Social Security Ends Payback Option

May 16th, 2011  |  Published in Social Security  |  4 Comments

Last year I wrote about how you could take social security early and still receive the full benefit. The IRS has caught on to that option and is has established rules that keep it from being a viable option. The Social Security Administration published rules that limit the time period for beneficiaries to withdraw an application for retirement benefits to within 12 months of the first month of entitlement and to one withdrawal per lifetime. The SSA stated that it is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an “interest-free loan.” However, this “free loan” costs the Social Security Trust Fund the use of money during the period the beneficiary is receiving benefits with the intent of later withdrawing the application and the interest earned on these funds. The processing of these withdrawal applications is also a poor use of the agency’s limited administrative resources in a time of fiscal austerity — resources that could be better used to serve the millions of Americans who need Social Security’s services. Although it would be nice to have the payback option this does seem to be a smart move by the SSA.

The Future of Social Security

February 16th, 2011  |  Published in Social Security  |  3 Comments

The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

Everyone knows that the United States Social Security System is in trouble, but nobody knows exactly how it will affect them.

The Social Security System is bordering on insolvency and will have trouble meeting its obligations going forward.  Last year, the federal government paid out more in benefits than it received in payroll taxes for the first time ever, and the Social Security is projected to run annual deficits going forward as well.

The President’s deficit commission and Congress are considering making sweeping changes to the Social Security program, but nothing is known for sure yet.  Unless the federal government performs a major overhaul, the Congressional Budget Office is forecasting that the entire system will be bankrupt by 2037 and anybody after that will have to receive their benefits only from what comes in from active workers.

What does this mean for you?

If you are under the age of 40, you really shouldn’t count on Social Security existing in its present form when you retire. Whether or not Social Security will be revamped, the program will not be in the same position as it was for your grandparents.  Here are some of the changes that may take place.

Means Testing

Means testing has been mentioned for Social Security over the years. This means that the amount of payments that you would receive from Social Security would be based upon your need for the money instead of it being based on how much you have paid into this system. Anyone with assets in a 401k plan or an IRA would receive lower monthly payments than an individual with no retirement plan whatsoever. Those with substantial resources would not be eligible for any payment whatsoever.  This system would be awful for me since we will have significant savings and retirement funds.

Pushing Back the Age of Eligibility

There has also been a lot of discussion about pushing back the age of eligibility to 70. Since more Americans are living longer, the thought is that they can work longer and/or save more for their own retirements.  Raising the age of eligibility would save the Social Security System billions of dollars but obviously means that Americans will have to work longer or save enough to cover the time between their retirement date and age 70.

Overall, senior citizens and current retirees should expect their benefits to remain in place, but younger individuals like me should plan their retirement around much lower Social Security payouts at a later date.

No Social Security COLA Increase in 2011

October 12th, 2010  |  Published in Social Security  |  5 Comments

According to several news sources it appears unlikely that there will be a cost of living adjustment (COLA) increase for Social Security in 2011. This would be the second year in a row without an increase. The COLAs are set automatically according to the Consumer Price Index for Urban Wage Earners and Clerical Workers. This index has been used since 1975 Since the CPI-W is still not at the levels it was in 2008 the measure does not call for increases to Social Security.

Many feel that the CPI-W does not accurately reflect inflation as it applies to the elderly. With Social Security already facing shortfalls it is doubtful Congress would adopt a different measure that would lead to more and larger increases in Social Security benefits. It is possible that there will be a special one-time payment of $250 if Congress passes a bill calling for one. A similar measure this year did not pass though.

On the bright side it is predicted that there will be sufficient inflation as measured by the CPI-W to lead to an increase in 2012.

Visit the Social Security website for more information on how COLA benefits are calculated.

Social Security Reform Ideas

June 17th, 2010  |  Published in Social Security  |  5 Comments

When it comes to the Social Security system, the only absolute facts are that changes must be made to keep it solvent. With the arrival of retirement age for the baby boom generation, the system will have two workers for every retiree by 2030; currently there are 3.2 workers per retiree paying into the system. With the well running dry, there are many ideas about how to fix the problem, and everyone has a strong opinion. There are three basic schools of thought, though with many variations as to how to accomplish each goal.

