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Are You Clueless about Social Security?

If you haven’t a clue about Social Security, it’s vital that you learn, so you can be ready to grow and maximize your benefits.

Lake Geneva Regional News’ recent article entitled “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It” provides several important things you should know:

Your benefits are determined by your top 35 years of earnings. The monthly benefit you get in retirement is based on your specific earnings during your 35 highest-paid years in the workforce. If you don’t work a full 35 years, you’ll have $0 factored into that equation for each year you’re missing an income. So, you can see how important it is to try to fill in those gaps. If you lost your job during the pandemic and are thinking about early retirement, check your earnings history before you do.

You’re only entitled to your full monthly benefit when you hit full retirement age. You can claim your monthly retirement benefit in full once you hit your full retirement age (FRA). However, many people don’t know what that age is. About a quarter (26%) of those aged 60 to 65 couldn’t correctly identify their FRA on the quiz. Your FRA is based on your year of birth.

You can claim Social Security as early as age 62 or wait until age 70 and grow your benefits in the process. However, you’ll need to know your FRA first.

You can collect Social Security, even if you never worked. If you are or were married to someone who’s entitled to Social Security, you may be eligible for spousal benefits that amount to 50% of what your current or ex-spouse collects.

MassMutual found that 30% of older Americans didn’t know that a person who’s divorced may be able to collect Social Security benefits based on a former spouse’s earnings history. Thus, it pays to read up on spousal benefits as retirement nears, even if you never held a job.

Being ill-informed about Social Security could make it more difficult to file at the right time and make the most of your Social Security income

Stay up to date on how Social Security benefits work, so you’re able to make wise choices for your retirement.

Reference: Lake Geneva Regional News (April 10, 2021) “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It”

What Is Plan for Social Security Recipients, Who Haven’t Received Stimulus Money?

Democratic leaders on the House Ways and Means Committee are calling for the IRS and Social Security Administration to step up their efforts to get the funds to recipients of Social Security who have not received their stimulus money.

Congressional Democrats, including Representative Richard Neal of Massachusetts, who serves as chair of the House Ways and Means Committee, sent a letter to the IRS and Social Security Administration on Monday calling for “immediate attention to this urgent matter.”

Other committee leaders who signed the letter include Representatives John Larson, D-Conn.; Bill Pascrell Jr., D-N.J.; and Danny Davis, D-Ill.

CNBC’s recent article “Lawmakers call for prompt payment of $1,400 stimulus checks to Social Security beneficiaries” reports that delays have been reported in sending $1,400 stimulus checks to Social Security, Supplemental Security Income, Railroad Retirement Board and Veterans Affairs beneficiaries who don’t typically file tax returns.

“The American Rescue Plan was intended to provide much-needed economic stimulus and assistance to people across the country — immediately — and we are counting on your agencies to ensure that beneficiaries are not left behind in the seamless delivery of those payments,” the lawmakers wrote.

“Some of our most vulnerable seniors and persons with disabilities, including veterans who served our country with honor, are unable to pay for basic necessities while they wait for their overdue payments,” the lawmakers said.

The IRS has not given a timeline for those payments, according to the letter.

To date, the IRS has sent out about 90 million of the third stimulus checks, which amount to up to $1,400 per person, provided people meet certain income thresholds and other qualifications.

A second batch of those $1,400 checks is due to arrive via direct deposit as soon as Wednesday, while more payments have also been sent by mail as a paper check or prepaid debit card.

Reference: CNBC (March 23, 2021) “Lawmakers call for prompt payment of $1,400 stimulus checks to Social Security beneficiaries”

What are Most Costly Mistakes with Social Security?

Motley Fool’s recent article entitled “5 Social Security Oversights That Could Cost You Thousands” says that these five Social Security mistakes could cost you thousands in your retirement.

