s your health? If you have health issues, you may decide to take Social Security early. If you don’t, delaying may make more sense.
  • Do you have longevity in your family? Do you have someone in your immediate family who lived to 95 or 100? If folks in your family generally live long lives, consider delaying Social Security benefits
  • Do you have other assets you can tap? Does it make sense to tap your 401(k), pension, Roth IRA or brokerage accounts first? Model different scenarios to see which offers you the highest total lifestyle in retirement.

As you can see, there are a lot of factors to consider in deciding whether to take an early retirement offer. There is no right or wrong answer for everyone. Just make sure yours is an educated one.

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

How To Take Money Out Of Your Accounts In Retirement

September 22, 2016

Updated April, 2018

We typically spend most of our working life putting money in accounts for retirement, but how do we take them out after we retire? I recently received a question from a “long time reader, first time caller,” about how to order which accounts he will withdraw from when he retires soon. The conventional wisdom is to withdraw money first from taxable accounts, then tax-deferred accounts, and then tax-free accounts in order to allow your money to grow tax-deferred or tax-free as long as possible. However, there are a few other things you might want to consider too:

Will you need to purchase health insurance before you’re eligible for Medicare at 65? If so, your eligibility for subsidies under the Affordable Care Act is partly based on your taxable income. In that case, you might want to tap money that’s already been taxed like savings accounts and money that’s tax-free like Roth accounts to maximize your health insurance subsidy (but not so low that you end up on Medicaid instead). You can use this calculator to estimate what that amount would be.

Are you collecting Social Security yet? Withdrawing from tax-free Roth accounts can also reduce the taxes on your Social Security. That’s because the amount of your Social Security that’s taxable (either 0, 50%, or 85%) depends on your overall taxable income plus nontaxable interest (like muni bonds) but not tax-free Roth withdrawals.

How can you minimize your tax rate? First, you’ll want to withdraw (or convert to a Roth) at least about $12k a year from your pre-tax accounts because the standard deduction makes that income tax-free. If you have other deductions, you may be able to have even more tax-free income. Then take a look at the tax brackets and see how much income you can withdraw before going into a higher bracket.

For example, a married couple’s first $19,050 of taxable income is only taxed at 10%, with the next $58,350 is taxed at 12% according to 2018 tax brackets. Any long term capital gains at those levels are taxed at 0%. If you’re about to go into a higher bracket, you may want to use tax-free income to avoid those higher rates. Just keep in mind that pensions and taxable Social Security (see above) will also count as income in determining your tax bracket.

How do you put it all together? Your withdrawal strategy may change and adjust based on the situation. You may tap into savings accounts (including your HSA) and sell taxable investments to maximize your health insurance credits until 65. Then you may withdraw from taxable accounts until you collect Social Security benefits at age 70, which draws down your required minimums at 70 1/2 while maximizing your Social Security payment. At that point, you can continue withdrawing from your taxable accounts to fill in the lower tax brackets and then use tax-free accounts to avoid the next tax bracket.

Of course, this all assumes that you have investments in multiple types of tax accounts. Otherwise, it doesn’t really apply to you. But if you do, you might want to consult with a qualified and unbiased financial planner to help you sort it out and come up with the right strategy. If your employer offers that as a free benefit, it might be a good place to start.

 

Delaying Social Security May Still Make Sense Under the New Law

April 21, 2016
At the end of this month, two strategies (often called “claim now and claim more later” and “file and suspend”) to maximize total Social Security benefits between spouses will be going away. Under current rules, you could file for a spousal benefit equal to one half of your benefit at full retirement age and then switch to your higher benefit later. Under the new rules, it will be much simpler. When you file, you’ll either get your benefit or the spousal benefit, whichever is higher. Although you will no longer be able to collect a spousal benefit in the meantime, there are still several good reasons why delaying your benefits may make sense:
 
1) You’ll probably collect more over your lifetime. The Social Security benefits are supposed to be calculated so you get the same amount if you live until the average life expectancy. (A 65 yr old woman can expect to live to age 87 and a 65 yr old man can expect to live to age 84.)You’d be better off collecting earlier if you live to less than life expectancy and later if you live longer. However, those calculations were based on older life expectancy numbers that were lower and people are continuing to live longer and longer.
 
2) It’s probably a better investment. Your Social Security benefits grow by about 8% for each year you delay. That’s more than your investments can be guaranteed to earn and more than they’re likely to earn, especially if you’re more conservative in your retirement years. You might as well use your lower earning investments to cover your expenses and let your Social Security benefits continue to grow until age 70.
 
3) You may reduce the taxes on your Social Security. Since you won’t need to withdraw as much from taxable accounts to supplement the higher Social Security checks, less of those checks may be subject to taxes. Drawing down your taxable accounts while you delay will also mean smaller required minimum distributions when you turn 70 ½.
 
4) You can reduce the risk of outliving your money. One of the greatest risks retirees face is outliving their savings. In that case, you’ll be glad you have that higher Social Security check in your later years.
 
5) Your surviving spouse will be better protected. If you don’t live quite as long as you hope, you won’t miss not getting those Social Security checks but your spouse will be able to collect a bigger survivor benefit.
 
There are a couple of reasons I can think of not to delay. One is if you simply don’t have enough assets to cover your expenses while you wait. The second is if you think you have a below average life expectancy and no spouse to collect your survivor benefits. In that case, you might prefer to leave more of your assets to your heirs. But if neither of those apply to you, just remember that good things come to those who wait.
 