Raising Taxes

A highly unpopular option with cash-strapped Americans, raising taxes would fill the coffers. Discussions about raising taxes usually center on which taxes can be raised, and for which segment of the population. Raising payroll taxes is the worst case scenario, and instead deliberations have centered on eliminating loopholes in the tax code for wealthy Americans, and the possibility of reinstating estate taxes while earmarking the money for Social Security.
There is an additional element to these negotiations. Though hotly debated around the country, some point out that legalizing immigration could give the government the needed taxes to ‘right the ship’, and that we have plenty of workers to pay into the system if all of the undocumented workers are counted.

Reduce Spending

Other models have been suggested with reduced spending of the Social Security money. An absolute distinction between retirement money and other government money is essential, since surpluses from the system have often been usurped for other government needs.
Ways to reduce spending are certainly not fashionable either, because they usually are centered on lowering already low benefits or raising the age at which benefits can be collected.

Privatize

The third option is to privatize part or all of the system and allow each person to direct investments in stocks, bonds, and mutual funds for increased return on investment of their funds. This would enable future retirees to control the structure of their income and build a nest egg that they could use as they see fit.
Careful planning would be required to implement privatization, as there are a number of problems to consider. A few major considerations are current retirees or those near retirement age, and widows or children who depend on survivor’s benefits to live.

2010 Income Tax Brackets

October 7th, 2009  |  Published in Retirement  |  1 Comment

Every year in mid-September, the Bureau of Labor Statistics releases inflation data for the last year and tax mavens get to calculating how much all the various tax numbers will move. It turns out inflation was a mere 0.19%, meaning most of the figures won’t change at all.

For referential purposes, the 2010 IRS Tax Brackets will remain unchanged:

2010 IRS Tax Brackets

Here are the projected federal income tax brackets for 2010:

Tax BracketSingleMarried Filing Jointly
10% Bracket$0 – $8,375$0 – $16,750
15% Bracket$8,375 – $34,000$16,750 – $68,000
25% Bracket$34,000 – $82,400$68,000 – $137,300
28% Bracket$82,400 – $171,850$137,300 – $209,250
33% Bracket$171,850 – $373,650$209,250 – $373,650
35% Bracket$373,650+$373,650+

This also means that every other number pegged to inflation will probably remain unchanged, such as the COLA for Social Security, as reported earlier.

Social Security & Medicare in Financial Distress

May 15th, 2009  |  Published in Retirement  |  Comments Off on Social Security & Medicare in Financial Distress

Earlier this week Treasury Secretary Timothy Geithner revealed that the Social Security trust fund might be exhausted as early as 2037, which is four years earlier than the estimate last year! The main reason for this adjustment comes from the rising unemployment rate, which affects how much is being paid into the trust fund, tax breaks in the stimulus package, and an increase in demand for benefits. By definition, the Social Security trust fund is exhausted when they can only pay 76% of benefits.

It’s not all that surprising when you consider that since January 1, 2008, approximately 5.7 million jobs have disappeared and another 4.3 million jobs are now part-time. That’s going to hit the Social Security collections pretty hard.

Medicare is worse off than Social Security and it’s forecast to be exhausted by 2017, two years earlier than was estimated last year. For Medicare, exhaustion means they can only pay out 81% of costs. The cause is again rising unemployment, since it’s funded from payroll deductions, and what’s especially shocking is that it has paid out more than it collected starting last year.

Experts say the only way to fix it is for broader healthcare reform…

Recession hits Social Security hard [CNNMoney.com]

How the Stimulus Package Affects Retirement

March 11th, 2009  |  Published in Retirement  |  1 Comment

If you’re retired or getting close to retirement, the stimulus package recently signed into law has a few perks in it that could benefit you a little bit. While much of the focus and discussion was on the infrastructure spending, there’s quite a few provisions in there for folks in or nearing retirement. It’s not as sexy to write about in mainstream media, it’s perfectly suited for all you loyal My Retirement Blog readers.