  1. Claiming Social Security early while you’re still working. You can claim your Social Security retirement benefit as young as age 62, but your benefits will be permanently reduced when compared with the amount you would receive if you waited until your full retirement age. Social Security will also penalize you for continuing to work while collecting benefits, if you are younger than your full retirement age.
  2. Failing to claim Social Security by your 70th birthday. Once you hit age 62, your benefit increases the longer you wait to claim, until you reach 70. You don’t have to claim your benefit by your 70th birthday, but there is no more benefit for waiting at that point.
  3. Delaying past your full retirement age to claim Social Security spousal benefits. If you’re claiming Social Security benefits based on your own income record, it’s smart to wait past your full retirement age to start taking benefits. However, if you’re claiming based on your spouse’s benefits, there’s no benefit to delay beyond your full retirement age to claim. As a result, married couples of similar ages who have vastly different earned incomes have a dilemma: for you to claim spousal benefits, your spouse also has to have begun claiming benefits based on his or her own earnings record. This combination makes it less worthwhile for the primary breadwinner spouse to wait to collect benefits, if the spouse is expecting to take spousal benefits.
  4. Taxes on Social Security benefits are not adjusted for inflation. Originally, Social Security benefits weren’t taxed. However, in 1984, the government started taxing Social Security benefits once a person’s combined income reached $25,000. Even now, the income level where Social Security starts to get taxed is still at $25,000. Because there is no adjustment for inflation, this makes more of people’s Social Security income taxable. This easily costs even moderate-income retirees thousands of dollars of spendable income over the course of their retirements.
  5. “Tax free” income counts toward making Social Security taxable. Even traditionally tax-free sources of income, like the interest from in-state municipal bonds, is included in the calculations to see how much of your Social Security will be considered taxable. Therefore, seniors who own tax free municipal bonds as part of their retirement portfolio may be surprised to find that those bonds are what’s causing their Social Security to be taxed. Seniors who find themselves in that situation may want to reevaluate their choice to be invested in those tax-free municipal bonds.

Despite how simple Social Security may appear, these five situations show how mistakes can cost thousands of dollars.

Reference: Motley Fool (March 14, 2021) “5 Social Security Oversights That Could Cost You Thousands”

living longer

What are the Scariest Statistics for Retirement?

Think Advisor’s recent article entitled “11 Scariest Retirement Statistics: 2020” says that there is a lack of preparation, savings difficulty and general uncertainty that American retirees are facing. Here are those scary stats:

  1. Just a quarter of Americans are on a trajectory to maintain their lifestyles in retirement. The other 75% will need to work longer, move to lower-cost housing and cut spending to maintain their standard of living, largely due to the coronavirus downturn.
  2. The Social Security trust funds would be empty by 2023, without the payroll tax. While President Trump let employers temporarily defer the employee portion of payroll taxes, he said the deferred taxes could later be forgiven, or the cut made permanent. When he signed the order, he vowed to “terminate the tax,” if reelected. Republican lawmakers subsequently debuted a plan to fund any shortfalls from the Treasury.
  3. Social Security benefits will be decreased by 21% if the trust fund runs out. Congress will have to intercede, or it could happen 10 years from now, if not sooner.
  4. Those born in 1960 will have a big problem because of the complicated formula the Social Security Administration uses to calculate benefits. Pre-retirees born in 1960 will see a nearly 15% cut to their lifetime benefits from Social Security when it’s time to collect. If the pandemic suppresses the economy into 2022, those cuts will impact more pre-retirees. The impact to their Social Security benefits will also be permanent.
  5. The 2021 Social Security cost of living adjustment, or COLA, will be just 1.3%. Retirees should note that rising health care costs and a potential 6% increase in Medicare Part B premiums may absorb that benefit increase.
  6. More than 50% of Americans think the economy is worse now than in 2008, with 51% of Americans seeing the COVID slowdown as worse than the 2008 recession. A survey from Edelman Financial Engines also found that 26% had withdrawn money from retirement or savings for living expenses.
  7. About 60% of retirement savers have fallen behind, according to a TIAA study. Among these, 30% said it was directly due to the pandemic.
  8. Internet searches for “move out of the U.S.” have increased 16 times. International Living magazine says it had seen the jump in search traffic around the phrase since May. A total of 20% of respondents in a survey it conducted also said they wanted to move due to the pandemic. However, just 45% cited a desire to save money.
  9. Approximately 42% of investors sold stock, and most of them (88%) of them regretted it. In response to the drop in stocks in mid-March last year, 42% of investors in a survey by MagnifyMoney sold at least one stock and 24% sold all their holdings. About 69% of those who sold stock at the start of the pandemic greatly regretted it, and 19% said they were somewhat regretful.
  10. Roughly 80% of older Americans don’t understand retirement planning and don’t know the basics of how to successfully plan for a financially secure retirement, according to a study by The American College of Financial Services. The survey also found only 30% of respondents had a plan in place to fund long-term care needs, and just one in four actually had long-term care insurance.
  11. About 3 million workers may have been driven into early retirement due to the pandemic. From March to August of 2020, 2.8 million older workers might have been pushed out of their jobs prematurely, with economic turmoil and poor health making it hard for them to resume their careers elsewhere, according to by the Schwartz Center for Economic Policy Analysis at the New School. The report found that 38% of unemployed older adults stopped looking for work and left the workforce, and an additional 1.1 million were expected to do likewise.

