New Social Security Rules Causing Confusion Among Retirees

New Social Security Rules Causing Confusion Among Retirees

What’s the deadline for filing and suspending? Should I do it online or in person? What’s the difference between Apply and Suspend versus Restricted Applications? Should I take Social Security now or wait?

Confusion among retirees with the new Social Security rules

We’ve been getting a lot of phone calls about the impending changes in the Social Security rules. Before I tell you about some of those calls, and explain how real people like you are dealing with potentially confusing Social Security decisions, I wanted to give you a quick update on some important dates.

Deadline for File and Suspend (or Apply and Suspend) for Social Security

If you plan to file for your own benefits and then suspend them, April 29, 2016 is an important date.  If you file and suspend by that deadline, your spouse, when eligible, can then file for and collect spousal benefits from Social Security while your own continue to grow by Delayed Retirement Credits (DRCs).

Applying for Social Security Online or In Person

Many of the people we’ve talked to are concerned because they can’t even get an appointment with their local Social Security office until well after the deadline One way to apply is to call your local Social Security office before April 29, 2016 and schedule an appointment for after the deadline.  The act of scheduling the appointment creates what is called a protective filing date, a concept which is covered in detail in my blog post of April 13, 2016.  As I said in that post, I’m a little nervous about relying on a protective filing date.  I am encouraging my own clients who are eligible, to just file online by April 29, 2016.  I’ve had several clients report back to me that they applied online, and thought that the process was fairly simple.  If you want to apply online, please note that there is no specific form that you need to fill out, that is titled “Apply and Suspend”.  When you get to the very bottom of your application, there is a comment box.  You need to write a comment in the box and say something like “It is my intention to file for and then suspend my benefits.  I do not want to receive any checks until I turn 70.”  That’s all that is required, but you do need to spell out your intentions very clearly.  Please be sure that you print a copy of your application for your own records.

Apply and Suspend Vs Restricted Applications

Are you confused about whether Applying and Suspending is the best option for you?  It’s not the right answer for everyone.  My blog post of April 8, 2016 covers some situations where it might do more harm than good.  One of those includes scenarios where it is more beneficial for one of the spouses to file a Restricted Application.  Some examples of how Restricted Applications can be beneficial are covered in my blog post of April 22, 2016.

Is it Better to Take Social Security Now or To Wait?

Are you concerned about suspending your benefits because you were planning on using the money to live on?  If you have been accumulating money in IRAs and retirement plans, it might actually make more sense for you to spend that money first, and allow your Social Security benefits to grow.  This idea is covered in my blog post of April 12, 2016.  This particular strategy isn’t for everyone, and there are so many variables to consider that we have to go through a lot of calculations before we can make specific recommendations about it.  Do you think there’s a possibility that it might make sense for you to spend your retirement money first?  If so, you should apply for and suspend your Social Security benefits now assuming that it is the right technique for you.  Although we can’t possibly do it by April 29, 2016, we’d be happy to have our team do the math for you to see how spending your retirement money first might benefit you.  If we find that you’re better off to spend your Social Security money and leave your retirement plans untouched, then you can always unsuspend your benefit.

We’ve had many calls from people who have questions about Social Security.  Please check back tomorrow, when I’ll discuss some more of the real-life situations readers are wrestling with.

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Are you confused about how the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Restricted Applications vs File and Suspend – Which is Best?

Restricted Applications vs File and Suspend – Which is Best?

Tony, 72, and Maria, 67 are both still working full time. Tony already applied for Social Security, Maria has not. Should Maria wait to apply?

Thanks again to all of you for your interest in my new book, The Little Black Book of Social Security Secrets.  I’ve received a lot of questions about the best Social Security strategies for married couples, and my most recent blogs have given some examples where the File and Suspend strategy might be beneficial.  Now I want to cover some examples for those of you who have two-income households, and who might benefit from filing a restricted application for benefits.

Tony, 72, and Maria, 67, read my book and wondered if they should reconsider their Social Security strategies.  Both are still working, and full time.  Tony applied for his benefits as soon as he was eligible, at age 62.  Maria has not applied yet. Should Maria apply for benefits, or should she wait?  This question, unfortunately, is not as straightforward as you might hope.  Let’s look at all of the facts.


Filing a Restricted Application for Spousal Benefits

Tony is already receiving his Social Security checks, so he doesn’t have a lot of options.  But what options does Maria have?  Because she was Full Retirement Age (FRA) on December 31, 2015, she can file a restricted application for benefits and specify that she only wants to receive a spousal benefit.  Her spousal benefit is a percentage of the benefit based on Tony’s earnings record.  In order to be able to file a restricted application for spousal benefits you must be at least FRA, so in this case Maria will receive the maximum spousal benefit of 50 percent.  Filing a restricted application for spousal benefits allows Maria to collect some income from Social Security while the benefit payable based on her own earnings record grows by Delayed Retirement Credits (DRCs).  When she turns 70, she can switch to her own benefit if is higher than her spousal benefit.

Suppose Tony was only 60, and had not yet filed for his own benefit?  Maria wouldn’t be able to file a restricted application for spousal benefits unless Tony has filed for his own benefit.  She could apply for benefits based on her own earnings record, but then she’d miss out on those DRCs.

