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How to Prepare for Cognitive Changes in Your Life

Planning for the cognitive decline that often accompanies aging can prevent expensive mistakes, says a recent article from U.S. News & World Report, “How to Minimize 4 Financial Management Disasters That Come With Aging.” Planning for cognitive decline can make our later years less stressful.

Age and Vulnerability to Financial Elder Abuse. Simple tasks like paying bills can become problematic as our cognitive abilities diminish. This also leaves people more susceptible to fraud and scammers—today’s thieves’ prey on the elderly through telephone, online, mail and in-person schemes. Add a layer of protection by having a trusted person or family member oversee accounts. A professional fiduciary or a bill-pay service could be used if no family member is available or trustworthy enough.

Freezing a senior’s credit with major credit bureaus can make it harder for thieves to steal their identity, take out loans, or open credit cards under their names.

Financial documents should be organized, and their location should be shared with loved ones. Your estate planning attorney, financial advisor and CPA should have the contact info of a trusted person who can step in to manage your affairs, if necessary. Your estate planning attorney can create a Financial Power of Attorney, so they can act on your behalf.

You can appoint a representative payee with the Social Security Administration, so another person can help you with Social Security matters.

The Death or Disability of the Family’s Financial Person. One person in the household very often runs the business side of life, paying bills, balancing checkbooks and keeping an eye on investments. If that person dies or becomes disabled, the spouse needs to be able to take over finances. To do this, they’ll need to know more than the usernames and passwords on accounts—although they’ll need to know this information as well. Regular check-ins on financial matters with a spouse and a trusted adult is a good practice.

Planning for Long-Term Care Expenses. Failing to prepare for the cost of long-term care or to protect a couple’s assets with Medicaid planning can be financially catastrophic. Medicaid can help with the cost of nursing home care. However, if the family has assets, they must be used up before the person is eligible for care. Medicaid also has a five-year lookback period, meaning any transfers or sales of assets taking place five years from the date of application will delay eligibility. An estate planning attorney can help with the use of irrevocable trusts, often referred to as Medicaid Asset Protection Trusts. There are also trusts designed to protect assets for the healthy spouse. A consultation with an estate planning attorney long before long-term care is needed is critical to avoiding this mistake.

Outliving Your Money. Experts believe nearly two-thirds of Americans nearing retirement age are unprepared for two, three, or even four decades of retirement. The past year’s skyrocketing costs of living have prevented many from adding to their savings during the end of their working lives, and many don’t even have emergency savings. Having a financial plan and an estate plan is important at every age and stage of life.

Cognitive changes don’t happen to everyone as they age. However, it is still wise to have your estate planning done long before any changes occur. Having a will and any necessary trusts created and executed while you are at full capacity allows you to be the one making these decisions.

Reference: U.S. News & World Report (June 26, 2024) “How to Minimize 4 Financial Management Disasters That Come With Aging”

Social Security Scammers Embracing Artificial Intelligence

Seniors now need to be extra careful about Social Security scams since fraudsters have embraced AI (Artificial Intelligence) to manipulate people into revealing secure information, says a recent article from U.S. News & World Report, “AI and the Risks of Social Security Fraud.” The schemes are sophisticated and appear entirely legitimate, making them harder to discern from real messages from the Social Security Administration.

The Office of the Inspector General recently launched a task force to investigate the use of AI and deter AI-related Social Security scams. The OIG recognizes the risk of criminals using AI to make their schemes easier and faster to execute and the deceptions more credible and realistic.

You’ll want to know about AI risks if you receive Social Security benefits. Here are some guidelines to keep both your identity and finances safe.

Criminals commonly use robocalls or chatbots. The messages sound as if they come from legitimate government representatives and trick seniors into disclosing personal information or even making fraudulent payments using voice synthesis and natural language processing. This can also happen on a website, with an AI-generated video of the U.S. president or an official with the Social Security Administration announcing a new Social Security benefit and encouraging retirees to sign up by following a link on the video. The link takes the user to a fraudulent website, where they are asked to provide essential information, including their Social Security number and other details. Once the information is provided, thieves can re-route the monthly benefit to an unauthorized account.