Reference: Think Advisor (Oct. 30, 2020) “11 Scariest Retirement Statistics: 2020”

Am I a Senior Citizen?

Here are some milestones that could signal that you have become a senior citizen, according to US News and World Report’s recent article entitled “When Do You Become a Senior Citizen?”

Eligibility for Senior Benefits. There are exact ages when you qualify for a host of retirement benefits. In some ways, society makes it very clear when we become senior citizens. For example, we know that at age 65, we qualify for Medicare. Social Security benefits can begin as early as age 62 or as late as age 70. And senior discounts begin at some retailers and restaurants for those who are 55 or older.

If you’re 50 or older, you’re eligible to become an AARP member.

Spending Retirement Savings. Retirement accounts are developed to motivate workers to save for their retirement. Thus, accounts like a 401(k) plan or IRA usually impose a penalty for early withdrawals. If you take money out before age 59½, you’ll typically be hit with a 10% penalty. You may consider yourself a senior citizen when you no longer have to concern yourself with that 10% penalty for early withdrawals from your IRA or 401(k).

However, when you hit a certain age, you will need to take required minimum distributions from retirement accounts. Also called “RMDs,” these withdraws from traditional IRAs and 401(k) plans must be taken each year after age 72. Once you reach 72, you may think of yourself as a senior citizen because you have to start taking your RMDs from your retirement account.

Retirement. After you retire from working every day, your family and friends may consider you to have attained senior citizen status. The transition might bring on a feeling of meaning and purpose. Once you reach a certain age, you look back and go through self-reflection.

As you stop going to the office every day, you might feel a sense of gratitude for the years you were able to work and pursue a passion.

Health Issues. Medical conditions like arthritis, hypertension, or hearing loss may cause you to feel like you have reached senior citizen land. A person that is battling several age-related medical issues can feel olde,r just by the number and type of medications or medical devices they use.

It’s not easy to feel young when you are being fitted with a walker or hearing aid, and you’re lining up pill bottles every morning and evening. Feeling fatigued or ready for bed by 9 p.m. might be signals that you are getting older.

Reference: US News and World Report (Jan. 27, 2021) “When Do You Become a Senior Citizen?”

Do You Know These Social Security Surprises?

If you don’t understand how Social Security works, you may get caught off guard by some of Social Security’s rules and nuances, says Motley Fool’s recent article entitled “Don’t Let These 3 Social Security Surprises Ruin Your Retirement.” Here are some things to keep in mind:

  1. Taxes on benefits. Many assume that Social Security is not taxed, but it may be, depending on your provisional income. Your provisional income is calculated by taking your non-Social Security income plus 50% of your annual benefit payments. If that total is between $25,000 and $34,000 for a single or between $32,000 and $44,000 for a married couple filing jointly, you could be taxed on up to 50% of your benefits. Moreover, if your provisional income is more than $34,000 as a single tax filer, or $44,000 as a joint filer, you may be subject to taxes on up to 85% of your benefits. Typically, if Social Security is your sole retirement income source, you will avoid having your benefits taxed at the federal level. However, there are 13 states that tax Social Security.
  2. Withheld benefits when you still get a paycheck. When you hit your full retirement age (FRA), which is when you are entitled to collect your monthly Social Security benefit in full, you can earn as much money as you would like from a job, without having that income impact your benefit payments. However, if you work and collect benefits at the same time before reaching FRA, you may have some of your benefits withheld if you exceed the annual earnings test limit.

You can earn up to $18,960 in 2021 without losing any benefits. Above that threshold, you will have $1 in Social Security withheld for every $2 you earn. If you will be attaining FRA this year, the earnings test limit is higher, $50,520, and after that you will have $1 in Social Security withheld for every $3 you earn.

These withheld benefits are not lost permanently. They are added onto your monthly benefit once you reach FRA. However, claiming Social Security before FRA will also reduce your monthly benefit for life. Bear that in mind, if you are planning to continue working.

  1. Ultra-low cost-of-living adjustments. Social Security benefits are subject to a cost-of-living adjustment (COLA), which is designed to help seniors keep up with inflation. However, in recent years, it has not. From 2002 to 2011, COLAs averaged 2.43%, but between 2012 and 2021, they averaged only 1.65%. As a result, many seniors on Social Security have had trouble paying their bills. COLAs are tied to fluctuations in the cost of goods and services, but this does not necessarily relate to seniors. Because of this, some lawmakers have been advocating for a better way of calculating them.