Suppose Tony is 67, and regrets that he started taking his benefits at 62.  Can he suspend them without affecting Maria’s spousal benefits?  The answer is yes, but only because we’ve changed Tony’s age and are now assuming that he’s 67.  You have to be at least FRA, but not yet 70, in order to suspend your benefits after you’ve started collecting them.  Why even bother then?  Think about it for a minute.  If Tony was able to suspend his benefit, the couple could still receive some income from Social Security (Maria’s spousal benefit), while at the same time allowing Tony’s to grow by DRCs.    When he unsuspends them, Tony could receive a higher benefit amount, and for the rest of his life.  (Don’t forget – if Tony wants to suspend his benefit, he needs to do so by April 29, 2016!)


Restricted Application Deadline

Many people have asked what the deadline is for them to file a restricted application, and unfortunately the answer is not as straightforward as for those who want to file and suspend.    The rule is that, if you were at least 62 on December 31, 2015, you can file a restricted application when you reach your FRA.  What if Maria is 63? In that case, she couldn’t file a restricted application for benefits right now, but she could do so when she reaches her FRA (for our purposes here, 66).  What if Maria is 60?  If she is, she will never be able to take advantage of this technique because she was not at least 62 on December 31, 2015.

In real life, my advice would not stop at telling Maria that she should probably file a restricted application. In the original scenario, Maria is 67 and is not collecting Social Security benefits of any kind right now.  She could have filed a restricted application for spousal benefits as soon as she turned 66, and she wouldn’t have affected Tony’s benefit or the benefit based on her own earnings record at all.  Maria’s missed out on a lot of money!  The first thing I would tell her is that, when she files her restricted application, she should ask for retroactive spousal benefits.  Retirement claims can be paid for up to six months retroactively.


Changes When Filing a Restricted Application

I’d also want to take a closer look at Tony and Maria’s tax picture, and point out some possible changes that they may not have considered.  They have income from their jobs, income from Tony’s Social Security, minimum required distributions from his IRAs, and now they’ll have even more income from Maria’s spousal benefits.  Just how bad will the news be for them on April 15th?

Interestingly enough, Tony and Maria have some options available to them that non-working couples do not.  Assuming that they don’t need Maria’s Social Security income to live on, I would ask them to consider putting that money right back in to their retirement plans at work.    Most of you who read this column regularly know that, once you turn 70 ½, you are generally required to start taking minimum distributions (RMDs) from your IRAs.  Some of you may not be familiar with the exception to the rule, though, that applies to individuals who are still working at that age.  If you are still working, you are not required to withdraw money from your work retirement plan when you turn 70 1/2.  You’re not required to withdraw anything from your work plan at all, until you stop working.    There is an exception to this exception, and it applies if you own more than 5 percent of the company.  If this is the case, you must take RMDs from your retirement plan at work when you turn 70 ½, even if you are still working.

Here’s another idea for those of you who are still working, and who have IRAs in addition to a work retirement plan.  Assuming that the rules of your own plan allow it, you can roll any IRAs that you have in to your work retirement plan.  You would not be required to take minimum withdrawals from the plan, or any of the IRAs that you rolled in to it, until you stop working.

Suppose Tony and Maria both work for a large employer, such as the local university?  If they are still working, they can still contribute to their work retirement plans regardless of their ages.  If they are not already contributing the maximum possible to their work retirement plans, they can use Maria’s new income from her spousal benefits to increase their contributions.    If their employer offers them a choice of pre-tax and Roth accounts in their plan, they can allocate their contributions strategically once they have evaluated their short-term and long-term goals.  Increasing their contributions to the pre-tax account might help their current tax situation, but increasing contributions to the Roth might be more beneficial in their later years.  This is because, as of this writing, you are not required to take minimum distributions from a Roth account.  And, if you do take distributions from a Roth account, they will most likely be tax-free.

Suppose Tony and Maria are self-employed, and have a SEP or a SIMPLE retirement plan for their business?  In that case, they would fall under the 5% ownership rule, and must take minimum distributions from that plan when they turn 70 ½.  But they still might be able to manage Maria’s new income from Social Security more effectively than by just allowing it to accumulate in the bank.  If you have earned income, the IRS permits you to contribute to an IRA.  In 2016, the annual contribution limit is $6,500.  Assuming that Tony and Maria both earned more than $6,500 they could each contribute the maximum to an IRA.  But wait!  Isn’t it against the rules to contribute to an IRA after you turn 70 ½?  Well, you can’t contribute to a traditional IRA after you turn 70 ½, but you are allowed to contribute to a Roth IRA regardless of your age as long as you meet certain income guidelines.  So Tony could contribute to a Roth IRA, and Maria could contribute to either.

What if Tony became ill, and was no longer able to work?  If Maria is still working, and assuming that she earns enough money, she can still contribute to her own IRA.  She can also contribute to a spousal Roth IRA for Tony.  The amount that Maria can contribute to both IRAs is limited to the amount of taxable compensation that they report on their tax return.  But if she made more than $13,000 in 2016, it would be possible for her to put $6,500 in her own IRA, and $6,500 in Tony’s Roth IRA.

So what’s the bottom line?  Even if you are worried about how collecting Social Security will affect your tax picture, you can minimize the impact – especially if you continue to work.

Please check back soon for my next post, which will answer some really complicated scenarios that readers have posed.  Thanks for the questions!

