Little-Known Strategies Could Boost Your Bottom Line

Increase your Social Security benefit.

by: Karen M. Kroll | from: AARP Bulletin | August 5, 2009

With the economy in a tailspin and people having to work longer to make ends meet, it’s more important than ever to think through just how and when you claim Social Security benefits. You may be able to boost the amount you receive each month by employing two little-known strategies, described here.

These two approaches are available only if you’ve reached full retirement age—66, gradually increasing to 67. They are not widely used, so far. One reason is that most people begin claiming Social Security at the earliest eligible age, 62—before full retirement age—and that reality has spiked in recent months as people face financial pressure.

Mark Lassiter, spokesperson with Social Security, says these two strategies have been around a few years but not many people have used them. “They’re really just getting talked about in the past year,” he says.
If you or your spouse can hold off until full retirement age, the benefits may be significant.

1. Claim and suspend
If you’ve already started collecting Social Security but don’t need the money now, you can change your mind, thanks to a little-known provision called “claim and suspend.” That is, once you’ve claimed your benefits, you can turn around and suspend them for as long as you like. Claiming and suspending may add to your bottom line in three ways:

• First, by signing up for Social Security, your spouse can also claim a spousal benefit, which typically is about 50 percent of yours. (The spousal benefit continues even if you suspend.)
• Also, by suspending, then delaying your own benefit, the amount you’ll eventually receive each month continues to grow at 8 percent a year, until you’ve hit 70.
• And, if you die first, the higher benefit is passed on.

Only Social Security recipients who are of full retirement age and have never collected early benefits can use the claim-and-suspend strategy.

2. Claim now, claim more later
This strategy works for married couples who claim benefits based on their own work record. If one of you has taken your benefit, the other can draw a spousal benefit, typically around 50 percent, even while continuing to work.

It works like this: If your husband (or wife) is receiving a benefit and you have reached full retirement age, you could claim a spousal benefit, rather than your own. You typically would get about half of what your spouse receives.

Meanwhile, your own retirement benefit continues to grow at 8 percent a year. When you reach 70 (when the amount no longer qualifies for the annual increase), you could switch from a spousal benefit to claim your own benefit, if it’s larger.

The purpose of the law
These strategies were included in the Senior Citizens Freedom to Work Act of 2000, passed to encourage people to continue working beyond their retirement age. One way to achieve that, explained Patricia Dilley, professor of law at the University of Florida and a former staffer on the House Social Security subcommittee, was to allow people to access some level of retirement benefits while they stayed on the job.

 

Other considerations
These approaches are not for everyone. First, they carry some risk. Most significantly, you need to live long enough to make waiting extra years to take your benefits worthwhile. Also, the benefit amount may affect your tax bill, so you may want to consult a tax attorney before signing on.

Critics say these strategies benefit people who are better educated, have higher incomes and may be able to work longer. And the fact that better-educated people are more likely to know about them in the first place undermines the goal of Social Security, which has been to provide a benefit available to society over all, says Alicia Munnell, director of the Center for Retirement Research at Boston College.

Finally, they offer greater benefits for married couples, notes Kathryn Garnett, a Seattle-based consultant in retirement planning. And many people with lower incomes, especially single older women, can’t afford to wait for higher benefits.

However, if you’re part of a couple with a modest or average income and you’re able to use these strategies, you’ll likely see a significant impact on your household finances, says David Yeske, a certified financial planner in San Francisco. “If you’re a professional making several hundred thousand dollars, the impact is trivial. But if your income is $50,000 and you bring in a spousal benefit, that could have a substantial impact on your household.”

It’s possible that Congress may change these rules down the road; although experts say that if you’ve already begun claiming benefits, it’s likely that you’d be grandfathered in.

Karen M. Kroll is a financial writer based in Minneapolis.

Social Security not deal it once was for workers

By STEPHEN OHLEMACHER | Associated Press – 9 hrs ago

WASHINGTON (AP) — People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.

Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.

"For the early generations, it was an incredibly good deal," said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. "The government gave you free money and getting free money is popular."

If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women.

As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn't do quite as well as their parents and grandparents.

Not anymore.

A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.

Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.

The shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It's coming at a critical time for Social Security, the federal government's largest program.

The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.

To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both.

"Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes," said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute.

How can you get a better return on your Social Security taxes?

Live longer. Benefit estimates are based on life expectancy. For those turning 65 this year, Social Security expects women to live 20 more years and men to live 17.8 more.

