For quite a while now we’ve been reading the reports from the Social Security Administration’s reviews of the status of the trust fund – where the prediction is that we’ll end up in the year 2033 with only enough money to pay 77¢ on the dollar of the promised benefits from Social Security. So far this revelation has not resulted in policymakers’ taking any actual steps to fix things, but sometime someone has to act. What can be done about fixing Social Security?
social security benefits
Understand Deemed Filing to Avoid a Surprise in Your SS Strategy
There’s nothing worse than feeling as if you have your Social Security filing strategy all lined out, when a rule like deemed filing rears its ugly head to throw your strategy off track. Here’s an example: Steve and his wife Edie are ages 66 and 61 respectively. The plan is for Steve to file for his Social Security benefit now (at his Full Retirement Age), and for Edie to file for her own benefit when she reaches age 62. Then Edie will wait until she reaches Full Retirement Age of 66 to file for the Spousal Benefit based on Steve’s record, which will increase her benefit by $500 at that time.
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Minimize taxes by adjusting your portfolio
Since the markets have had some downturns lately, now could be a good time to make some adjustments to your portfolio, rebalancing and the like, that may help to minimize taxes. In doing so you can possibly get a bit of advantage in your tax bill from a loss you’ve experienced in your investments. If you have taxable accounts, that is, accounts that are not tax-deferred (like IRAs or 401(k) plans) when you sell your investments there is capital gains treatment on your gains and losses. If you have losses and gains in your taxable account, when you realize these losses and gains by selling the holdings, your losses are subtracted from the gains, and if the result is positive (net gains), these gains are taxed at the preferable long-term capital gains rates. I say this is preferable as the rate is less, often much less, than ordinary income tax […]
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Paper Social Security Statements are Back
The best laid schemes o’ mice an’ men Gang aft agley — Robert Burns To a Mouse, on Turning Her Up in Her Nest with the Plough As with many great ideas, in practice the concept of exclusive electronic delivery of Social Security benefit statements seems to have gone “agley”. Apparently a very small percentage of folks actually took advantage of the online version of these statements (primarily my client base, I’m guessing). As a result of this and apparent feedback from customers, advocates and Congress, Social Security is resuming the physical delivery of paper Social Security Statements. The new delivery schedule will be based upon the age of the potential Social Security benefit recipient, with statements being sent automatically 3 months before your 25th, 30th, 35th, 40th, 45th, 50th, 55th, and 60th birthdays. You will only receive this statement if you are not currently receiving Social Security benefits AND […]
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3 Do Over Options For Social Security Benefits
You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow? At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can! Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were […]
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How to Compute Your Monthly Social Security Benefit
So you’ve seen your statement from Social Security, showing what your benefit might be at various stages in your life. But not everyone files for benefits at exactly age 62 or 66 – quite often there are months or years that pass before you actually file. This article will show you how to compute your monthly Social Security benefit, no matter when you file. Computing your monthly Social Security benefit First of all, in order to compute your monthly Social Security benefit, you need to know two things: your Primary Insurance Amount (PIA) and your Full Retirement Age (FRA). The PIA is rather complicated to define, but for a shorthand version of this figure, you might use the figure that is on your statement from Social Security as payable to you on your Full Retirement Age (or “normal” retirement age).
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File Now. Suspend Later.
Suspending benefits is a facet of Social Security filing that usually only gets written about in connection with filing – File and Suspend is often referred to as a single act, but it’s actually two things. First you file for your benefits, which is a definite action with the Social Security Administration, establishing a filed application on your record. Then, you voluntarily suspend receiving benefits. If this happens all at once, the end result is that you have an application filed with SSA, but you’re not receiving benefits. Since you have an application filed (in SSA parlance, you’re entitled to benefits), your spouse and/or dependents may be eligible for a benefit based on your record. Since you are not receiving benefits, your record earns delayed retirement credits (DRCs) of 2/3% per month that you delay receipt of benefits past your Full Retirement Age (FRA). (Note: you can only suspend receipt […]
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Your Social Security Benefits: Are They Taxable?