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Are you confused about how the File and Suspend or Restricted Application strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

What is the Best Social Security Spousal Benefits Option for My Spouse if I File and Suspend?

What is the Best Social Security Spousal Benefits Option for My Spouse if I File and Suspend?

How Does Your Age Affect Your Social Security Spousal Benefits? What are the Social Security Spousal Benefits Changes in 2016? Find out more in this blog post.

I’ve been getting a lot of questions about what benefits, if any, your spouse is eligible for if you file for and suspend your own benefits by April 29, 2016.  In order to answer them, I think it would be helpful to get a quick refresher on some points.

First, did your spouse work outside of the home?  If so, it is possible that your spouse might be eligible for a benefit based on her own earnings record that is higher than the spousal benefit to which she is entitled based on your record.  If this is the case with you, then you should check back tomorrow because I will be giving some examples that involve two-income households.  Today’s discussion, though, will focus on scenarios where the spousal benefit amount that will be available to the wife is higher than any benefit to which she might be entitled based on her own record.

How Does Your Age Affect Your Social Security Spousal Benefits

This next point is really important.  Don’t get Social Security’s terminology mixed up!  If you were born between 1943 and 1954, your Full Retirement Age (FRA) is 66. This is the age at which you are first entitled to full (or unreduced) retirement benefits, but is not the age at which you’re first entitled to any benefits.  The age at which you’re first entitled to any benefits is 62.  If you apply before your FRA, your benefit amount is reduced.  These general rules also apply to any spousal benefit that your spouse might receive.

Most of you seem to be pretty clear on the idea that you needed to be at least 66 in order to File and Suspend your own benefits by April 29, 2016.  There seems to be a lot of confusion, though, about the benefits your spouse is entitled to if you do so.  So, keeping the above paragraph in mind, let’s look at an example.

Social Security Spousal Benefits Options Available Under File and Suspend

Harry is 66, and has (or will) file for and suspend his own Social Security benefit before April 29, 2016.  Because Harry is FRA, and because he acted (or will act) by the deadline, his wife Sally can collect spousal benefits when she is eligible.  When can she apply, and how much can she get?  It depends on how old she is now, and when she applies.

Let’s say that Sally was born in 1961, and is 55 years old.  Sally’s FRA, in this scenario, is 67.  In order for Sally to receive the maximum spousal benefit possible (50 percent of Harry’s Primary Insurance Amount (PIA)), she needs to wait until she is 67 to apply.  That’s twelve years from now.  She can apply for spousal benefits when she turns age 62 but, if she does, they will be reduced – only 35 percent of Harry’s PIA.  The large difference in their ages is very important in this scenario.   Even if she applies as soon as she is eligible, Sally cannot collect any spousal benefits until she’s 62 – or seven years from now.  Harry will start collecting his own benefit when he is 70, which is only four years away.  Because of the large difference in their ages, Sally cannot collect a spousal benefit at the same time that Harry’s is suspended.  So in this scenario, there is no advantage to Harry applying and suspending his benefits.

Now suppose that Sally was born in 1955, and is 61 years old.  In this scenario, her FRA is 66 years and 2 months.  Because Harry acted by the deadline, Sally can apply for spousal benefits as soon as she is eligible – age 62, and while Harry’s are suspended.  If she applies when she is 62, though, the amount that she receives will be reduced.  What if she wants a higher benefit, and waits until her FRA to apply?  Well, by the time she’s 66 years and 2 months old, Harry will be 72 – and he’ll be collecting his own Social Security benefit.    If she waits, she will receive the maximum spousal benefit possible, but she just won’t be collecting them at the same time that Harry’s are suspended.  So in this scenario, the benefit to Harry applying for his benefits and suspending them is debatable.  If Sally had a terminal illness and was not expected to live until her FRA, she might want to collect what spousal benefits she can, while Harry’s are suspended.  If not, I would probably advise Sally to wait until her FRA to apply.

What if Sally is the same age as Harry – 66?  Since her husband acted by the deadline, and because she has reached her FRA, Sally can apply for and receive the maximum spousal benefit possible – which is fifty percent of Harry’s Primary Insurance Amount (PIA).  The money that Sally receives from Social Security can provide the family with some income while Harry’s own benefit is suspended.  And while Harry’s benefit it suspended, it grows by Delayed Retirement Credits (DRCs) and Cost of Living Adjustments (COLAs).  When he finally does collect his own benefit at age 70, it will be significantly higher than if he had not filed and then suspended.

Social Security Spousal Benefits Changes in 2016

What if Harry doesn’t apply and suspend by the deadline?  Well, Sally will be subject to the new rules whenever she finally does apply for her spousal benefit.  The new rules say that she will not be able to collect a spousal benefit unless Harry is collecting his own benefit.  So if Sally wanted to file for her spousal benefit at age 66, Harry must file for and collect his own first – and if he does, he’ll miss out on all those DRCs and COLAs.

Confused about which course of action is best for your family?  You’re not alone.  Unfortunately, the Social Security Administration, and the rare advisors like me who have expertise in Social Security planning, just can’t meet with everyone who needs help before the deadline.  Some folks who have called their local Social Security office have been told that, even if they are not able to get an appointment by April 29, the date on which they call 1-800-772-1213 and schedule an appointment at least seven days in the future will establish what is called a protective filing date.  According to their rules, your application filing date is considered to be 1) the date that a valid application is receive at any SSA office or online, or 2) the protective filing date.  Theoretically, you should be able to call today, schedule an appointment in May, and when you go in for your appointment and apply you will be subject to the rules that were in effect the day you made the appointment.