Be wary if you receive an email from a source you don’t recognize. Don’t respond to text messages from people or organizations you don’t know. If you receive a suspicious phone call, hang up. If someone claims to be calling from Social Security, hang up, call the local Social Security office yourself, and explain what happened.

If you haven’t already, set up a my Social Security account online at ssa.gov. That’s where you’ll indicate the bank account to receive your benefit, and you can tell SSA not to change it unless you appear in person at the local SSA office.

The SSA doesn’t initiate contact with recipients by email, text, or phone. Anyone saying they are from the SSA using these methods is a scammer. Even if your phone displays the call is coming from the SSA, know that it’s very easy for criminals to manipulate caller ID to make the call appear to come from whomever and whatever number they want.

Thieves now use digital technology to trick seniors into revealing personal information. As technology changes, so do the means of stealing. Stay current on common scams and protect your retirement benefits and finances from AI-driven fraud.

Reference: U.S. News & World Report (Sep. 29, 2023) “AI and the Risks of Social Security Fraud”

What Is Elder Law?

The U.S. population is aging, and baby boomers, the largest generation in history, have entered retirement age in recent years. Yahoo Finance’s recent article, “Elder Law Is More Important Than Ever. Why? Baby Boomers,” says that medical care has extended life and physical ability and grown more sophisticated.

“Questions surrounding mental competence, duration of care, and nature of treatments have become increasingly difficult to answer. The result has been a medical system that often implicates legal questions of individual autonomy, with some of the highest stakes that the courts recognize,” the article explains.

Estate Planning. Trusts and estates is the area of the law that governs how to manage your assets after death. You create trusts to hold, oversee and distribute assets according to your instructions. While they can be created when you’re alive, most establish trusts for handling their property after they’ve passed away.

Disability and Conservatorship. As you get older, your body or mind may fail. This is known as incapacitation. It is generally defined legally as when someone is either physically unable to express their wishes (such as being unconscious) or mentally unable to understand the nature and quality of their actions. If this occurs, you need someone to assist with activities of daily living. Declaring an individual mentally unfit or incapacitated is a complicated legal and medical issue.

Power of Attorney. Most seniors use power of attorney to plan for two main situations: (i) a medical power of attorney for family members to assume your care in the event you’re physically incapacitated for some reason, and (ii) a general power of attorney allows you plan for someone to manage your affairs, if you’re judged mentally incapacitated.

Medicare. Every American over 65 will most likely deal with Medicare, which provides no-cost or low-cost healthcare for those 65+. Almost all seniors enroll to receive at least some medical benefits under this program. Health care becomes an increasingly important part of your financial and personal life as you age. It’s important for the elderly to know their rights and responsibilities regarding healthcare.

Social Security. This is the retirement benefits program to help ensure that U.S. seniors have money on which to live. For senior citizens, understanding how these programs work is often essential. This is particularly true given the increased footprint that medical care plays in the lives of senior citizens and the complexities brought on by increasingly mobile seniors.

Reference: Yahoo Finance (Sep. 13, 2023) “Elder Law Is More Important Than Ever. Why? Baby Boomers”

Social Security Cost of Living (COLA) Is Likely to Increase in 2024

Following two years when Social Security Cost of Living Adjustments (COLAs) soared to the highest levels in decades, beneficiaries should not be surprised by more modest increases in monthly payments in 2024, reports a recent article, “Social Security COLA 2024: How Much Will benefits Increase Next Year?” from AARP.

The inflation gauge used by the Social Security Administration (SSA) to set the annual COLA rose at a 2.6% annual rate for July and 3.4% for August. These are the first two of three months the SSA uses to determine the final increase, which will be announced more formally in October.

The August uptick was a bit higher than anticipated, and September’s inflation numbers are expected to rise to similar levels. Analysts expect a 2024 COLA of about 3 percent.

