Social Security Info

 WE HAVE ADDED THIS SECTION IN THE HOPES THAT THIS INFORMATION WILL BE HELPFUL.

Retirement planning is complicated, beginning with the decision about when to begin taking your Social Security benefits. On one hand, if you need the money and don't expect to live into your 80s, it is tempting to take Social Security as early as possible — at age 62 — to benefit from the income stream. On the other hand, you can increase your monthly payment considerably by waiting until age 70. Most people underestimate how long they are going to live.

"I like to frame the Social Security benefits issue discussion with my clients by offering a definition of it as an inflation-protected joint and survivor annuity backed by the U.S. government," says Tim Kober, a Certified Financial Planner with Cedar Financial Advisors in Portland, Ore.

"This provides context for the 'when to claim' question," he says. "The present value of Social Security payments is equal over your expected lifetime, regardless of when you claim it. If, as Clint Eastwood would say, 'If you are you feeling lucky,' claiming late makes sense."

Differences in Benefits Can be Substantial

As a first step in this retirement planning exercise, find out approximately how much of a monthly benefit you'll get under different scenarios. Use Bankrate's Social Security calculator to get an estimate; actual benefits will depend on your personal work history. For a more accurate idea, the Social Security website offers a secure retirement estimator calculator.   REMEMBER,   THE BENEFITS PROJECTED TO PAID IF YOU START AT A LATER AGE NEED TO TAKE INTO CONSIDERATION THAT THE ACTUAL FIGURE WILL BE LARGER THAN SHOW TODAY DUE TO THE COST OF LIVING (COLA) INCREASES.

As an example, the table below illustrates the monthly benefit due to a fictitious worker at various ages. If the worker waits until full retirement age, his or her monthly income will be about 63 percent higher than if he or she begins drawing benefits at age 62 -- his or her earliest opportunity. If the worker waits until age 70, his or her monthly income from Social Security will be more than double the amount collected at age 62.

Age Monthly benefit 
62 $1,100
67 (full retirement age) $1,791
70 $2,369


 

Retirement Savings, Benefits Influence Decision

Social Security benefits are just one piece of the retirement income puzzle. You also need to take into account how much you -- and your spouse, if you're married -- have in retirement savings, whether you have pension benefits and if you have company retirement health benefits. Tally up how much income you expect you'll need, says Michael Kay, CFP, CPA and a financial planner with Financial Focus in Livingston, N.J.

"You have to look at your cash-flow needs," he says. "How important is it to your financial survival or to your cash-flow plans to have that money early in retirement versus several years down the road?

More Complicated for Married Couples

When engaging in retirement planning, married couples have two decisions to make. It makes sense to run the calculators for both spouses, looking at the different scenarios and combinations of income that could result from claiming Social Security benefits at different intervals, says Kay.

"It makes sense to play some 'what if' games to see how it will work on a cash-flow basis and a tax basis," he adds.

In some cases, where, for example, a wife had stayed home with the kids and didn't make as much money as her husband, Social Security benefits may be significantly lower, says Kober. In such cases, a wife can collect the equivalent of half of her husband's benefit if it's higher than the benefit she would receive based on her own earnings record. If the wife begins collecting checks earlier than full retirement age, however, she'll receive less than half of her husband's benefit.

Widowed, Divorced Have Options

Divorced spouses who have not remarried have the option of claiming their own benefits or those based on the record of a former spouse if that would be more beneficial, provided the marriage lasted at least 10 years.

Widows or widowers may claim survivor's benefits even if their spouse dies after they have already started receiving Social Security. Of course, if your deceased spouse's benefit is less than yours, it doesn't make sense to apply for survivor's benefits.

Many financial planners advise men to delay claiming benefits for as long as possible so they can leave a better benefit for their wives, since women generally have a longer life expectancy than men.

According to the Social Security website, these are the typical payouts for survivors:

•A widow or widower, at full retirement age or older, generally receives 100 percent of the worker's basic benefit amount;
•A widow or widower, age 60 or older, but under full retirement age, receives about 71-99 percent of the worker's basic benefit amount; or
•A widow or widower, any age, with a child younger than age 16, receives 75 percent of the worker's benefit amount.