I can’t stop thinking like a lawyer.  My concern with relying on a protective filing date is that you can’t request a suspension of benefits until your application is actually filed.  Will individuals who attempt to suspend their benefits based on a protective filing date be rejected on the basis that the actual suspension request was not received by the April 29th deadline?  Only time will tell.    But since time is running out, I’m encouraging my clients who will benefit from it to just go online and file for and suspend their benefits.  Unless you fall under one of the exceptions discussed in the previous post, there is no reason not to do so.  Filing and suspending by the deadline will at least protect your ability to take action later, after you have had the chance to meet with a professional and discuss your options.

-Jim

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Are you confused about how the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Should I take my Social Security benefits now or spend my retirement savings and apply and suspend?

In my last post, I promised that I would answer some of the questions we have received in response to The Little Black Book of Social Security Secrets.   So let’s have a look at some of the problems our readers are wrestling with.

Several readers have written and said that they are in a situation similar to this one:

My employer has just told us that the company has filed for bankruptcy and will be closing its doors later this year.  I don’t know if I will be able to get another job at my age and, even if I do, I’m  not sure I will be able to make as much money  as I am making now.  My spouse doesn’t work outside of the house.  I was thinking about signing up for my Social Security benefits once the company closes, but then I read your book.  I do have some savings in retirement plans (both traditional and Roth), and an investment account.   When is the best time for me to apply for Social Security if I can’t find another job?  Should I spend my savings now and apply for Social Security later, or should I save my money and apply now?

The loss of a job, especially at this point in your life, can be traumatic.  Before we review the options that you have, let’s go through a quick refresher on two of the points covered in The Little Black Book of Social Security Secrets.

When Should You Take Social Security?

How does the age at which you actually collect Social Security affect the amount you receive?  If you are now 62, your Full Retirement Age (FRA) is 66.  If you wait until your FRA to collect your benefits, you will receive your Primary Insurance Amount (PIA).  If you collect at 62, your monthly check will be permanently reduced, by 25 percent of your PIA.  If you wait until you are 70 to collect, your check amount will be permanently increased by Delayed Retirement Credits (DRCs) of 8 percent per year (up to a maximum of 32 percent), plus Cost of Living Adjustments (COLAs).

When Should Your Spouse Take Social Security?

This next part is critical to understanding why you may have more options than you realize.  If you file for your own benefit, even if you suspend them, your spouse will be permitted to file for spousal benefits based on your record as soon as she is eligible.   When she files, though, is as important as when you file.  If your spouse waits until her FRA (for most readers, this is 66), she’ll receive the highest spousal benefit possible – which is 50 percent of your own PIA.  She is allowed to file as soon as she turns 62 but, if she does, she will only receive 35 percent of your PIA.  In this case, we’re going to assume that your spouse is not entitled to a benefit based on her own earnings record.  I have some examples for two-income households coming up in a later post.

The answer to the above question posed by my readers, therefore, will depend on how old both of you are.  If you were or will be 66 by April 29, 20165, you should consider applying for and then suspending your own benefits by April 29, 2016.  If your spouse is at least 66, that will make it possible for her to file for a spousal benefit that will be 50 percent of your own PIA.  (She can file at 62, but her benefit will be reduced.)  The spousal benefit will give your family some income from Social Security every month, while at the same time allowing your own benefit to grow by those DRCs and COLAs.  Maybe you can’t get another job that pays as well as the one you have right now, but you might be able to get one that you enjoy a lot more – like working on a golf course – because your spouse now has a source of income that can make up the difference.

So what happens when you do get that pink slip?  As tempting as it might be to just throw in the towel, you should continue working in some capacity if you are able to do so.  A job will provide you with some income and, if you are able to secure spousal benefits by using the apply and suspend technique by the deadline, you just might have enough income to meet your expenses while still allowing your own benefits to grow.  Are you too young to apply for and suspend your benefits by April 29, 2016?  For most people, it is still preferable to delay claiming Social Security benefits for as long as possible.  Many of my readers have some money in retirement plans (both traditional and Roth), and also some money in non-retirement accounts.  How does the spending affect their decisions about Social Security?  Which account should they spend first?

Should I Spend My 401(k) Money First?

For most people, it is better to spend your non-retirement accounts before your retirement accounts.  The graph that follows is from my book, Retire Secure!  It shows that, the longer you can leave your money in a tax-deferred (or tax-free) account, the longer it will last.

Should I take my Social Security benefits now or spend my retirement savings and apply and suspend?

When Should You Take Social Security benefits? Retirement questions answered from The Little Black Book of Social Security Secrets by James Lange CPA/ Attorney.

Once your investment account is liquidated, the question becomes complicated.  You should spend your traditional and Roth IRAs strategically, depending on your own personal tax situation.  What the heck does that mean?  I wish there was a one-size-fits-all answer, but there isn’t.  However, Chapter 4 of my book, Retire Secure!, does contain an extensive analysis of this topic, and includes specific examples that may provide you with some additional insight.  If you’d like to learn more about why it’s so important to spend the right money first, you can get a copy of the book from this website.