This may seem like a letdown for recipients. Still, COLA is calculated to exactly offset the price increases faced by consumers, measured by the Consumer Price Index, since the prior COLA was determined.

A 3 percent COLA indicates inflation is slowing down or getting under control, which is especially important for seniors living on a fixed income. While a higher COLA sounds nice, it reflects rising prices, which can be far more challenging for retirees who count on Social Security benefits to pay their household bills.

All forms of benefits are affected by the COLA, including retirement, disability, family, and survivor benefits. The adjustment starts with the December Social Security benefits, which most folks receive in January 2024.

Benefits are calculated by the CPI-W, a subset of the main Consumer Price Index, which measures a broad range of retail prices. The SSA compares the average CPI-W for July, August, and September of each year to the figure for the same period the year before to arrive at the COLA for the year to come.

For example, the year-over-year changes in the CPI-W for the three months in 2022 were 9.1%, 8.7%, and 8.5%, respectively. Over the entire quarter, the index was 8.7% higher than average for the same period in 2021, resulting in the COLA used at the start of 2023.

If projections hold, and there’s no reason to think they won’t, the 2024 adjustment will align more with the relatively low inflation pre-pandemic period. When there’s no inflation, there’s no COLA. This happened in 2010, 2011 and 2016. The most significant adjustment ever? 14.3 percent in 1980.

Studies by the Center for Retirement Research show Social Security benefits generally keep up with inflation in the long term but can lag during short-term periods of volatility, depending on whether or not the price index is trending up or down when the COLA is set.

Beneficiaries in 2021 and 2022 lost buying power when COLAs were outpaced by surging inflation, peaking around 9 percent in mid-2022. This year, inflation was cooling somewhat when the 8.7 increase took effect and remained below the COLA level.

Another factor impacting the COLA’s value is Medicare costs. A rise in Medicare Part B premiums in 2024 would offset a portion of the COLA increase for Social Security recipients who have premiums deducted directly from their benefits, which is about 70 percent of Medicare enrollees.

Reference: AARP (Sep. 13, 2023) “Social Security COLA 2024: How Much Will benefits Increase Next Year?”

What are Biggest Mistakes People Make with Social Security?

With so many ways to claim benefits, especially if you are married or were divorced at some point in your life, small mistakes can add up to a big difference in the amount of Social Security benefits you receive, says a recent article, “11 Social Security Mistakes That Can Cost You a Fortune” from Nasdaq.

Not checking your earnings record during your working life can add up to significant losses. Even if you’re decades away from claiming, you should check your earnings record annually since this is what Social Security benefits are based on. Common mistakes include employers recording incorrect earnings or earnings not showing up because you changed your name and the name change wasn’t processed correctly.

Check your statement annually to avoid losing the right number of benefits because of earnings record mistakes. If you see an error, send proof of your earnings to the Social Security Administration. You might submit your W-2 form if you’re a salaried employee or your tax return if you are self-employed. Once the SSA verifies your claim, your record will be corrected. This is a “sooner is better than later” task because you may not have a paper trail going back 30 years.

Another mistake people make is not working long enough. To qualify for Social Security, you need at least 40 work credits. Taxpayers earn up to four credits each year based on earnings. For example, in 2023, you must earn $1,640 to earn one credit or $6,560 to earn four credits. Benefits are calculated based on the average of the 35 highest earning years. If you haven’t worked for 35 years, $0 will be averaged for each year you don’t have earnings.

It’s wise to do the calculations for Social Security before retiring. As you approach your retirement date, check your earnings statement first to be sure you have enough credits to qualify for Social Security. If you don’t have 35 years, consider working another year or two. If you worked at a job where you weren’t paying into Social Security, adding another year of work could ensure you qualify and may also boost your monthly benefit amount.

Taking Social Security too early can take a big bite out of benefits. While everyone eligible can start taking benefits at age 62, for everyone born after 1959, the reduction for benefits at age 62 is 30%. This lower benefit is permanent and won’t increase until you reach Full Retirement Age (FRA). It’s best to wait at least until FRA. If you can wait past FRA, your benefits could increase by as much as 8% per year up to age 70.