But returns alone don't fully explain the value of Social Security, which has features that aren't available in typical private-sector retirement plans, said David Certner, legislative policy director for AARP.

Spouses can get benefits even if they never earned wages. Children can get benefits if they have a working parent who dies. People who are too disabled to work can get benefits for life.

Because of spousal benefits, most married couples with only one wage earner will continue to get more in benefits than they pay in taxes for the foreseeable future.

"You are buying this lifetime inflation-protected benefit that you can never run out of and that will always be there for you," Certner said. "It protects your spouse, protects your family and protects you from disability."

Certner noted that private pensions, retirement savings and home values took a big hit when the economy collapsed, putting a dent in the retirement plans of many Americans.

"When you have that combination of factors, Social Security becomes more and more important," Certner said. Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. Self-employed workers pay the full 12.4 percent.

The tax is applied to the first $110,100 of a worker's wages, a level that increases each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent, but is scheduled to return to 6.2 percent in January.

The payroll tax rate was only 2 percent in 1937, the first year Social Security taxes were levied. It did not surpass 6 percent until 1962.

Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.

About 56 million people now collect Social Security benefits, and that number is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers. Social Security provides most older Americans a majority of their income. About one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income, according to the Social Security Administration.

"Social Security is what's carrying me," said Neta Homier, a 79-year-old retired hospital worker from Toledo, Ohio. "There's no way I would have made it without it. The kids, they're on their own, now, and I'm not going to be a burden for them. That's what it would have been if I hadn't had Social Security."

Homier said she started receiving Social Security when she was 63 and now gets about $800 a month, after her Medicare premiums are deducted. She said her father died at 51, so he never received Social Security, and her mother died at 71 and collected benefits for only a few years.

"It's definitely worth it," she said.

At 52, Anthony Riley of Columbus, Ohio, has a different perspective. Riley said he has a private retirement account because he worries that Social Security won't provide adequate benefits throughout his retirement.

"I use to think that it was worth paying for your Social Security, but now I don't think so," Riley said. At 22, Mackenzie Millan of Los Angeles has even greater doubts about whether Social Security will be a good deal for her.

"The money that I put aside now, it's not like that money is going to be waiting for me. That money is going toward someone else," the recent college graduate said. "If I wanted Social Security 50 years from now, when I wanted to retire, I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point."

Women facing 'retirement income glass ceiling'

Savings crimped by lower wages, time outside the workforce

By Darla Mercado

July 31, 2012

Women face a unique set of hurdles when it comes to saving for retirement, and those difficulties set them far behind men once they stop working.

“Due to persisting income disparities, a retirement income glass ceiling has been placed over women, and it is limiting their ability to fund a secure retirement,” according to Cathy Weatherford, chief executive of the Insured Retirement Institute.
 
Research released by the IRI on Tuesday showed that over time, income disparities hurt the growth of women's retirement savings. After 30 years, female employees end up with a 25% to 30% shortfall in savings, compared with a male worker who has the same saving and investing habits.
 
Further, while half of male baby boomers have at least $200,000 socked away for retirement, just 35% of boomer women have that much in savings, according to the IRI, which conducted interviews with 503 people 50 to 66.
 
Women continue to earn close to 80 cents for every dollar earned by men. That difference inevitably affects the amount that women put away in their retirement plans.
 
Between 25 and 34, a woman's retirement savings is only about 64% of a man's, rising only slightly to 78% between 65 and 69, according to data from ING Groep NV and cited by the IRI.
 
Female workers' savings plans go awry when they take time off of work to care for family members.
 
Stepping out of the workforce to raise a child or to care for others means that these women end up missing out on career opportunities, as well as the time to contribute to a retirement plan at work.
 
The IRI cited data from the Family Caregiver Alliance that showed that a third of working women cut their working hours, while 29% took a pass on a promotion and 16% outright quit their job to take care of others.
 
Life events, such as divorce or death of a spouse, hurt women more keenly due to the loss of income and assets, particularly if these events take place later in life. Women tend to live three to four years longer than men, according to the Society of Actuaries, so they need to stretch their savings and income over a longer time period.
 
Following a divorce or separation, women's household income declines by an average of 41%, close to twice the amount of income loss men experienced, according to an analysis of people over 50 by the U.S. Government Accountability Office. Once a woman is widowed, her household income declines by 37%, compared with a 22% drop for men.
 
