Protect Your Social Security from Cyber Criminals

Posted on March 29, 2018 by James Lange in Current Events, Data Breach, Identity Theft, Social Security and tagged Fraud, Social Security, Social Security Fraud.

As many of you know, I am a strong proponent of waiting until age 70 to apply for Social Security, because I want both you and your surviving spouse to receive the highest benefit possible during your lifetimes. And one of the technical points about Social Security that I’ve never covered in detail in my books – because it’s only been in rare cases that I have recommended that my clients do it – involves applying for benefits retroactively. But in order to make you understand how your future Social Security benefits could be at risk from cyber criminals, I find myself in the strange position of having to give you a quick lesson on how retroactive benefits work.

Suppose that you could have applied for Social Security at your Full Retirement Age (FRA) of 66, but you took my advice and waited so that you can receive the highest benefit possible at age 70. When you turn 67, you go to your doctor for your annual physical. There, the doctor gives you some terrible news – you have six months to live! Now you’re cursing at me because you missed out on all of this Social Security money that you could have collected since you were 66 – or did you? Not necessarily. In certain instances, Social Security will allow you to apply for retirement benefits retroactively. If you qualify, Social Security will send you up to six months of retroactive benefits, paid as a lump sum.

A True Horror Story of a Social Security Fraud Victim

I won’t waste time telling you how you can qualify for retroactive benefits because it’s a complicated topic, and I will not recommend you do it because it will result in lower monthly benefits for the rest of your life. I am going to tell you something very important that you need to understand about retroactive benefits: if you are at least Full Retirement Age but are waiting until age 70 to file for Social Security so that you can earn Delayed Retirement Credits, your account may be compromised by cyber criminals who are trying to get their hands on any lump sum retroactive benefits to which you might be entitled, but have no intention of ever claiming. Here’s a real-life example of what I’m talking about:

I have a client who received an unexpected letter from the Social Security Administration. She and her husband had intended to hold off applying for benefits so that they could earn Delayed Retirement Credits. The letter they received, however, stated that Social Security had approved their request for a lump-sum retroactive benefit payment, which amounted to almost $12,000. Immediately my client and her husband went to their local Social Security office, and in the several hours spent there, discovered that the criminal(s) had called the office and pretended to be her husband. During the conversation, which was on a recorded line, the criminal simply said that he had changed his mind and wanted to apply for benefits retroactively! And the Social Security office complied with his request!

It Seems to Have Become Easier for Criminals

I found this situation to be so unbelievable that I called the Social Security office myself and asked how it could happen. What I learned might shock you. In order to access my client’s Social Security account, the criminals had to provide them with only the husband’s full name, date and place of birth, mother’s maiden name, and his current address and phone number. Personal information like this is widely available online through sites such as Facebook and Ancestry.com, not to mention what is available on the dark web thanks to the infamous Equifax hack in 2017.

My client spent hours at the Social Security office trying to put a hold on the “lump sum withdrawal,” and were assured that everything had been resolved. We thought that the criminals had been thwarted and everything was fine, but yesterday they received a 1099 from the Social Security Administration saying that they had received $12,000 in benefits that they needed to report on their tax return! So now we’re back to square one, and are still trying to get this mess sorted out. It’s bad enough that the IRS has been notified that they need to pay tax on money they never received, but now I’m wondering whether my client is still earning Delayed Retirement Credits after these criminals filed for benefits under his name!

How Can You Protect Yourself?

The bottom line is that you need to treat your Social Security account like a bank or investment account. Even though you might not think of it as being an asset, it is – because if a criminal manages to take control of it, the consequences could be costly and far-reaching. One way to protect yourself is to open an account with Social Security online, at this website: https://www.ssa.gov/myaccount/. Even if you do not plan to file for benefits in the near future, this action can prevent someone else from opening an account in your name without your knowledge. For your security you will be required to create a user name and password, and they’ll send a one-time security code to your email or phone.

Once you’ve established your account, you should check it periodically to make sure that information such as your name, address and phone number is correct. They also have a feature called “Block Electronic Access,” which prevents anyone (including you) from changing your personal information online or over the telephone. If you block access to your account and then change your mind, you have to ask Social Security to unblock it for you.
Years ago, the fear of Social Security theft was largely confined to the possibility of armed thugs waiting outside the bank for retirees who had just cashed their monthly checks. Unfortunately, criminals are constantly looking for ways to liberate you from your money, and their creativity can be surprising. Remember, protect yourself and your spouse by making sure that your benefits are safe – even if you don’t plan to apply in the near future!

Are you interested in learning more about Social Security maximization strategies? Visit our Social Security section of our website here for more information.

How Does the Tax Reform Affect Retirees?

Posted on December 28, 2017 by James Lange in Current Events, Economy, Government Programs, Income Tax, Tax Law and tagged Charitable Contributions, Medical Expenses, Miscellaneous Deductions, Mortgage Interest, Property Taxes, Retirees, tax reform.

How does the Tax Reform affect Retirees?

I was able to spend some time reading over the holiday, and of course much of my efforts were devoted to finding out how people were reacting to the new tax reform bill. In quick succession, I came across three articles published by three different media outlets. The first said that the tax reform would hurt poor people; the second insisted that the tax reform would hurt the middle class, and the third swore that the tax reform would hurt the rich. Many of our clients are retired, and they are asking “how will the tax reform affect me?” So I thought I would give you some ideas about how the tax reform might affect retirees.