If you are planning to depend primarily on Social Security in retirement, be certain that you know the details of the program.

Reference: Motley Fool (Feb. 1, 2021) “Don’t Let These 3 Social Security Surprises Ruin Your Retirement”

delay claiming social security

Should I Delay in Claiming Social Security?

Kiplinger’s recent article entitled “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet” asks you to imagine if, when you were a child, your mom baked your favorite pie and made you an offer. She could serve you a piece of pie right then and let you eat it. Alternatively, if you waited until after dinner, you’d get a bigger slice. Or, if you could wait until bedtime, your piece would be even larger. And not just that day, but for the rest of your life.

Every time you had pie for dessert, the size of your piece would be based on the decision you made that one day.

There are many justifications for taking the smaller piece of pie right away, when offered. Many people want to begin their retirement as soon as possible, and they want or need the Social Security income to do so. Some want to claim their benefits and invest the money to further grow their nest egg. Many people are concerned that the Social Security trust fund will be depleted before they get their share. Finally, there are some who just aren’t aware of how much bigger their monthly payment could be if they waited.

While you can get your benefits as early as 62, that choice, can mean a permanent reduction in benefits of up to 30% less than what you could receive by filing at your full retirement age (FRA). Retirees who file after their FRA receive a delayed retirement credit of 8% per year until they turn 70.

Admittedly, eight years (from 62 to 70) is a long time to wait to tap into this significant income stream. Most seniors would jump at the chance for more money, particularly as many baby boomers face these challenges that could put even the best-laid income plans to the test in retirement:

Longevity. The longer you live, the greater the chance that your savings will have to endure multiple financial storms, such as increased taxes, inflation and costly health care issues as you get older. The Social Security Administration estimates that the average 62-year-old woman born in 1958 can expect to live another 23½ years, and a man with the same birthdate can expect to live another 20⅔ years. That’s a long time to have to make your money last. However, if you maximize your Social Security benefits by earning delayed retirement credits, you’ll always have that guaranteed income.

Low interest rates. In the current low-interest environment, the return on “safe” investments, such as CDs, bonds, and money market accounts, won’t protect you from inflation. Thus, one of the best investments that retirees can make right now isn’t really an investment at all, but rather it’s growing their Social Security payments by delaying to take them.

Decline in employer pensions. The retirement savings system in the United States traditionally has been built on three pillars: Social Security, a workplace pension and individual savings. However, over the past two decades, many employers have stopped offering pensions. As a result, the full responsibility for retirement investing has been shifting to employees with defined contribution plans. However, 40.2% of older Americans now depend on Social Security alone for income in retirement. Only 6.8% receive income from a defined benefit pension, a defined contribution plan, and Social Security. Fidelity Investments also reports that the median 401(k) balance in the first half of 2019 was $62,000 for savers in the 60 to 69 age group.

Ask an elder law attorney who practices in Social Security matters to help you make some calculations to determine your “break-even” age, which is when you’d come out ahead by waiting instead of claiming early. If you haven’t already, sign up with the Social Security Administration to get an estimate of your retirement benefits at 62, 67, and 70, using their online benefits calculator.

If your objective is to land the biggest possible piece of pie — and you can manage it — waiting is the name of the game.

Reference: Kiplinger (Oct. 21, 2020) “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet”

social security changes

What Changes are Happening to Social Security in 2021?

The Social Security program undergoes a number of changes every year. Fox News’s recent article entitled “7 changes to Social Security in 2021” looks at the updates unveiled by the Social Security Administration (SSA) last week.

More money. The SSA recently announced a 1.3% COLA for the upcoming year. That means an extra $20 a month for the average retired worker. It is an estimated monthly payout of $1,543 a month by January 2021. With prices for goods and services dropping between March and May because of the coronavirus pandemic, a 1.3% COLA is a win for the program’s 64.8 million recipients.

Full retirement age going up. There’s an increase in the full retirement age (FRA), which is the age when they can receive 100% of their monthly payout, as determined by their birth year. In 2021, the full retirement age is going to go up by two months, to 66 years and 10 months for people born in 1959 (i.e., beneficiaries who can become newly eligible next year). Remember that claiming benefits at any age before your FRA results in your taking a permanent reduction to your monthly payout. The Social Security FRA will peak at age 67 in 2022 for anyone born in 1960 or later.

