Category Archives: social security

It’s All About Your FRA

Your Full Retirement Age (FRA) is the age when the government states that you should retire.  In 2012, you are FRA at 66.  Here is the basic concept: the longer you wait to collect, the more you get each month.  And once you collect, your decision is forever.  

You have three choices when to collect your check: Early, Full, or Delayed.

EARLY (62)

You can retire at 50 if you want to, but the earliest you can collect SS is 62.  And your benefit will be reduced- permanently- if you collect early.  Specifically, your monthly check will be reduced by approximately .5% for each month that you collect prior to your FRA.

If you collect at 62, you will get 75% of your full benefit.*

FRA (66)

The government defines the age that you ‘should’ retire, and it’s known as your Full Retirement Age (FRA).  Once you attain that age- for most baby boomers it’s 66- you can collect 100% of the benefit you have earned.

FRA=100%

Delay past 66

Each year that you can delay taking your benefits beyond FRA, your monthly check will increase by 8%.  That means that if you can wait until 70, you get 132% of the benefit.  That’s an increase of 8% per year.  Not a bad investment!  Also, the amount of your check will stop increasing when you turn 70 so if you haven’t started to collect at 70, you are actually losing out.

Delay past FRA= Government guaranteed 8% annual increase to age 70

 

A quick example:

Assume FRA is 66, and you will be entitled to $1000/mo at FRA.

 

  • At 62 you will get $750/month.
  • At 66 you will get $1000/month.
  • At 70 you will get $1320/month.

So, should you collect early or wait?  Now we have the numbers to do the math, but there is still a bit more to figure out.  Next week we’ll discuss how your plans to work past 62 play a role in your decision.

Get your numbers right now: Social Security Administration Estimator

You can estimate several different ages side-by-side.  You will need to enter some personal info, including your SS#, but don’t worry- the system doesn’t store your information.

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3 Stages to Earning your Social Security benefit

1.       You must earn 40 credits.  

You earn your check over your career

Generally working for 10 years earns you the 40 credits:  $1120 in earnings earns 1 credit, and you can earn 4 credits annually.  Technically you can earn 4 credits on January 1st…  But you can still only earn 4 credits annually.

2.       Your check is based on the average your highest 35 years of income, up to the social security maximum.

It’s an average of 35 years, so if you only worked for 30 years you will add 5 zeros to your earnings total and your benefit check will be smaller.

Also, working part time in retirement as a greeter at your local grocery store will NOT reduce your check even though you are only earning a fraction of your previous salary.  Remember, the check is based on your 35 HIGHEST years of income.

3.       You pay into the system

Currently, you pay 4.2% in social security tax each paycheck, up to a maximum annual amount.  In 2012 that amount is $110,100.  So even the filthiest of the rich, who make millions of dollars this year, will only be paying SS tax on the first $110,100.  That’s the same reason why there is a maximum monthly benefit you can receive. 

 

DYK: The maximum monthly SS check in 2012 a 66 year old can collect is $2,513/month- even for Mr. Filthy Rich

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The Real Problem with Social Security

The newspapers will tell you that the Social Security trust fund is going to run out of money in 2033.  That’s a load of hogwash!   The truth is the trust fund simply exists for accounting purposes.  Social security is actually a welfare benefit that comes straight out of the budget expenditures.  But the truth doesn’t sell newspapers- fear sells newspapers!  Baby boomers have no fear- Social Security running out is not the problem.

The real problem with Social Security is that people don’t understand how to decide when to collect. 

Don’t collect without doing the math!

Deciding when to collect is one of the biggest decisions a person will ever make, and most people don’t take the time to make an educated decision.  In fact, most people decide to collect early- according to the Social Security Administration’s 2010 annual supplement:

74% of people collecting retirement benefits are collecting reduced amounts.

Did you know that waiting to collect at 70 can translate into over $280,000 more a lifetime than if you collect at 62?  That’s a ton of money!   To calculate that, I assumed an unmarried 66 year old who can collect $2000/month and lives to age 100.  Running the numbers tells me that if they live to 90 the difference is $143,280.  If they live to 85 it’s $74,880…you can easily calculate these things. 

Age is not the only thing to consider when you are evaluating when to collect.  Next, you must factor in a few other variables, like working in retirement, your marital status, and life expectancy…only then can you make an educated decision. 