If you’re receiving Social Security benefits, either for disability, retirement, or survivor’s benefits, when you file your tax return you will need to figure out if the benefits you’ve received during the prior year are taxable to you. You’ll receive a Form SSA-1099 from Social Security sometime in the first months of the year, showing what your benefits were in the prior year, as well as any deductions that were made throughout the year – including Medicare premiums (Part B and/or Part D) if applicable, and federal income taxes withheld. But are the benefits taxable to you? At most, 85% of your benefit might be taxed – and it’s possible that none of your benefit is taxable, all dependent upon your total income for the year. See this article for a detailed explanation of How Taxation of Social Security Benefits Works. The IRS recently published their Tax Tip 2014-23, which […]
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Annuities – Fees, Expenses, and Taxes
Last week we covered some of the differences in annuities and the various types of annuities someone can purchase. In our final annuity installment (no pun intended) I want to explain some of the fees and expenses that some annuities and annuity providers employ. As mentioned in my first annuity article annuities are an insurance product – insuring against living too long. Most companies that offer annuities will charge for this insurance by means of what are called mortality and expense charges. M&E charges can be as low as .25% to as high as over 2%. These charges are the expenses the annuity company charges to the entire risk pool of policyholders in order to pay for the few that will outlive their life expectancy. Most policyholders and annuitant will not outlive their life expectancy and thus pay for those that do. M&E charges will also help the annuity company […]
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Social Security Filing Strategies for Surviving Spouses
There are a couple of strategies for Social Security filing that surviving spouses can use to maximize benefits throughout their lifetimes. The important factor to keep in mind for the surviving spouse is that filing for Survivor Benefits (based on your late spouse’s record) has no impact on filing for Social Security benefits based on your own record – other than the fact that you cannot file for both benefits at the same time. Coordinating these two benefits (Surviving Spouse benefits and your own benefits) can take a couple of different paths: you could file for the Surviving Spouse benefit first, allowing your own benefit to accrue Delay Credits up to as late as age 70; or you could file for your own benefit first, and then later file for the Surviving Spouse benefit. Sue’s husband Steve passed away when Sue was 61 years of age. Steve had just turned […]
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How Your Average Indexed Monthly Earnings is Determined
In order to calculate your Social Security benefit you need to know what your PIA (Primary Insurance Amount) is. In order to calculate the PIA, you need to know what your Average Indexed Monthly Earnings (AIME) factor is. So how is your AIME determined? During your working career, your Social Security-covered earnings were reported to the Social Security Administration. When you reach age 60, an index factor is applied to each year of your earnings in order to adjust each year’s earnings for inflation. After the index factor is applied, the top 35 years of earnings are totaled and then divided by 420 (the number of months in 35 years). This produces an average… indexed… monthly… earnings… factor. If you haven’t had a full 35 years of Social Security-covered earnings, the AIME is still calculated using 35 years as the divisor. This can result in a much lower benefit as […]
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Be Careful When Using Your Social Security Statement for Planning
Recently I received an interesting email from a reader (thanks, JRT!) that illustrates one of the problems with interpreting your statement from Social Security on a regular basis. Part of the email follows: I am just reaching 66 and have been self employed for many years. I have worked continuously for 30+ years reaching $100,000 or so per year but have been slipping into retirement and last years income dropped to $70000. SS has already reduced my monthly payment estimate. It appears that if I postpone beginning taking my SS retirement I will lose in the long term because each year I have reduced income before retiring my SS distribution will be less. For instance if I defer to 70 and have 4 years with zero income won’t I be hurting myself??? In the situation described above, what the reader is describing is the amounts he is seeing on statements […]
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Important Ages for Social Security
There are many specific important ages to know as you’re planning your Social Security filing strategy. The ages can become quite confusing and jumbled together as you plan. It’s important to know at what age you can take specific actions, as well as what the consequences can be if you take a particular action earlier than it is appropriate. These ages are pervasive throughout this blog and my book, but I hadn’t compiled all of the important ages into a single place, so listed below are what I have determined to be the most important ages with regard to Social Security, as well as what is important about that age. Enjoy! Age Description 22-62 This is the forty years during which your monthly earnings are compiled to develop your initial Average Indexed Monthly Earnings (AIME). This figure is then used to determine your Primary Insurance Amount (PIA) which is used […]
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The Real Breakeven Point for Delaying Your Own Social Security Benefit and Taking the Spousal Benefit