If you don’t want to read the book, here are some general points to consider.  You’ll be required to take withdrawals from your traditional IRA when you turn 70 ½, and those withdrawals will be taxable.   Income generated from non-qualified investment accounts is taxable.  If you have enough taxable income from other sources, a portion of your Social Security will also be taxable.  Most retirees don’t plan for unavoidable changes in their tax situations, and their failure to do so can be very expensive.  What we strive to do in our practice is find the spending and tax management strategies that makes your money last as long as possible.  Ultimately, the solution is different for each client.

Readers, thank you for the question and please keep them coming!  I love hearing from you!  And check back soon to read about some more real-life challenges that people like you are dealing with!

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Are you confused about how the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Confused about when you should apply and suspend Social Security? You’re not alone.

Confused about when you should apply and suspend Social Security? You’re not alone.

What should I be doing about Social Security? Should I apply and suspend Social Security? Should I be collecting?

I want to thank everyone for the overwhelming response to my new book, The Little Black Book of Social Security Secrets.  We’ve received an unprecedented number of phone calls and emails from readers who have read it, and who now realize that the choices that they make about Social Security can have an enormous impact on their retirement years.  Many of you want to know if you’re making the right decision about when to collect Social Security, and have written with the specifics of your situation.  Unfortunately, I just cannot answer all of your questions personally.  But what I will try to do on this blog is address some of the major issues that seem to be of the most concern to my readers.  Before I do that, though, I want to give you a general reminder.

Reasons you should not apply and suspend Social Security

If you are or will be least 66 years old by April 29, 2016, then you really should consider filing for and suspending your benefits on or before April 29, 2016.  There are two situations where it might not be beneficial, and they don’t apply to a lot of people.  But here they are.   If you are contributing to a Health Savings Account (HSA), you need to know that filing for Social Security (even if you suspend your benefits immediately) will trigger your automatic enrollment in Medicare Part A.  Once you are enrolled in Medicare, you can’t contribute to an HSA.   The tax benefits of contributing to an HSA can be nice, but, unless your employer is currently making the contributions on your behalf, those benefits are generally eclipsed by the cash benefits of Social Security.  If this applies to you, then you might want to talk to your Human Resources department to see if you might be eligible for alternative compensation.

The second reason you might not want to file for and suspend your benefits would be if there is a chance that you might want to later file a restricted application for spousal benefits.  You can’t do both.  So if you file and suspend, you will not be allowed to file a restricted application!  We’ve actually had a lot of questions on this topic, and I do plan to give some detailed examples of how the restricted application works in just a few days.

What to expect if you do apply and suspend Social Security

But let’s assume that you are not contributing to an HSA, and you’re not planning on filing a restricted application.  What happens if you file for your benefits and suspend them by April 29, 2016?  Since you will not be receiving a check from Social Security, there are no income tax consequences that might surprise you next April.  If you change your mind later and want to start receiving your checks, you can do so – and your check amount will be permanently higher than if you filed but did not suspend.  Once you have filed, your spouse can apply for spousal benefits and collect them even while your own are suspended.

New hope for those who thought they were too young to apply and suspend Social Security

Were you born in May, June, July or August of 1950, and are cursing the fact that you’re just a little too young to take advantage of the file and suspend technique?   Here’s an idea for you.  After the book was published, we realized that there was a nuance not addressed in the legislation eliminating the file and suspend technique, which might enable more people to get in under the wire than we originally thought.  This is because the Social Security Administration allows you to apply for benefits up to four months before you actually want to start collecting them.  Does this mean that you might be able to take advantage of the file and suspend technique too?  Unfortunately, no one knows for sure.  If you fall into this category, I would suggest that you apply for benefits before you turn FRA – and by April 29, 2016 – and ask that they be suspended.  At worst, they will tell you that the suspension didn’t occur until after you turned FRA – that is, after the deadline. And who knows, they just might say that your application falls under the old rules!  The one thing I know for certain is that, if you wait until after April 29, 2016 to apply, the advantage for suspending will be lost.  Under the new rules, your spouse will not be able to collect a spousal benefit unless you are collecting your own benefit.

I will start to publish some case studies soon based on questions that our readers have asked after reading The Little Black Book of Social Security Secrets.  Stop back soon to see how real people like you are dealing with this important issue, and the best courses of action they have available to them. Remember, the decisions you make can provide your surviving spouse with a significantly higher guaranteed income, for the remainder of his or her life.

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Are you confused about how the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Should you Claim Now, Claim More Later concerning your Social Security?

The Little Black Book of Social Security Secrets, James LangeThe Apply and Suspend strategy will be eliminated on April 29, 2016, so you must act now to take advantage of it.  For those of you who cannot use the Apply and Suspend technique, there is another way that you may be able to maximize your benefits, though, which involves filing a Restricted Application (also known as Claim Now, Claim More Later). The great news is that you can take advantage of this strategy until December 31, 2019, assuming that you were at least 62 years old as of December 31, 2015.

If both you and your spouse have worked over the years, and if both of you have applied for benefits, Social Security will look at your earnings histories before they pay a benefit to either of you.  If it is more advantageous for you to receive a benefit based on your own earnings record, that’s the benefit that they’ll pay you.  If it is more advantageous for you to receive a spousal benefit, which is 50 percent of what your spouse gets, they’ll increase your benefit to equal that amount.