Working Impacts Benefits Due to Taxes

If you continue to work, or go back to work, while claiming Social Security benefits,  your benefits could be reduced, depending on how much money you make. These benefits are not lost forever, but deferred until you reach full retirement age.

"For people who are still working, or who may go back to work after claiming benefits, you need to realize that some or most of your benefit will be reduced, depending on how much money you're making," says Kay.

Here's how it works, according to the Social Security Administration:

•If you start receiving benefits before your normal or full retirement age, ( in our cases, age 66) which depends on when you were born, your monthly benefit is reduced by $1 for each $2 you earn above a certain amount ($14,160 in 2010).
•If you start getting benefits in the year that you reach your full retirement age, your monthly benefit will be reduced by $1 for every $3 you earn above a certain amount ($37,680 in 2010).
•If you wait to collect benefits until after you reach your full retirement age, you can continue to receive your benefits without reduction no matter how much you earn.

In addition, keep in mind that if your total income exceeds a certain threshold, your Social Security benefits can be taxed.

I RECEIVED A QUESTION FROM AN ALUM  THIS WEEK ASKING:

  IF I TAKE EARLY RETIREMENT AND MAKE "REPORTED" INCOME OVER $14,160 PER YEAR FROM A PART (OR FULL) TIME JOB UP TO AGE 66, DO I FOREVER LOOSE THE $1.00 REDUCTION FOR EVERY $2.00 EARNED (OVER THE $14,160 LIMIT)?  THE ANSWER IS "PROBABLY NOT DEPENDING ON HOW LONG YOU LIVE".   FIRST OF ALL, UNDER THE SENIOR CITIZENS FREEDOM TO WORK ACT OF 2000, THE PENALTY (RETIREMENT EARNINGS TEST) IS SOFTENED THE YEAR YOU REACH FULL RETIREMENT AGE AND ELEMINATED  THE MONTH YOU REACH YOUR "FULL" RETIREMENT AGE.  IN ADDITION, THE BENEFITS THAT WERE WITHHELD WILL BE REINSTATED WHEN YOU REACH "FULL" RETIREMENT AGE AND WILL BE PRORATED AND ADDED ONTO TO YOUR MONTHLY CHECK  OVER YOUR LIFE EXPECTANCY.  IF YOU LIVE LONGER THAN YOUR LIFE EXPECTANCY, YOU WILL ACTUALLY RECEIVE MORE BENEFITS THAN WERE WITHHELD DUE TO THE EARNINGS PENALY PRIOR TO YOUR REACHING "FULL" RETIREMENT AGE.   BOTTOM LINE:  IF YOU HAD BENEFITS REDUCED PRIOR TO "FULL" RETIREMENT AGE DUE TO MAKING TOO MUCH MONEY, YOUR CHECK WILL BE READJUSTED UPWARD WHEN YOU REACH 'FULL' RETIREMENT AGE.

 (THE MONTHS  WITHIN  THE ACTUAL YEAR IN WHICH YOU REACH "FULL" RETIREMENT AGE, YOU CAN EARN  "REPORTABLE" INCOME UP TO $34,680 (DIVIDED BY 12) PER MONTH BEFORE THE PENALTY BEGINS AND THE PENALTY GOES DOWN TO $1 FOR EVERY $3 EARNED OVER THE LIMIT.)

THE MONTH AFTER YOU REACH YOUR FULL RETIREMENT AGE, THE POTENTIAL EXCESS EARNINGS PENALTY DISAPPREARS.

DO THE MATH---WHEN TO START COLLECTING BENEFITS 

Unfortunately, most people who qualify for Social Security are eager to get their hands on a check as soon as possible without educating themselves first.     A full 70 percent of recipients sign up for Social Security between age 62 and the normal full retirement age, which is between 65 and 67, depending on the year you were born.
Some, undoubtedly, have been forced into early retirement for health or economic reasons. But anyone who can avoid taking Social Security checks early will do themselves a big financial favor by delaying, since taking benefits early slashes what the government provides. As a married couple, however, you can employ more sophisticated strategies to collect Social Security early and still maximize your benefits over time. Here's how.
 