 
 
 

Good Things Come To Those Who Wait

October 01, 2015

I was recently talking to my parents about Social Security and was surprised to discover that they had no idea they could delay their benefits past their retirement.This is important because it’s usually the best strategy yet most people collect at the earliest age of 62. Here are some reasons why delaying might make sense: Continue reading “Good Things Come To Those Who Wait”

Four Retirement Myths I’m Hearing

September 18, 2015

Answering calls to our Financial Helpline, I’ve heard some myths or assumptions about retirement and I always enjoy hearing the buzz out there from people contemplating retirement. My thought is – if I’m hearing this from a few people, there are potentially thousands or millions who have the same thought. So, for those who believe some of these things, I’ll share some of the myths/assumptions I’ve heard recently and then give you my $.02.  Continue reading “Four Retirement Myths I’m Hearing”

All Good Things Must End

August 07, 2015

As an addict avid watcher of Game of Thrones, I always hope that the series will go on for as long as The Simpsons. But as we’ve all seen in our lives, eventually all things (good and bad) must end.This article discusses the potential end of the run of GoT. I guess we will all have to deal with a series finale at some point within the next few years. The good news is that with Breaking Bad, Walking Dead, Friends, Seinfeld, MASH, etc. (depends on your generation which one will most resonate), we have precedent in watching our favorite show end.  Continue reading “All Good Things Must End”

5 Myths About Social Security

July 27, 2015

I’m going to unofficially declare last week as National Social Security Awareness Week as a result of the questions I got in a series of workshops that I facilitated on retirement planning. I don’t think a week of Social Security actually exists on the calendar but with all the confusion surrounding Social Security there probably needs to be one. Here are some common myths I’ve heard: Continue reading “5 Myths About Social Security”

Why Your Advisor May Want You to Take Social Security Early

April 15, 2015

Earlier this year, I took a call from Carl who is getting ready to retire within the next few years. His advisor was suggesting that upon retirement, Carl rollover his 401(k) to an IRA and start collecting his Social Security benefit at age 62. Carl wasn’t so sure so he wanted a second opinion. Carl and I talked for a while and determined that it might make more sense for him to draw down his retirement account and allow his Social Security benefit to collect delayed credits. Continue reading “Why Your Advisor May Want You to Take Social Security Early”

How to Pass the Retirement Income Literacy Test

December 17, 2014

“Americans flunk retirement quiz.” That was a headline in the December 3, 2014 edition of USA Today. In a recent survey conducted by the American College of Financial Services, 80% of surveyed Americans age 60 to 75 with at least $100,000 in household assets received a failing grade when given a basic retirement-income literacy test. Continue reading “How to Pass the Retirement Income Literacy Test”

Living Longer May Not Be All Good News For Women

November 05, 2014

According to a new report by the Centers for Disease Control and Prevention’s National Center for Health Statistics, Americans are living longer—o.1 years longer to be exact—as the national life expectancy has reached a new record high of 78.8 years. Women, with an average life expectancy of 81.2 years, live on average 4.8 years longer than men, at 76.4 years. While some may see this purely as a blessing, it does present a financial challenge for today’s women. Namely, women may need to save more for retirement than men in order to account for these additional years. Here are five things women can do to help address this added financial challenge: Continue reading “Living Longer May Not Be All Good News For Women”

Social Security Myth #5: You Only Receive A Spousal Benefit If You Are Married When You Retire

October 22, 2014

In my last blog post, I addressed the myth that Social Security benefits are based on an accumulation of assets and that collecting a spousal benefit would reduce the amount a spouse would otherwise be eligible to receive. This brings up another myth that is circulating out there that suggests that one has to be married in order to collect a spousal benefit. That is not the case. Continue reading “Social Security Myth #5: You Only Receive A Spousal Benefit If You Are Married When You Retire”

Social Security Myth #4: Collecting a Spousal Benefit Reduces the Amount Your Spouse Will Receive

October 15, 2014

One of the most valuable aspects of the Social Security formula is the accrual of spousal benefits for couples that have been married for at least one year at the time they file for benefits. However, some think of these benefits as a pool of money that somehow is split between the two of them. For this reason, they sometimes fall under the misconception that if one of them starts to collect a spousal benefit, the other’s benefit will be reduced. Continue reading “Social Security Myth #4: Collecting a Spousal Benefit Reduces the Amount Your Spouse Will Receive”

Social Security Myth #3: You Will Lose Benefits If You Collect While You Are Working

October 08, 2014

In my previous two blog posts, I’ve addressed the myths of Social Security insolvency and calculating Social Security using final average earnings. Next up is a myth concerning the receipt of benefits while employed. Most of us know that the earliest we can collect a Social Security retirement benefit is age 62, but that doesn’t mean most of us plan to stop working by then. For this reason, I am often asked about the implications of collecting a Social Security benefit while working. Continue reading “Social Security Myth #3: You Will Lose Benefits If You Collect While You Are Working”

Five Myths About Social Security: Myth #2 – Social Security Is Based on Your Last Five Years of Earnings

October 01, 2014

Last week, I addressed the first myth about Social Security benefits, namely that they won’t be there by the time you’re eligible to receive them. For this week’s post, I’d like to address another common myth related to how benefits are calculated: Benefits are based on your last five years of earnings. Continue reading “Five Myths About Social Security: Myth #2 – Social Security Is Based on Your Last Five Years of Earnings”