High earners will pay more taxes. A big change next year is an increase in the payroll tax earnings cap. The payroll tax generated $944.5 billion of the $1.06 trillion collected by Social Security. In 2021, all earned income up to $142,800 will be taxable, representing an increase of $5,100. For the roughly 6% of workers who are expected to hit this cap, it’s an increase in payroll tax of up to $632.40 next year.

Wealthy can get a larger monthly benefit. After the SSA capped monthly retirement benefits at $3,011 for persons of full retirement age in 2020, the maximum payout at full retirement age is going up to $3,148 a month in 2021. That’s an extra $1,644 a year for wealthy workers.

The disability income thresholds increase. About 9.7 million beneficiaries are receiving a monthly payout from the Social Security Disability Insurance Trust. In 2021, the income thresholds where benefits cease to disabled beneficiaries will be higher.

Withholding thresholds for early filers gets a bump. Social Security has a number of ways it penalizes early filers, one of which is the retirement earnings test. This lets the SSA withhold some or all of an early-filer’s benefit, if they earn more than a preset income threshold. In 2021, these income thresholds will be higher. Early filers who will reach full retirement age in 2021 will also see a bump in the withholding threshold. Next year, early filers who attain FRA at some point during the year will be allowed to earn up to $50,520 ($4,210 a month) before $1 in benefits is withheld for every $3 in earnings above this threshold. That’s an increase of $160 a month from this year’s levels. (The retirement earnings test isn’t applicable when you hit your full retirement age, no matter when you claimed benefits, and withheld benefits are returned as higher monthly payouts after hitting full retirement age.)

Must earn more to qualify for a retirement benefit. To qualify for a retirement benefit, you’ll need to have earned 40 lifetime work credits, of which a maximum of four credits can be earned each year. These credits are awarded according to an individual’s income in a given year. (Workers received one lifetime work credit in 2020 with $1,410 in earned income, so if a worker nets at least $5,640 in earned income or $1,410 X 4 this year, they’ll get the max of four credits). Next year, it’ll take $1,470 in earned income to earn one lifetime work credit, or $5,880 for the full year to maximize your Social Security work credits.

Reference: Fox News (Oct. 19, 2020) “7 changes to Social Security in 2021”

caring for a loved one

Caring for a Loved One from a Distance

Trying to coordinate care from a distance becomes a challenge for many, especially since as many as 80% of caregivers are working. Add COVID-19 into the mix, and the situation becomes even more difficult, reports the article “When your parent is far away and you are trying to care for them” from the Pittsburgh Post-Gazette.

The starting point is to have the person you are caring for give you legal authorization to act on their behalf with a Power of Attorney for financial affairs and a Health Care Directive that gives you authority to receive health information under HIPAA (Health Insurance Portability and Accountability Act). It is HIPAA that addresses the use, disclosure and protection of sensitive patient information.

Next, have a conversation about their finances. Find out where all of their important documents are, including insurance policies (long-term care, health, life, auto, home), Social Security and Medicare cards. You’ll want to know where their tax documents are, which will provide you with information on retirement accounts, bank accounts and investments.

Gather up family documents, including birth, death, and marriage certificates. Make sure your loved one has completed their estate planning, including a last will and testament.

Put all of this information into a binder, so you have access to it easily.

Because you are far from your loved one, you may want to set up a care plan. What kind of care do they have in place right now, and what do you anticipate they may need in the near future? There should also be a contingency plan for emergencies, which seem to occur when they are least expected.

Find a geriatric care manager or a social worker who can do a needs assessment and help coordinate services, including shopping for groceries, medication administration and help with basic activities of daily living, including bathing, toileting, getting in and out of bed, eating and dressing.

If possible, develop a list of neighbors, friends or fellow worshippers who might create a local support system. If you are not able to visit with any degree of frequency, find a way to see your loved ones on a regular basis through video calls. It is impossible to accurately assess a person’s well-being, without being able to see them. In the past, dramatic changes weren’t revealed until family members made a trip. Today, you’ll be able to see your loved one using technology.

You may need to purchase a smartphone or a tablet, but it will be worth the investment. A medical alert system will provide further peace of mind for all concerned. Regular conference calls with caregivers and your loved one will keep everyone in touch.

Caring from a distance is difficult, but a well-thought out plan and preparing for all situations will make your loved one safer.

Reference: Pittsburgh Post-Gazette (Sep. 28, 2020) “When your parent is far away and you are trying to care for them”