“Women face a unique set of circumstances that warrant special attention,” Barbara D. Bovbjerg, managing director of education, workforce and income security at the GAO, wrote in the report.
 
“Women may have a more difficult time saving for retirement and avoiding poverty late in life,” she wrote.

“[This is] partly due to the fact that they have a greater likelihood of being single, living longer, taking time out of the workforce to care for family members and having lower average earnings.”

Is LTC Insurance Worth It? Get Real...

By Phyllis Shelton

July 25, 2012

CNBC lets you vote on the question “Would You Buy Long-Term Care Insurance?” here.

This article says the premiums are expensive. I hear that all the time.
Are they expensive?

I have to expand the question for those who make that statement.

Long-term care insurance premiums are expensive compared to ... what? Compared to the cost of long-term care? NO. Long-term care insurance premiums are a drop in the bucket compared to the cost of the type of care this valuable insurance pays for.

Take the group plan for state of Tennessee employees, for example.

A 50-year-old can get a $200 daily benefit to cover today’s cost of care with either a 3-year benefit period or a 5-year benefit period for only $159.14 a month or $224.26 a month respectively. If a spouse is also issued, the premium is reduced 10% for both the employee and the spouse and paying annually instead of monthly will reduce it an additional 8%. So now we’re at $1,591 for the 3-year benefit period and $2,242 for the 5-year benefit period.

Sound like a lot? Here’s the value proposition: The premium for the 3-year plan will cost $47,730 over 30 years and the premium for the 5-year plan will cost $67,260. At 5% compound, the daily benefit will be $823.23 in 30 years, which means the benefit pool for the 3-year plan will be $901,433 and the benefit pool for the 5-year plan will be $1,577,508.

Let me restate this information to be crystal clear:

Buying long-term care insurance at the above premium means you would spend 4% to 5% of the potential benefits in 30 years. ($47,730 is 5% of $901,433 and $67,260 is 4% of $1.5 million)  But we’re not done.

The benefits will continue to grow each year at 5% compound for the rest of your life as long as you haven’t used them all up! At 5% compound, the benefits DOUBLE every 15 years.

I’ve told you what the benefits will be at age 80 for the 50-year-old. Could today’s 50-year-old live to be age 95? According to the Wall Street Journal, one in 10 people who turned age 65 in 2011 will see age 95, so it’s logical to think those odds will be even higher for someone 15 years younger.

At age 95, the 3-year plan will have grown to almost $2 million and the 5-year plan will be sitting at $3 million.

$1,591 x 45 years = $71,595 premium vs. $1.8 million in potential benefits
$2,242 x 45 years = $100,890 in premium vs. $3.1 million in potential benefits

Oh, and let’s see, should we mention that the premium STOPS once you start using the benefits?

But wait – I’m not saying that the premiums can increase on a class basis? Yes, they certainly can.

The company that insures the state of Tennessee has had one rate increase since 1987 and it happened in 2011. Can it have more? Of course. But look closely at the numbers above. Even if the premium doubled or tripled, is it still a great deal? I think so. Would I rather pay a million or $1.5 million out of my pocket or would I rather pay less than 10% of that amount?

What if you never use it? Then you’ve made a 4% to 5% mistake… But was it a mistake? Your 4% to 5% mistake bought peace of mind for you and your family for 30 to 45 years. To me, that’s priceless.

The Basics of Long-Term Care Insurance

By By Doug Lockwood | U.S.News & World Report LP – Tue, Nov 29, 2011 3:30 PM EST

Long-term care--particularly whether it will be needed, and how much it will cost--is enough to make anyone uncomfortable. That said, it's also a topic that often generates lots of questions and is frequently misunderstood.

We spend a lifetime saving our money to provide ourselves and our loved ones with a sense of financial security in the future. Many of us have a great deal of our retirement assets tied up in qualified funds like 401ks and IRAs. It would be a shame if proper planning is overlooked and financial security is diminished by the cost of care. If income is needed to pay for care, keep in mind that these types of assets are subject to federal and possibly state income taxes.

And how much does long-term care cost for those who truly need it? The average cost of nursing home care in the United States now exceeds $70,000 per year, but varies widely from state to state, according to AARP.

For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage ("Medigap"), nor standard health insurance policies cover long-term care unless you are impoverished.

This is where long-term care insurance plays a critical role. Premium costs are based on your age and health at the time of purchase, so the younger and healthier you are when you purchase a policy, the lower the premium you're apt to pay during the life of the plan.