 
The Case for Waiting
To see the long-term benefits of waiting, consider this example from T. Rowe Price senior financial planner Christine Fahlund. A man born on January 2, 1948, who earns $80,200, he can expect a $2,157 a month from Social Security at his normal full retirement age of 66. But if he retires this year, at 62, he'll receive just $1,458 a month, about a third less. Using Social Security's assumptions, by waiting until 70, his checks will start at $3,303 — more than double what he'd get at 62.
True, he must pass up eight years' worth of checks — in this example, that's a total of $149,517 in inflation-adjusted benefits from age 62 through 69. But if he starts taking benefits at age 70, the bigger checks will let him make up that $149,517 in a little over six years, or by the time he's 77. From then on, he'll be ahead of the game.Through age 85, he'll have collected $786,450, or$219,462 more than if he had started benefits at 62. Postponing meant eight years of tax-free, government guaranteed growth.
Postponing your benefits can also help you avoid the Social Security earnings penalty if you work in retirement. In 2010, if you receive Social Security checks before the full retirement age, you must temporarily forfeit $1 of your benefits for each $2 you earn over $14,160 (you can't collect any benefits if you earn more than $42,960). If you reach your full retirement age in 2010, Social Security holds back one dollar for every $3 earned over $37,680.   After you've reached full retirement age, the earnings penalty disappears.
Weighing the Numbers
To determine when you should tell Social Security to start sending the checks, run some what-if scenarios.
Start by finding out how much Social Security is likely to pay you. The agency's web site has a table listing the normal retirement age based on the year you were born and the penalty for collecting benefits early. If you start at age 62, you'll get 25 percent to 30 percent less than at your full retirement age.
For a pretty good idea what your actual benefits will look like based on what you've earned (your checks are based on the average of your 35 highest-paying years), use Social Security's retirement estimator calculator.
Also, consider these three factors before you start the clock on Social Security:
Your health. If you have a serious illness or family history of short life expectancies, taking benefits as soon as you can makes sense. "But for most people, delaying benefits until their normal retirement age or later is best," says Vernon, "because, on average, Americans in their 50s and 60s will live until their mid-80s." You can use the calculators at livingto100.com and bluezones.com to estimate your life expectancy based on your health, family history and lifestyle.
Your marital status. If you're married, delaying your checks will not only boost your benefit, it will mean a larger survivor benefit for your spouse — extra money that will last for the rest of his or her life. There's an 81 percent chance that one or both members of a 65-year-old couple will live to 85, a 58 percent chance that one or both will make it to 90.
Your plans. Of course advice here can't take into account your personal needs: You may want to start taking Social Security late because you plan to keep working into your late 60s and don't need the government checks. Conversely, you may want to receive the money early so you can write the Great American Novel.
The Math for Marriage
If you're married, running the numbers is, as Meryl Streep might say, complicated. MoneyWatch blogger Larry Swedroe wrote a helpful four-part series on Social Security strategies for couples that demystifies the math. Here are the four basic rules:
1.You can claim a Social Security benefit based on your work record or your spouse's work record. The maximum spousal benefit is 50 percent of what your husband or wife will receive.
2. A widow or widower who starts collecting survivor benefits at the normal retirement age or older generally earns 100 percent of the deceased spouse's benefit. But the amount shrinks to 71 to 99 percent if you begin getting survivor benefits between 60 and your normal retirement age.
3. You can never collect your benefit and your spousal (or survivor's) benefit at the same time. If you're entitled to both benefits and are under the full retirement age, you will always receive the larger of the two.
4. You can't apply for a spousal benefit until your husband or wife has filed for Social Security.
How Couples Can Collect Early
Married couples who can't afford postponing Social Security altogether can use a technique known as the "62/70 Strategy" to maximize benefits over the long term. With this system, the lower-earning spouse files for Social Security at age 62 and the higher earner delays until age 70. "No matter which spouse dies first, the smaller benefit will die off too," says James Mahaney, vice president of Prudential Retirement and co-author of a report on how to maximize Social Security benefits.
Here's how T. Rowe Price's Fahlund says 62/70 could work: Assume John's full benefit will be $2,157 a month. His wife Jane's full retirement benefit will be $1,081 a month; at 62, she'd receive $721 a month. Jane applies for her $721 benefit at 62, and John delays claiming his checks until 70, when he'll collect $3,303. If John dies at 82, his monthly benefit will have grown to $4,601 because he had waited until 70 to start collecting. That $4,601 then becomes Jane's survivor benefit, and it will be 88 percent more than Jane would have received if John had begun collecting at age 62.
Couples should also take advantage of the little-known rules to boost retirement income.
Let's go back to John and Jane. Although John is waiting until 70 to start receiving his benefits, at 66 he can apply for a spousal benefit based on Jane's work record while his own benefit keeps growing. (If he was younger than 66, he couldn't do that.) Because he has reached his full retirement age, John qualifies for the maximum spousal benefit: $541 a month, or 50 percent of Jane's $1,081 benefit. When John hits 70, he'll drop the spousal benefit and start collecting his own larger benefit.
 