Social Security – $250 Tax Free

If you’re on Social Security right now, you will get a $250 tax-free payment from the government regardless of your income. If you’re a retired government worker who doesn’t get Social Security, you’ll get a refundable $250 tax credit, which is as good as $250 in your pocket. If you and your spouse are both collecting, you’ll each get $250. Not bad right?

Make Work Pay Credit

If you are working, even part-time, you may be eligible for a $400 tax credit ($800 for married couples filing jointly) for ’09 and ’10. The credit phases out if your income exceeds $75,000 ($100k if married) and is gone if your income exceeds $100k ($200k for married). Another gotcha is that you have to deduct the Social Security benefit if you get it, so if you get the $250, then you’re only eligible for $150.

There are other provisions in there that might affect you but these two are the most direct.

Retirees: Consider Buying TIPS

October 23rd, 2008  |  Published in Retirement  |  4 Comments

I recently received an email that contained some personal finance advice from two individuals I’ve always held in high regard – Scott Burns and Laurence Kotlikoff. Burns is a syndicated personal finance columnist, chief investment strategist for AssetBuilder, and originator of the couch potato lazy portfolio. Kotlikoff is a professor of economics at Boston University and the two teamed up to write The Coming Generational Storm, a book that doesn’t paint a rosy picture about retirement in the future America. They’re teaming up again to write a new book, Spend ‘Til the End — The Revolutionary Guide to Raising Your Living Standard Today and When You Retire, and offered up these two tips for retirees:

1. A tip for retirees: Buy TIPs.

For households who are retired or close to it and relying on the stock market to finance their retirements, moving their funds to inflation-protected long-term Treasury bonds (TIPs), makes good sense. So does using their regular financial assets to pay off their mortgages. There is no guarantee the stock market will rebound any time soon. And it could get worse before it gets better.

2. Another tip for retirees: See if Uncle Sam will give you a better deal on Social Security.

Retired or soon-to-be retired households should also ensure they are getting the best possible deal from Social Security. This includes considering repaying the Social Security benefits received in the past and reapplying for higher benefits. It also includes deciding when to take Social Security, integrating that decision with the timing of retirement account withdrawals, and deciding which account to tap first. Most important of all is determining how much one can safely spend. Spend ‘Til the End focuses on making sure households have enough funds to maintain their living standard all the way to the end — to their maximum ages of life. It also has a strong message for retirees who invest aggressively, namely spend defensively.

Four Reasons Couples Should Stagger Retirement

September 2nd, 2008  |  Published in Retirement  |  Comments Off on Four Reasons Couples Should Stagger Retirement

An important question you should ask yourself, as a couple nears retirement, is whether they should stagger retirement. It’s a topic that is worth exploring with your loved ones because there are many financial and relationship issues that accompany retirement and those can be, in part, alleviated if you opt to stagger your retirements. An article on TheStreet.com outlines some of the financial considerations but there are also relationship ones to consider as well.

Retirement Contributions

By keeping one spouse at work, he or she can continue to contribute towards IRA and 401(k) programs. Every extra year of contributions will help ensure a solvent and fruitful retirement because it’s adding more into the retirement nest egg. Plus, the one income acts as a source of money so that the retired spouse can turn to that, rather than his or her accounts, for funding – thus increasing the longevity of their retirement nest eggs as well.

Healthcare

One of the biggest costs of retirement is medical and health insurance. With one spouse working, you can have a company help alleviate that cost (or more depending on the generosity of the company), which can help the bottom line. By waiting, you can have one spouse retire before 65, when Medicare kicks in, and then have both retire once they reach that age limit.

Social Security

You can begin taking Social Security as early as 62 but to maximize your total gain from the program, you have to wait until “full retirement age,” which can be four years later. By keeping one income, you can put off taking SS payments and maximize your total payout.

Relationship

One of the biggest complaints about both couples retiring is that they now find themselves spending nearly every waking moment together. It can be difficult on a relationship to spend that much time together. By staggering, one spouse gets to try out retirement, find a rhythm and some hobbies, such that both aren’t sitting there watching TV and not knowing what to do. When one discovers a routine, the other can join or discover their own routine. There isn’t a case of two people not knowing what to do other than they have to do it together. 🙂