As you evaluate long-term care insurance, keep the following variables in mind:

Coverage parameters. Policies differ in the types of services they support. Choose a policy that best meets your particular needs.

Benefits payout. How much does the policy pay per day for care in a particular setting? How does the policy pay out? (For example, is the payout a fixed daily amount, as reimbursement for the cost of care up to a daily maximum?) Does the policy have a maximum lifetime limit?

Eligibility. Does the policy use certain "triggers" to determine benefits eligibility, such as the formal diagnosis of an illness or disability? What is the maximum issue age for the policy?

Women may need more. Women tend to live longer and may need additional coverage.

Finally, keep in mind that most long-term care policies sold today are federally tax-qualified, which means premiums paid and out-of-pocket expenses are deductible. Also, long-term care benefits received are not taxed as income up to certain limits.

Protecting the work of a lifetime sometimes means being willing to address the sensitive topics of mortality, old age, and infirmity. These may be inevitable issues for all of us, but we can at least prepare from a financial perspective, and in the process, leave ourselves and our heirs with a better future.

Retrieved on 1/18/12 from http://finance.yahoo.com/news/basics-long-term-care-insurance-134726269.html;_ylt=AkvRDjmV.DuTdWZo.5qRyOvC34dG;_ylu=X3oDMTQwNWdibGJzBG1pdANQRiBJbnN1cmFuY2UEcGtnAzRhMjFmMWIyLWFmMmQtMzAyZi04YjEyLWE2NDc5NDBjOGMwYgRwb3MDMgRzZWMDTWVkaWFCTGlzdE1peGVkTFBDQQR2ZXIDZjgxOTc1MjYtMWFjOC0xMWUxLWE4YmQtNzhlN2QxNWU5MWUy;_ylg=X3oDMTJkMjNyZGpxBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANwZXJzb25hbGZpbmFuY2V8aW5zdXJhbmNlBHB0A3NlY3Rpb25zBHRlc3QD;_ylv=3

How Married Couples Can Boost Their Social Security Checks

Coombes: Strategies that can increase your retirement income. .

By ANDREA COOMBES

You'd think claiming Social Security would be a simple retirement decision -- you retire and you start your benefits. But there are certain complex strategies that can help pad a married couple's retirement savings with tens of thousands of dollars of additional income.

Don't make your claiming decision lightly, said Joe Elsasser, an Omaha, Neb., certified financial planner and creator of Social Security Timing, a software program for pre-retirees and advisers to run scenarios to assess strategies.

"It's a decision that's going to impact you for your entire life, and it's a decision that's going to make up a substantial portion of your income," he said.

Specific strategies can help maximize savings, but couples also need to avoid a common mistake. "Almost everyone thinks of it as their own earnings record, their own benefit, as opposed to integrating what they receive," Elsasser said.

 

Instead, make the decision as a couple. Consider a hypothetical situation. The husband, the higher earner, believes he's going to die relatively early and the wife thinks she'll live a long time. So the husband claims his benefits as early as possible and the wife delays.

"That's exactly opposite of the scenario that should happen," Elsasser said.

Each year you delay claiming your benefits past your normal retirement age, your benefit ticks about 8% higher, up to age 70, thanks to what the Social Security Administration calls "delayed retirement credits." And in the event of a spouse's death, the surviving spouse can take the higher of her own benefit or that of the dead spouse.

If the husband claims early and then dies first, "effectively he's shortchanged his wife's survivor benefit," Elsasser said. Instead, that husband should delay his claim, so if need be the wife can claim the highest possible benefit for the rest of her life. If the wife dies first, the husband simply keeps his own benefit.

"You're trying to maximize benefits over both spouses' lives. That's the key that most people miss," said Brett Horowitz, wealth manager at Evensky & Katz Wealth Management in Miami.

The 'file and suspend' strategy

A claiming strategy called "file and suspend" can help get the most money. Say a husband plans to delay his benefit until age 70. He is allowed to claim his benefit at his normal retirement age -- say it's 66 -- and then immediately suspend it.

That way, his benefit amount keeps growing -- thanks to those delayed retirement credits -- but since he did make that initial claim, his wife, at her full retirement age, can file a "restricted" application to claim spousal benefits based on her husband's record, but not her earned benefit.

Generally, spousal benefits are up to 50% of the other spouse's monthly benefit at full retirement age (some age restrictions apply). In this scenario, her own benefit now can grow until she hits 70, too.