Another mistake is waiting too long to claim benefits. If you live to the average life expectancy, it won’t matter if you claim benefits too early or late. The amount of the benefit reduction for claiming early and the increase in delaying a claim evens out. But if you are in poor health or have cash flow trouble, a benefit check at a younger age could be the right move.

If you file for Social Security benefits solely on your earnings record, you might miss out on a larger benefit. Let’s say you were a stay-at-home parent while your spouse worked. You may not have enough work credits to qualify, or your benefits may be small. However, you could still qualify for benefits under your spouse’s work record. Check to see how much you would be eligible to receive under your spouse’s work record before deciding how to claim benefits.

If divorced, you might claim benefits under your ex-spouse’s earnings record if you meet all the requirements. Suppose the marriage lasted at least ten years. In that case, you are 62 or older, unmarried, and your ex-spouse is eligible to receive Social Security retirement or disability benefits. Your benefit from your work is less than what you would receive under your ex-spouse’s earnings record; it’s worth exploring this option.

If you are married, it’s best to coordinate claiming strategies with your spouse. A low-earning spouse could start claiming benefits based on the higher-earning spouse’s income at full retirement age. Meanwhile, the higher-earning spouse delays benefits to increase retirement credits.

Finally, remember that up to 85% of Social Security benefits could be subject to federal income taxes if you earn substantial income from wages or dividends. The percentage of benefits subject to income taxes depends on the couple’s combined income, which includes the household Adjusted Gross Income (AGI), any nontaxable interest income, and half of your Social Security benefits.

Reference: Nasdaq (July 2, 2023) “11 Social Security Mistakes That Can Cost You a Fortune”

Why Is ‘When’ the Big Question in Estate Planning?

When do you plan to retire? When will you take Social Security? When must you start withdrawing money from your retirement savings? In retirement, “when” is everything, says Kiplinger’s recent article entitled, “In Retirement, Many Crucial Questions Start With the Word ‘When’.” That’s because so many financial decisions related to retirement are much more dependent on timing than on the long-term performance of an investment.

Too many people approaching retirement — or are already there — don’t adjust how they think about investing to account for timing’s critical role. “When” plays a major role in the new strategy. Let’s look at a few reasons why:

Required Minimum Distributions (RMDs). Many people use traditional IRAs or 401(k) accounts to save for retirement. These are tax-deferred accounts, meaning you don’t pay taxes on the income you put into the accounts each year. However, you’ll pay income tax when you begin withdrawing money in retirement. When you reach age 73, the federal government requires you to withdraw a certain percentage each year, whether you need the money or not. A way to avoid RMDs is to start converting your tax-deferred accounts to a Roth account way before you reach 73. You pay taxes when you make the conversion. However, your money then grows tax-free, and there is no requirement about how much you withdraw or when.

Using Different Types of Assets. In retirement, your focus needs to be on how to best use your assets, not just how they’re invested. For example, one option might be to save the Roth for last, so that it has more time to grow tax-free money for you. However, in determining what order you should tap your retirement funds, much of your decision depends on your situation.

Claiming Social Security. On average, Social Security makes up 30% of a retiree’s income. When you claim your Social Security affects how big those monthly checks are. You can start drawing Social Security as early as age 62. However, your rate is reduced for the rest of your life. If you delay until your full retirement age, there’s no limit to how much you can make. If you wait to claim your benefit past your full retirement age, your benefit will continue to grow until you hit 70.

Wealth Transfer. If you plan to leave something to your heirs and want to limit their taxes on that inheritance as much as possible, then “when” can come into play again. For instance, using the annual gift tax exclusion, you could give your beneficiaries some of their inheritance before you die. In 2023, you can give up to $17,000 to each individual without the gift being taxable. A married couple can give $17,000 each.

Reference: Kiplinger (March 15, 2023) “In Retirement, Many Crucial Questions Start With the Word ‘When’”

What Is Elder Law?