Under the old rules, there was nothing that prevented someone for applying for benefits, but restricting their application to their spousal benefit.  Why bother?  There is a very important reason.  If you tell Social Security that you are specifically applying for just your spousal benefit, your own benefit will be increased by Delayed Retirement Credits that equal 8 percent every year.  When you turn 70, you are not eligible to earn any more Delayed Retirement Credits, but you can then tell Social Security that you want to switch to your own benefit – which presumably at that point will be higher than your spousal benefit.

This strategy can allow eligible claimants to collect up to $60,000 in additional Social Security benefits.  In order to make it work, though, all of the pieces have to fall exactly in the place.  At Full Retirement Age, which is 66 for our purposes here, the spouse who wants to take advantage of it must file for benefits and specify that he is restricting his application to spousal benefits only.  He can then collect spousal benefits until he reaches age 70.

Let’s look at an example.  Mike and Mary are both 66, and since they were born between 1943 and 1954, are Full Retirement Age for Social Security purposes.  Mike’s Primary Insurance Amount (PIA) is $2,000 and Mary’s is $800 and, both can file for these benefits now since they are 66.  But what happens if Mary is the only one who files for her own benefit at age 66? Mike can then file for benefits, but restricts his application to just his spousal benefits.  He collects $400 (half of Mary’s PIA) and, between them, they receive $1,200 from Social Security every month.  When he turns 70, Mike can switch and collect his own benefit.  By then, his own benefit has grown by 8 percent plus cost of living adjustments every year.  Instead of receiving $2,000 every month, he will receive $2,920.  Better yet, Mary can also switch and receive a spousal benefit that is half of Mike’s PIA – or $1,000.  By taking advantage of this technique, Mike and Mary have increased their Social Security income significantly – and they receive it for the rest of their lives.

In order for this to work, the person who is filing the Restricted Application must be 66 or older.  You cannot collect spousal benefits using this technique if you are younger than 66.  Keep in mind, too, that this strategy will be eliminated in 2020.  As long as you were born before 12/31/1953, you will be allowed to file a Restricted Application as soon as you turn 66.  If you were born after 12/31/1953, you can’t take advantage of this option.

Are you confused about how the Claim Now, Claim More Later or the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Time is Running Out to Maximize Your Social Security Benefits

The Little Black Book of Social Security Secrets, James LangeThere were two married couples, the Rushers and the Planners, with identical earnings records and investments. The Rushers didn’t read this book and during retirement, they ran out of money. Bad news. The Planners, however, took the time to read this short little book, implemented the recommended strategies, and when the Rushers were barely scraping by, they still had $2,013,881.

If you want to be a Planner and not a Rusher, please go to www.paytaxeslater.com/ss and sign up to receive your free digital copy of The Little Black Book of Social Security Secrets on the day it comes out.

Eligible married couples must act by April 29, 2016 to take advantage of the two strategies that will allow them to maximize their income from Social Security.

Why?

Because a certain provision buried in the fine print of the Bipartisan Budget Act of 2015 eliminates the two strategies: Apply and Suspend and Restricted Applications for Benefits.

If you are married and will be at least 66 by April 29, 2016, you should read this book to learn whether it would benefit you to apply for and suspend your benefits by the deadline.

The Potential Benefits of Apply and Suspend for Social Security, James Lange, CPA/Attorney, Pittsburgh, PAApply and Suspend works this way. You file an application for benefits at age 66 (or later) and then suspend them – meaning that you will not receive monthly checks. There’s good reason to consider doing this. For each year that your benefit remains suspended, it grows by 8 percent (up to a maximum of 32 percent), plus cost of living adjustments. When you finally begin collecting checks at age 70, they’re significantly higher than they would have been if you had begun collecting them at age 66 – and they stay that way for the rest of your life. If you change your mind and want to start receiving your checks after you’ve suspended them, you can do so at any time.

Better yet, your spouse will be eligible to apply for spousal benefits—which can be as high as 50 percent of your benefit at age 66—as soon as she is age 62. This will give your family some income from Social Security during the years that your own benefit is suspended. (If her own benefit is higher, then a different strategy should be used).

But you must Apply and Suspend by the deadline, April 29, 2016, to be grandfathered under the old rules. If you do not apply for and suspend your own benefits by April 29, 2016, your spouse will not be allowed to collect a spousal benefit unless you are also collecting your own benefit.

The second strategy, called a Restricted Application for Benefits, allows you to file for benefits and specify that you only want to receive whatever spousal benefit to which you might be entitled. Depending on your age, it could mean a monthly check as high as 50 percent of your spouse’s benefit, while your own benefit continues to grow by 8 percent, plus cost of living adjustments, every year. When you turn 70, you can then switch to your own benefit if it is higher than your spousal benefit.

If you were at least 62 years old as of December 31, 2015, you will be able to file a Restricted Application for Benefits. In order to file a restricted application, you must wait until your Full Retirement Age – which is 66 for those who will be able to take advantage of the strategy before it is eliminated.