In one hypothetical "file and suspend" scenario, a couple, both 66, could collect an additional $60,000 by delaying their benefits and the wife taking spousal payouts while they wait, according to Lisa Colletti, New York-based director of wealth management at Aspiriant.

Say a husband and wife, both 66, are entitled to monthly benefits of $2,500 and $1,500, respectively. The husband decides to file and suspend -- he wants to delay until age 70, when his monthly benefit will be $3,300.

But, meanwhile, the wife can collect a 50% spousal benefit based on her husband's benefit at his full retirement age -- that's one-half of $2,500, or $1,250 a month -- from her age 66 to 70. Then, at 70 she switches to her benefit, which has grown to almost $2,000 a month.

End result: $60,000 more in benefits than had the couple simply delayed their benefits. This scenario assumes that delaying benefits until age 70 makes sense for the couple.

A 'restricted' application

Another use of a "restricted" application: Say a 66-year-old husband decides it makes sense for him to delay his benefits until he's 70. His wife started her benefits at 62.

"What the husband doesn't realize is he is entitled to 50% of his wife's benefit while he waits, because she already filed," Horowitz said.

When he turns his full retirement age, the husband can tell the Social Security Administration that, rather than filing for his own benefits, he wants to restrict his benefits to his wife's record. If he changes his mind, he can switch over to his own benefits at any time.

Assuming his wife's benefit at her full retirement age would have been $1,750 a month (she's getting less because she filed at age 62), the husband will get $875 a month.

"If he waits till age 70, he will receive $875 a month for 48 months, or $42,000," Horowitz said.

Note that the spouse who files a restricted application must be at least full retirement age. "If you apply for spousal benefits prior to full retirement age, then 'deemed filing' applies. You are deemed to have filed for both your own benefit and the spousal benefit at the same time," said Jim Blankenship, a certified financial planner in New Berlin, Ill., and author of "A Social Security Owner's Manual."

It's tough to generalize about Social Security strategies. Each spouse's age, benefit amounts and health outlook play a big role in how and when to claim. The point is, don't claim before you assess your options.

Retrieved 7/11/12 from http://www.smartmoney.com/retirement/planning/how-married-couples-can-boost-their-social-security-checks-1341249055117/.

GM follows in Ford's tracks, offers lump sum to retirees

Automaker also shifting balance of pension plan to Prudential

By Mary Beth Franklin

June 1, 2012 3:38 pm ET

Apparently, as Ford Motor goes, so goes GM.

General Motors Co. on Friday announced plans to cut its pension obligation by $26 billion by offering lump-sum payments to about 42,000 white-collar retirees. The nation's largest automaker is also shifting the balance of its plan to Prudential Insurance Co. of America.
 
“These actions represent a major step toward our objective of derisking our pension plans and will further strengthen our balance sheet and give us more financial flexibility,” Dan Ammann, GM's chief financial officer, said in a statement. GM's pension buyout announcement follows a similar move by Ford Motor Co. that offered lump-sum payments to about 90,000 salaried retirees.
 
The GM announcement affects retirees who retired before Dec. 1. GM retirees don't have to accept the offer. Those who don't will continue to receive monthly pension payments through a new group annuity contract administered by Prudential. The annuity contract is expected to be completed by the end of this year.
 
“This landmark agreement allows GM to maintain the value of U.S. salaried pension benefits for its retirees while significantly reducing its pension obligations,” said Christine Marcks, president of Prudential Retirement. “With our financial strength, investment capabilities and actuarial expertise, Prudential is uniquely suited to assume the responsibility of guaranteeing pension benefits.”
 
Leon LaBrecque, founder of LJPR, a firm managing over $431 million in assets, noted that choosing between the two payment types can be nettlesome. “The lump-sum vs. monthly pension benefit decision is an exceedingly complex one with, tax, estate, mortality, investment, and many more consequences," he said. "Retirees should study their options carefully before making a decision."
 
The GM and Ford announcements may be just the tip of the iceberg. A new report, “The Future of Retirement and Employee Benefits,” issued by Prudential and CFO Research Services last month found that senior finance executives in a broad cross-section of industries increasingly are exploring solutions to reduce or eliminate the effect of pension-funding volatility. Many respondents indicated that funding their pension obligations constrains their firm's cash flow, access to capital and ability to invest in growth opportunities.
 
The 2012 survey found an increase in the percentage of companies likely to transfer pension plan risk to a third-party insurer. More than 40% of respondents said they are likely to do so within the next two years, up from 30% in the 2010 survey.