Estate planning concerns distributing assets after one dies, including the use of last wills, trusts and preparing the estate to minimize assets passing through probate. Elder law is more focused on protecting the individual during their lifetime.

Elder law provides people with legal rights and protections, as they become older and become vulnerable. The field of elder law covers a range of issues impacting seniors, including long-term care planning options, end-of-life and estate planning and problems including nursing home abuse or neglect. There are a variety of issues for which seniors benefit from legal assistance, says a recent article titled “Elder Law: A Complete Guide” from Forbes.

Medicare Planning and Social Security. An elder law attorney can help seniors understand their options to maximize Social Security benefits. Claiming benefits before full retirement age results in a reduction in monthly benefits, while a delayed claim leads to a larger monthly income. Signing up for Medicare can be daunting, with so many options and decisions to be made. An elder law attorney can help get it right the first time.

Incapacity Planning. While one can become incapacitated at any time in life, the chances of becoming physically or mentally impaired increase as one ages. Having a living will allows you to specify what kind of medical treatments you want to accept or decline. A durable power of attorney allows you to name an agent to control your assets, and a healthcare power of attorney lets another person make medical decisions on your behalf.

Guardianship. If no incapacity planning has been done and action needs to be taken on your behalf, the court will assign a guardian. This could be a family member, or if none is available or the court does not deem the family member to be a good candidate, a professional guardian might be assigned.

It takes time for a person to be declared legally incapacitated and for a guardian to be appointed. The process can be costly and is stressful for all concerned.

Long-Term Care Planning. Someone turning 65 today has as much as a 70% chance of needing some type of long-term care during their lifetime. Long-term care planning addresses making decisions in advance for having care at home or moving into a nursing home for rehabilitation or as a permanent resident. Long-term care planning includes planning for Medicaid and protecting assets.

Elder Abuse Laws. Unfortunately, seniors are vulnerable to abuse, especially when they must rely on others for care. Elder abuse laws exist to protect you from physical, mental, emotional, sexual, or financial abuse. An elder abuse claim can be pursued to recover compensation for medical bills, loss of assets, emotional distress, or physical pain.

An elder law attorney can help create a plan to address issues and protect those who are lucky enough to enjoy a long life.

Reference: Forbes (Jan. 11, 2023) “Elder Law: A Complete Guide”

How Will Social Security Change Next Year?

Money Talks News’ recent article entitled “5 Ways the Social Security System Will Change in 2023” looks at several ways in which Social Security will change for 2023.

  1. The benefit increase. Social Security recipients will see their monthly payments go up by 8.7% in 2023. That cost-of-living adjustment (COLA) means an extra $146 a month. Not all retirees will see much extra Social Security income in 2023 because the Medicare Part B premium is withheld from some retirees’ Social Security payments.
  2. The earnings limit for working retirees. If you claim Social Security retirement benefits before reaching your full retirement age (FRA) and also continue working, the SSA will withhold some of your benefits, if your income exceeds the earnings limit. This limit generally increases annually as the national average wage index increases. For 2023, it will rise from $19,560 to $21,240 if you reach full retirement age after 2023, and from $51,960 to $56,520 if you reach full retirement age in 2023. However, you don’t lose any benefits withheld due to your income exceeding the applicable earnings limit.
  3. The tax cap on workers’ income. The maximum amount of a worker’s income subject to Social Security payroll taxes will increase from $147,000 in 2022 to $160,200 in 2023. As a result, if you’re lucky enough to earn more than $160,200 in 2023, you won’t owe Social Security payroll taxes on every dollar you earn. The Social Security payroll tax rate itself will remain the same in 2024: 6.2% for employees (employers pay another 6.2% on their employees’ behalf) and 12.4% for the self-employed.

“To receive Social Security retirement benefits, most people need to accumulate at least 40 ‘credits’ during their working lifetime, according to the U.S. Social Security Administration (SSA). Currently, you can earn up to four credits per year, if you work and pay Social Security taxes.”