Recently there was an article that I was involved with where we were reviewing the strategies of taking a restricted spousal benefit and therefore delaying your own benefit versus taking your own benefit. An astute reader (Thanks BL!) pointed out that there was a bit of a flaw in the logic on the costs of delaying, and therefore a significant difference in the breakeven period. Briefly, the example went as follows: Say the wife, Michelle, has a PIA of $1,300 and Mike has a PIA of $2,500. They’re both age 66, and Michelle files the restricted app and is eligible to receive $1,250 (half of Mike’s), which is only $50 less than she would receive if she filed for her own benefit. After four years of delay, she has given up $2,400 ($50 times 48 months) but now her benefit is $1,716 – $416 more than she would have received […]
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Computing Your Social Security Monthly Benefit
When planning for Social Security retirement benefits, it is important to know how to compute the amount of your benefit at various ages. The amount of your benefit will be different depending upon your age when you begin drawing the benefit, as well as your record of earnings over time. Below are the factors that are needed in order to determine the amount of your Social Security benefit: Your Primary Insurance Amount, or PIA Your Full Retirement Age, or FRA, which is determined by your year of birth Your age when you will begin drawing benefits Whether or not the Windfall Elimination Provision (WEP) applies to your benefits This earlier article has information about the PIA, and you can find your PIA on your Social Security statement. Your FRA, if you were born between 1943 and 1954, is 66. If you were born in 1955 or after, FRA gradually increases […]
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Restricted Application is Available via the Online Application
I learn something new almost every day. Today (well, not today but recently), I learned something about the online application for Social Security that I didn’t know: the restricted application for Spousal Benefits is available as a choice when you apply using the online application system! (If you want more information on why a restricted application is important, see this article about Leaving Money on the Table.) For quite a while now I’ve been telling folks that the best way to apply for the restricted application is to go to your local office. When you get there and explain that you want to submit a restricted application for Spousal Benefits only, the first person that you talk to will likely tell you that you can’t do this, because your own retirement benefit is greater than half of your spouse’s PIA, or something like that. Then my advice has been to […]
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Social Security Benefits and Taxes
When you’re receiving Social Security benefits, you may be subject to income tax on those benefits. At the end of the year, you’ll receive a form SSA-1099 from the government that details the benefits that you’ve been paid, as well as the amount that has been deducted for Medicare premiums, and any federal income tax that you’ve had withheld from the benefit checks. When you prepare your tax return for the year, if you’re using a software program (does anyone prepare them by hand any more?), the program will give you a place to enter the figures from your SSA-1099 form. Then after you’ve entered all of your other income information into the system, it will calculate how much of your Social Security benefit is subject to income tax. But that’s no fun, is it? How do you know how much of your benefit is going to be taxable? Here’s […]
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Notify Social Security of Major Changes in Your Life
You know how, after you’ve put your kids through college and they go off on their own, sometimes you don’t hear from them as often as you’d like? Major things occur in your kids’ lives and you don’t know about them until after the fact, possibly long after. So you get onto them about it, and ask the kids to call more often (or you call them more often) so that you can keep up with what’s going on… It’s kinda like that with the Social Security. They want to know when major changes occur in your life, as soon as possible. This is primarily due to the fact that, quite often, these changes will result in adjustment to your Social Security benefits. The first one that comes to mind is the death of a Social Security recipient. Naturally you need to notify the Social Security Administration as soon as […]
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Another Good Reason to Delay Social Security Benefits
As you likely know from reading many of my articles on the subject, I have long advocated the concept of delaying your Social Security benefit as long as possible. This shouldn’t be a surprise – many financial advisors have espoused this concept for maximizing retirement income. Lately there has been a white paper making the rounds, from a Prudential veep, Mr. James Mahaney, entitled Innovative Strategies to Help Maximize Social Security Benefits. The white paper supports the very theme that I wrote about a couple of years ago in the post Should I Use IRA Funds or Social Security at Age 62?. This paper seems to have struck a chord with a lot of folks, as I’ve received it no less than a dozen times from various folks wondering if the strategies Mr. Mahaney writes about would be useful to them. The point is very clear: It makes a great […]
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Are You Leaving Social Security Money on the Table? You Might Be, If You Don’t Understand and Use This One Rule
Note: with the passage of the Bipartisan Budget Bill of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details. Many couples that have done some planning with regard to filing for Social Security retirement benefits have figured out how to coordinate between the higher wage earner’s benefit and the lower wage earner’s benefit. Often it makes the most sense to file for the lower wage earner’s benefit early, at or sometime near age 62, while delaying the higher wage earner’s benefit out to as late as age 70. This method allows for a maximization of those two benefits. If you’re really astute, you probably picked up on […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
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