So why do so many people collect early?  Here are the 4 main reasons:

  1. They need the money. 
  2. They don’t trust the system. 
  3. They won’t live much longer
  4. They don’t understand how to do the math

Stay tuned for a series of posts discussing everything you need to know in order to figure out when you should begin to collect.  Then I will walk you through a number of strategies to potentially maximize your monthly social security check.

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NO MORE DO-OVER

Social Security Alert  

Effective immediately, the Social Security Administration has revised the withdrawal provision (a.k.a. “the Do-over”) in which a beneficiary can withdraw benefit application, payback all benefits received, and file a new application (with new benefit amount). 

This revision limits the time period to withdraw to within 12 months of first month of entitlement, and only one withdrawal per lifetime.  This is a direct result of the media promoting the withdrawal as a means for retirees to acquire an interest free loan.  The costs of this “loan” were a burden on the Social security Trust fund and administration employees.

There is a lot of nuance to the Social Security code as we have talked about many times before.  If you are interested in discussing retirement income strategies , don’t hesitate to call us at 610-862-0068.

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SOCIAL SECURITY: Did you know?

Taxation of Social Security Benefits…taxable social security benefits

I cut and pasted this material straight from the IRS website, www.irs.gov:

“How Much Is Taxable?

If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Generally, the higher that total amount, the greater the taxable part of your benefits.

Maximum taxable part.   Generally, up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if either of the following situations applies to you.

  • The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly).
  • You are married filing separately and lived with your spouse at any time during 2009.” (end quote)

 

Disclaimer:

I am not a tax professional and I do not give tax advice.  You should consult a CPA for individual tax advice.  If you do not know a CPA, I would be happy to introduce you to one.

For the full details and worksheets to calculate your taxable benefits, click here:

IRS Publication 915

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SOCIAL SECURITY: Did you know?

If you work after you retire…

Earning income during retirement puts you at risk of reducing your benefit.  This applies only to benefits being collected prior to your Full Retirement Age (F.R.A.).

Your first $14,160 of earned income (during 2010) is exempt; after this $14,160 threshold your SS benefit will be reduced by $1 for every $2 you earn.

This applies to earned income only.  Pensions, Annuity income, investment income, veteran/government/military retirement benefits do not count as earned income and will not reduce your social security retirement benefit.

Once you attain FRA you can earn as much as possible and not reduce your benefit.

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SOCIAL SECURITY: Did you know?

Spousal benefits…spousal benefits

Your spouse has benefits.  Your spouse is entitled to a percentage of your earnings, even if he/she never worked. 

Once you are collecting your benefit, your spouse can collect between 35% as early as age 62 and up to 50% of your benefit at your spouses FRA.  This is in addition to your benefit! 

This may sound too good to be true, but I confirmed this yesterday with the social security administration.  Be careful, although your spouse can begin collecting spousal benefits as early as age 62, the reduced benefit is permanent.  This means your spouse will only be eligible for 35% of your benefit, permanently.  The spousal benefit percentage is determined by the spouse’s age, therefore if your spouse can wait until his/her FRA the benefit can be significantly larger.

According to the representative that I spoke with at the SSA:

Spousal benefits originated decades earlier when the majority of women were homemakers.  The subsequent growth of working women has actually relieved some of the previously anticipated stresses on the social security trust fund.

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Social Security Income Advice

Tuesday nights Social Security Income educational event was a hit!  We hosted a presentation at the Great American Pub in Conshohocken, and the material was presented by the government.  Richard Gaudiosi from the Social Security Administration did a heckuva job presenting an informative  event and even made it entertaining.  I think everyone learned something valuable.

Did you know that each month you wait to collect your benefit, it will increase by .5%?

There was a lot of information, including strategies to collect spousal benefits and survivor benefits. 

Did you know that a husband can increase the monthly benefit his wife gets as his survivor by more than 20% by claiming at 66, not 62?  Claiming later could be the most effective way a husband can improve his wife’s long-term financial security.

Do you plan on working after your Full Retirement Age?  There is a lot to learn!  If you have any questions or would like some of the handouts, feel free to contact me.

The crowd was great; we had 22 people…thanks to everyone for attending.

We are looking forward to doing it again in September.  If you are interested in attending, ENROLL NOW .

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