Clearly, maximizing Social Security benefits is to your advantage. What many people do not realize is just how important it can be to the surviving spouse. If you are the higher earner and you make the right choices, your spouse will be eligible to receive a survivor’s benefit which, at maximum, will be as high as your own benefit amount. But, two of the strategies that you can use to maximize your benefits are being eliminated.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

Roth IRA Conversions Early in 2016 Present Potential Advantages

Let’s face it. The stock market has declined a lot in the past few months.

Many people wonder if they should move to cash and do nothing with their investments. While we do not recommend trying to time the future moves in the stock market, the reality is that it is better to buy low and let it grow more in the future. This is especially true for Roth IRA conversions which result in long-term advantages when the account grows after the conversion. So maybe the time to convert is now.

Lange Roth IRA Money Nest Egg

But, what if the market continues to decline after you convert? One good thing about the current tax law is that you can undo a 2016 conversion as late as April 15, 2017 and perhaps even to October 15, 2017. This gives you a long time, over a year, to see if it grows. If it really dives after you convert, you can even do another conversion at a lower price and undo the first conversion later. The technical term for the undoing of a conversion is a recharacterization, because the Roth IRA is recharacterized as a traditional IRA by moving it back to the original or a different traditional IRA account. Converting early in the year is often recommended as it gives the account more time to grow before a decision must be made on a potential recharacterization.

We have written many articles about Roth IRAs and Roth conversions and included discussions of the extensive advantages they provide. We discuss conversions in our book Retire Secure! and we have written an entire book on Roth IRAs called The Roth Revolution. Both of these books can be purchased on Amazon, but we would be happy to send you a copy for free. To receive a free copy, call us at 412-521-2732, or email admin@paytaxeslater.com and ask for one. Just reference this newsletter offer! These articles and discussions go into much deeper detail on the many strategic ways to do Roth conversions to your advantage, depending on your current situation.

The Roth conversion amount will add to your taxable income, so there are many tax traps to consider when deciding how much to convert, such as …

  • Higher tax rates and related tax surcharges and phaseouts of deductions first implemented for 2013 could result in extra tax if you convert too much.
  • For people who are covered by Medicare parts B and/or D, and pay Medicare premiums, converting too much in 2016 can raise the Medicare premiums in 2018.
  • Also, for medium- or lower-income people who get Social Security income, a conversion can make more of the Social Security subject to tax and also can turn tax-free long-term capital gains and qualified dividends into taxable amounts.

However, paying extra tax can sometimes be worth it in the long run if the Roth IRA account grows a lot after the conversion. These are just some of the things that should be considered in determining the best conversion amount.

Other considerations include the current and future financial and income tax situations of you and your beneficiaries. As we move further into an election year, the possibility of tax law changes looms ahead. Since future tax laws can affect the long-term success of a conversion early in 2016, they should also be considered.

Due to all these considerations and more, we stress the importance of “running the numbers” to be certain that the decisions you are making about Roth IRA conversions are absolutely right for your situation. In general, we like Roth IRA conversions for taxpayers who can make a conversion and stay in the same tax bracket they are currently in, and have the funds to pay for the Roth conversion from outside of the IRA. It is best to run the numbers to determine the most appropriate time and amount for your situation. This is a service that we have provided for hundreds of clients and currently offer free for our assets under management clients. We like to do these number running sessions with the clients in the room. This allows them the opportunity to bring up questions, adjust the scenarios, and feel extremely comfortable with the final decisions.

We usually find many people hesitant to make any changes in their investments when they decline in value. However, you should not pass up the opportunity to do a Roth conversion in a troubled market, as it could provide you and your family more financial security in the long run. Because of the many things to be considered when doing a Roth conversion, we suggest you discuss how much to convert in 2016 with your qualified advisor.

If you are interested about learning about whether a Roth IRA conversion is right for you, please click here and fill out our pre-qualification form. If you qualify, we will contact you to schedule an appointment with either James Lange or one of his tax experts.

Unfortunately, this Free Second Opinion is for qualified Western Pennsylvania residents only.

Unhealthy Investment Attachments

Have you ever made yourself suffer through a bad movie because, having paid for the ticket, you felt you had to get your money’s worth? Some people treat investments the same way.

Behavioral economists have a name for this tendency of people and organizations to stick with a losing strategy purely on the basis that they have put so much time and money into it already. It’s called the “sunk cost fallacy.”

Let’s say a couple buys a property next to a freeway, believing that planting trees and double-glazing will block out the noise. Thousands of dollars later, the place is still
unlivable, but they won’t sell because “that would be a waste of money.”

This is an example of a sunk cost. Despite the strong likelihood that you’ll never get your money back, regardless of outcomes, you are reluctant to cut your losses and sell
because that would involve an admission of defeat.

It works like this in the equity market too. People will often speculate on a particular stock on the basis of newspaper articles about prospects for the company or industry.
When those forecasts don’t come to pass, they hold on regardless.

It might be a mining stock that is hyped based on bullish projections for a new tenement. Later, when it becomes clear the prospect is not what its promoters claimed, some
investors will still hold on, based on the erroneous view that they can make their money back.

