Social Security

June 29, 2016

The Bipartisan Center's Report of the Commission on Retirement Security and Personal Savings has made a series of proposals on Social Security.  Whether Congress addresses any of the proposals is anyone's guess.

Proposals include:

  • Starting to raise the Full Retirement Age for those born after 1960 until Full Retirement Age reaches 69 and the maximum benefit age is increased from 70 to 72,
  • Revising the calculation of "lifetime" income so the benefit is applied to each work year,
  • Changing the benefit formula  so that the "15% bend point" starts at a lower base of the benefit calculation and establishing a "5% bend point,"
  • Raising the taxable wage base for Social Security taxs by 2020 to $195,000 (from the current $118,500 and
  • Taxing 100% of Social Security benefits for income above $250,000 for single filers and $500,000 for joint filers.

According to a survey by the AICPA earlier this year, the #1 economic issue among every age cohort is Social Security even when the national debt and unemployment are considered.

April 29, 2016

Say goodbye to the file and suspend strategy - it has gone the way of three martini lunch and the USFL.  Even so, business lunches and pro football are still around and developing a strategy for when to apply for Social Security benefits is still around.

 

February 19, 2016:

It couldn't be more confusing!  My wife and I made a huge decision recently and we applied for her Social Security retirement benefit at age 62 because of a significant financial obligation (paying for our daughter's medical school costs).  I ran the numbers and concluded that if I live until 85 and she lives until 95, we will have left about $40,000 on the table from a possible $2,000,000 benefit; a decision based on analysis and not just an emotional reaction.

Earlier this week, we received letters from the Social Security Administration which if quickly read suggests that I submit an application for benefits.  I read the letter to our staff and their reaction was that I was being told that I must submit an application now - although it is not the case, it is easily misinterpreted. 

I believe that many people would have applied based on the letter - if they are under Full Retirement Age, their lifetime Social Security benefits could be greatly reduced.

My emotional reaction is to wonder why a government agency does something that confuses rather than clarifies an entitlement.

 

 

February 18, 2016:

SOME LOCAL SOCIAL SECURITY ADMINISTRATION OFFICES REFUSE TO PROCESS BENEFT APPLICATIONS

This is the headline of an aritcle by Mary Beth Franklin for the Investment News dated February 17, 2016.

This article describes stories of indiviudals who are eligible to file and suspend their benefits prior to the April 30, 2016 deadline and are being refused by Social Security offices at their local field offices.

Ms. Franklin suggests that in order to use the file and suspend strategy that an individual apply online and indicate that "I want to suspend my benefits" in the remarks box at the end of the application.  I have my concerns with this, however, given the fact that the Social Security Administration has not provided guidance to its offices on a time sensitive matter, it may be a better way to pursue this strategy.  As a reminder, the file and suspend strategy is only available to indivduals who are at Full Retirement Age as of April 30, 2016.

Filing for restricted benefits (i.e., applying solely for a spousal benefit) is still available at Full Retirement Age for those who were 62 by no later than January 1, 2016.  The online application does include a section where an applicant can indicate that they are filing a restricted application.

Shouldn't you work with an advisor who devotes energy to understanding Social Security?

 

 

If you qualify for a Social Secrity benefit, you can claim that entitlement as early as age 62 and as late as 70.  If you are 62 today, your benefit will be reduced by 25% and if wait until 70, your benefit will be increased by 132% from the amount you would receive at 66.  Taking your benefit as early as possible as compared with taking it as late as 70 is a difference of 76%. ((132-75)/75) = 76%. 76%!  Do you know how long it takes to make up the 76%?

 

The budget legislation of October 2015 has made significant changes to claiming strategies for social security.  Your strategy for when and how to claim Social Security retirement benefits is more crucial than ever and should be integrated into your retirement cash flow planning.

Now that the dust has settled, there is a transition period for the file and suspend strategy that will end on April 30, 2016 and its availablity will only be for a person who is 66 or older as of that date.  After April 30, 2016, a suspension of a filing will suspend all payments to anyone who is under that benefit (e.g., spouse or dependent child).

The restricted application to limit social security benefits to the spousal benefit (without filing for one's own work-related benefit) is only avaiable for a person who was 62 or older as of December 31, 2015.  There is no time limit on that application.

These change were made without public debate and inserted into a budget bill and the financial advisory community reacted with anger.  With some reflection, I have concluded that these were enhancements to the strategy of having a sngle person or the higher earner of a couple wait as long as possible in order to obtain a hgiher monthly Social Secuirty benefit.  The strategy of waiting should remain as the cornerstone of a lifetime income plan for retirement even if the "wow" factor of the enhancement strategies are gone.

 

One of the most important decisions that you can make in planning for retirement income is when to apply for Social Security.

In an interview with Elaine Floyd, the Director of Retirement and Life Planning for Horsesmouth LLC, she told me that this is the second most important financial decision that an individual or couple will make - while the number one decision is when to retire.  A transcript of the interview is on the interview page of our website. 

We have developed an understanding of Social Security strategies to help you make an informed decision on claiming your Social Security benefits and integrate into your retirement plans.

We have had the privilege to see clients adopt strategies that we have recommended.  The objective of Social Security can be easily summed up - it is social insurance for old age, survivors and the disabled.  On the other hand, there are strategies that are not apparent to the naked eye, so to speak, and are generally overlooked  due to lack of knowledge.  When we receive an phone call from a client when they see the money from adopting a strategy and hear the excitement in his or her voice, we are not sure who is more excited - the client or us.

In a July 2015 poll, Nationwide Insurance found that investors don't have a lot of confidence in their Social Security knowledge and would willing move to advisors to advisors who do.  The poll found that only 17% with an advisor who offers Social Security guidance ...

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