The earnings required for you to get a Social Security credit, also known as one-quarter of coverage, will go up from $1,510 in 2022 to $1,640 in 2023.

  1. The maximum benefit. There’s a limit to how much money a retiree can get in monthly benefits—the maximum Social Security benefit. Your maximum Social Security benefit is based upon the age at which you retire. The maximum benefit for a person who retires at their full retirement age will go up from $3,345 per month in 2022 to $3,627 per month in 2023.

Reference: Money Talks News (Oct. 13, 2022) “5 Ways the Social Security System Will Change in 2023”

Am I Getting All the Social Security Benefits I Can?

Money Talks News’ recent article entitled “7 Social Security Benefits You May Be Overlooking” says that the Social Security Administration provides payments to spouses, children and those with disabilities, among others. Let’s look at this in detail.

  1. Spousal benefits via a husband or wife. Spouses can get up to half of their husband’s or wife’s monthly benefit. Even stay-at-home spouses without their own work history can claim benefits with this method. You can start claiming spousal benefits as early as age 62. However, benefits are reduced if payments begin before your full retirement age. If you are entitled to your own benefits, as well as spousal benefits, you will get an amount equal to whichever benefit level is greater.
  2. Spousal benefits via an ex-spouse. Even if you are divorced, you may be entitled to get spousal benefits. However, all of the following must apply to your situation:
  • Your ex-spouse is entitled to receive Social Security benefits;
  • You were married at least 10 years to your ex-spouse;
  • You are currently unmarried; and
  • You are at least 62 years old.

The benefit that you are entitled to get based on your own work is less than the benefit you would receive based on your ex-spouse’s work. Claiming spousal benefits as a divorced person does not impact your ex’s benefit amount. It also does not affect any benefits their current spouse can receive, if they have remarried.

  1. Survivor’s benefits for widows and widowers. If your spouse dies, you may still be able to receive up to 100% of their Social Security retirement benefits. Divorced spouses may also be able to get survivor’s benefits, if they were married for at least 10 years and are now unmarried. Most widows and widowers can begin claiming survivor’s benefits as early as age 60. Those who have a disability and became disabled prior to or within seven years of their spouse’s death can start benefits as early as age 50. In addition, widows and widowers of any age can get survivor’s benefits, if they are caring for a deceased worker’s child who’s younger than age 16 or disabled.
  2. Survivor’s benefits for children. Children can get payments from a deceased parent’s record as well. Survivor’s benefits are available to children up to age 18 (or 19 for if attending elementary or secondary school full-time) These benefits may extend beyond that, if a child becomes disabled and remains disabled before age 22. Depending on the circumstances, grandchildren and stepchildren may also be eligible for these benefits.
  3. Parent’s benefits. Parents who depended on their children for financial support may be eligible to get benefits from Social Security if that child dies. To be eligible , you have to meet a number of criteria, including the following:
  • The deceased worker must have sufficient work credits to qualify for Social Security benefits;
  • You must be at least age 62 and, in most cases, cannot be married after the worker’s death;
  • You must have received at least half of your support from the deceased worker at certain points in time;
  • You were the natural parent or became the legal adoptive parent or stepparent prior to the worker turning 16 years old; and
  • You are not eligible for a retirement benefit from Social Security that exceeds the parent’s benefit.
  1. Disability benefits. To get monthly benefits through the Social Security Disability Insurance program you must have a work history that makes you eligible for Social Security and be unable to work now because of a medical condition that is expected to last at least a year or end in death.
  2. Supplemental Security Income. These benefits do not come from Social Security taxes, but rather the program uses general tax dollars to provide benefits to adults and children with disabilities, blindness, or limited income and resources. The SSI program is designed to provide cash assistance for basic needs, such as food, clothing and housing. Because it is funded by general tax revenue, there is no work history requirement to receive these benefits.

Reference: Money Talks News (Feb. 8, 2022) “7 Social Security Benefits You May Be Overlooking”

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