James Lange, Lange Financial Group, Pittsburgh, Investment

The motivations behind the sunk cost fallacy are understandable. We want our investments to do well, and we don’t want to believe our efforts have been in vain. But there are ways of dealing with this challenge. Here are seven simple rules:

  1. Accept that not every investment will be a winner. Stocks rise and fall based on news and on the markets’ collective view of their prospects. That there is risk around outcomes is why there is the prospect of a return.
  2. While risk and return are related, not every risk is worth taking. Taking big bets on individual stocks or industries leaves you open to idiosyncratic influences like changing technology.
  3. Diversification can help wash away these individual influences. Over time, we know there is a capital market rate of return. But it is not divided equally among stocks or uniformly across time. So spread your risk.
  4. Understand how markets work. If you hear on the news about the great prospects for a particular company or sector, chances are the market already knows that and has priced the security accordingly.
  5. Look to the future, not to the past. The financial news is interesting, but it is about what has already happened, and there is nothing much you can do about that. Investment is about what happens next.
  6. Don’t fall in love with your investments. People often go wrong by sinking emotional capital into a losing stock that they just can’t let go of. It’s easier to maintain discipline if you maintain a little distance from your portfolio. This is one of the huge values a fiduciary advisor can add to your portfolio.
  7. Rebalance regularly. This is another way of staying disciplined. If the equity part of your portfolio has risen in value, you might sell down the winners and put the money into bonds to maintain your desired allocation.

These are simple rules. But they are all practical ways of taking your ego out of the investment process and avoiding the sunk cost fallacy.

There is no single perfect portfolio, by the way. There is, in fact, an infinite number of possibilities, but based on the needs and risk profile of each individual, not on “hot tips” or the views of high-profile financial commentators.

This approach may not be as interesting. But by keeping an emotional distance between yourself and your portfolio, you can avoid some unhealthy attachments.

New Social Security Rule Will Hurt Women by Eliminating Benefits Options

James Lange, CPA/Attorney, Advises Married Couples Ages 62-70 to Apply and Suspend NOW. After April 29, 2016, it will be too late!

In early November, President Obama signed the Bipartisan Budget Act of 2015 into law and the repercussions are devastating to the married women of our country.

Pittsburgh – December 16, 2015Lange Financial Group, James Lange, PittsburghMarried women, statistically the widows of the future, will pay a high price due to the changes that the Bipartisan Budget Act of 2015 has made to Social Security. Pittsburgh attorney and CPA James Lange takes action by releasing audio and video presentations as well as transcripts and a report that will help couples ages 62-70 navigate this new rule and protect their benefits while they still can!

SOCIAL SECURITY SURVIVOR BENEFITS ARE CRITICAL TO WOMEN

The financial well-being of widows is often dependent upon the choices that are made while their spouses are still alive. Spousal and survivor Social Security benefit choices can mean the difference between living comfortably in retirement and falling under the poverty line for women whose spouses leave them behind. Widows are commonly younger than their deceased husbands and the Social Security benefits they have earned, especially in the Boomer generation, are commonly less than that of their deceased husbands. This means that a widow will depend on collecting survivor benefits, often for many years, based on the benefits to which their deceased spouses were entitled.

“One of the best things a husband can do to protect his wife in widowhood is to maximize his own Social Security benefits. One technique that we use with our clients is apply & suspend.” James Lange of Pittsburgh-based, Lange Financial Group, LLC comments. “The law prior to the Bipartisan Act allowed the husband to apply for, and then suspend collection of his benefits, while allowing his wife to collect a spousal benefit. It was a win-win for our clients!”

This technique was used strategically to maximize the husband’s and wife’s long-term benefits. That, unfortunately, is coming to an end, with the exception of certain couples who take the appropriate action between now and April 29, 2016. For many couples, the income stream from spousal benefits in the previously allowed apply and suspend technique made it possible (or at least more palatable) for the husband to wait until age 70 to collect Social Security, thus maximizing their benefits.

“This new law cuts off that income stream, making it if not impossible, at least more difficult, for husbands to choose to delay collection of their benefits.” Lange warns, “Unfortunately, it is the widows of these husbands who cannot maximize their Social Security benefits who will be left in reduced circumstances for the rest of their lives.”

JIM LANGE’S ADVICE

DO NOT WAIT. Congress has eliminated one of the best Social Security maximization strategies. Fortunately, some recipients may be grandfathered already and others could be grandfathered if they act between now and April 29, 2016. Others will have to make do with the new laws. In either case, now is the time to review your options. We have posted a one hour audio with a written transcript explaining the old law, the new law and the transition rules. Readers can go to www.paytaxeslater.com to access this audio and transcript.

ABOUT JAMES LANGE Jim Lange

James Lange, CPA/Attorney is a nationally-known Roth IRA and retirement plan distribution expert. He’s also the best-selling author of three editions of Retire Secure! and The Roth Revolution: Pay Taxes Once and Never Again. He hosts a bi-weekly financial radio show, The Lange Money Hour, where he has welcomed numerous guests over the years including top experts in the fields of Social Security, IRAs, and investments.

With over 30 years of experience, Jim and his team have drafted over 2,000 wills and trusts with a focus on flexibility and meeting the unique needs of each client.

Jim’s recommendations have appeared 35 times in The Wall Street Journal, 23 times in the Pittsburgh Post-Gazette, The New York Times, Newsweek, Money magazine, Smart Money and Reader’s Digest. His articles have appeared in The Journal of Retirement Planning, Financial Planning, The Tax Adviser (AICPA), and other top publications. Most recently he has had two peer-reviewed articles published on Social Security maximization in the prestigious Trusts & Estates magazine.