Also, remember the income you earn in the year you retire, from January 1 until the day you retire, will be part of  the calculation of your income tax bracket for that year.  Therefore becareful about cashing in any part of your IRA or pension plan during your first retirement year prior to Dec. 31st.  Cashing in an IRA all at one time can put you into a larger tax bracket for that year eating up a larger part of your IRA or 401K when it might have not be necessary.   Uninformed decisions can be catatrophic.   Be smart, ask an accountant for guidance before you make decisions.

 

CHANGE OF NAME

Whenever you change your name, be sure to report the change to the Social Security Office. Otherwise, your earnings may not be recorded properly and you may not receive all the Social Security you are due. Not changing your name with Social Security also can delay your income tax refund and your retirement benefits when you want to start drawing them.

To report a name change, fill out an Application for a Social Security Card (Form SS-5). You can get the form by visiting www.socialsecurity.gov on the Internet or any Social Security office or by calling Social Security’s toll-free number, 1-800-772-1213.

You must show us a recently issued document as proof of your legal name change. Documents
Social Security may accept to prove a legal name change include:

  • Marriage document;
  • Divorce decree;
  • Certificate of Naturalization showing a new name; or
  • Court order for a name change.

If the document you provide for a legal name change does not give enough information to identify you or if you legally changed your name more than two years ago, then you also must show us two identity documents including:

  • One document in your old name; and
  • A second document with your new legal name.

In addition to your name, these documents also must contain identifying information or a recent photograph.

If you are a U.S. citizen born outside the United States and our records do not show you are a citizen, you will need to provide proof of your U.S. citizenship. If you are not a U.S. citizen, Social Security will ask to see your current immigration documents.

The new card will have the same number as your previous card, but will show your new name.

Each year your employer sends a copy of your W-2 (Wage and Tax Statement) to Social Security. They compare your name and Social Security number on the W-2 with the information in their files. They add the earnings shown on the W-2 to your Social Security record.

It is critical that your "present" name and Social Security number on your Social Security card agree with your employer’s payroll records and W-2 so that they can credit your earnings to your record. It is up to you to make sure that both Social Security’s records and your employer’s records are the same and are correct. If your Social Security card is incorrect, contact any Social Security office to make changes. Check your W-2 form to make sure your employer’s record is correct and, if it is not, give your employer the accurate information.

If you are a worker age 25 or older and not receiving benefits, you receive a Social Security Statement every year that can be a valuable tool to help you plan a secure financial future. It provides you with a record of your earnings and gives estimates of what your Social Security benefits would be at different retirement ages. It also gives an estimate of the disability benefits you could receive if you become severely disabled before retirement, as well as estimates of the survivors benefits Social Security would provide your spouse and eligible family members when you die. Review this Statement to make sure it includes your "present" name and address and that all of your earnings are included. If your Statement does not include all of your earnings, let your employer and your Social Security office know about any incorrect information.