One concern for retirees involves the changes made to the rules affecting Schedule A, Itemized Deductions. Will the tax reform affect you if you are retired, and you have been able to itemize? The short answer is that, depending on what and how much you deduct, the tax reform may affect you because some of the itemized deductions were reduced or even eliminated. Let’s look at specifics.

Tax Reform and Medical Expenses

Many retirees have high medical costs – and the good news is that medical expenses will still be deductible in 2017 assuming that they exceed a certain threshold. What makes this statement less than straightforward, though, is that there were two different thresholds when you did your taxes last year. Prior to the tax reform, individuals who were younger than age 65 had to have medical expenses that exceeded 10% of their adjusted gross income in order to be able to use the deduction.

If you or your spouse were 65 or older, though, the threshold was lower – only 7.5%. And whatever your age, you could only deduct the medical expenses that were in excess of your threshold. The bottom line for retirees? If you itemize, tax reform shouldn’t affect your medical deductions unless both you and your spouse are younger than 65 years old. The tax reform may actually benefit younger individuals who have high medical costs because, starting in 2017, everyone regardless of their age will have to meet a threshold of only 7.5% before they can deduct any medical expenses.

Tax Reform and Property Taxes

Many retirees could be affected by the changes in state and local tax (or, SALT) itemized deductions. Through 2017, you can deduct all of your state, local, real estate, sales and personal property taxes on Schedule A if you itemize. In 2018, those deductions will be capped at $10,000. How does this affect retirees? It depends. If you didn’t deduct these expenses because you used the standard deduction last year, this provision in the tax reform won’t affect you at all.

But if your income is high enough that it is subject to state and local tax, or if you own a home on which you pay high property taxes, any deduction that you might be able to take after the tax reform could be reduced. If this sounds like you, you will need to check the Schedule A on your prior year return to see exactly how much of the taxes you paid were deductible in the past. The tax reform could affect you negatively if you’ve been able to deduct more than $10,000 because, starting in 2018, your deduction will be limited to that amount.

Tax Reform and Mortgage Interest

Many retirees prefer to have the mortgages on their homes paid off before they leave the work force. If that’s you, the changes to the mortgage interest deduction rules, by themselves, shouldn’t affect you. Prior to the tax reform, married couples could deduct the interest they paid on mortgages that were less than $1,000,000. Under the tax reform, that mortgage limit is lowered to $750,000 – which means that individuals who have large mortgages may not be able to deduct as much of the interest as in the past. If you are retired, this change should not affect you unless you are planning to buy a new home in 2018 or later. If you do buy a new home and finance more than $750,000 (and you itemize) you will not be able to deduct as much as you would have prior to the tax reform.

Tax Reform and Miscellaneous Deductions

How about miscellaneous itemized deductions? The big ones for my clients are their investment account fees and, in some cases, employee business expenses, but includes smaller deductions such as tax preparation fees and safety deposit box fees. The new law temporarily repeals all of those, so if you itemize and have taken advantage of them in the past, the tax reform may hurt you in this area of your return.

Tax Reform and Charitable Contributions

What about charitable contributions? The tax reform will not affect charitable contributions at all. If you don’t itemize, your charitable contributions weren’t deductible in prior years and so nothing has changed for you. If you do qualify to itemize, contributions that you make to legitimate charities will still be deductible in 2018.

This leads me to my big finale! My theme throughout this post has been, “assuming that you qualify to itemize”. Even if you were able to itemize in the past, you may not need to itemize after the tax reform because the standard deduction (or, the amount that the government gives to everybody with no strings attached) has almost doubled. In 2017, the standard deduction for married couples filing jointly is $12,700 but in 2018 it will be $24,000. So even if you fall into one of the categories where you believe the tax reform might initially hurt you – for example, if you have a significant amount of investment account fees that are no longer deductible – it might be a moot point if the government is going to just give you more than what you would have gotten by itemizing anyway.

Confusing? You bet! So please bear with us during tax season as we try to sort this out!

Stop back soon!

-Jim

Learn how Jim Nabors saved $4.8 Million by marrying his husband.

Jim Nabors Saved $4.8 Million in Taxes By Marrying His Husband

Posted on December 8, 2017 by James Lange in Current Events, Estate Planning, Estate Tax, Income Tax and tagged estate plan, Estate Planning, Jim Nabors, Same-Sex Couples, Same-Sex Marriage, Taxes, Washington State.

How Jim Nabors saved $4.8 Million in taxes by marrying his husband. Courtesy of PayTaxesLater.com

Jim Nabors: Actor, Singer, and Comedian

On November 30, 2017, Jim Nabors, perhaps most famous for his role as Gomer Pyle, died at the age of 87. Jim is survived by his husband Stan Cadwallader, whom he married in 2013. Their marriage came one month after same-sex marriages became legal in Washington State.

It is quite eye-opening to look at the tax consequences of their decision to get married; Mr. Nabors died with a $13M estate. The terms of his will are not public, but for the sake of argument let’s assume he left his estate to his husband. Because of the marriage, no Federal or Hawaiian estate or inheritance taxes are due at death because of the unlimited marital deduction.

Smart Estate Planning

If Jim and Stan had remained unmarried partners the payout to the Government would have been astronomical. A $3,000,000 payment in federal estate taxes alone is bad enough. A payment of over $1,800,000 in Hawaiian inheritance taxes would add a total of $4,800,000 in total taxes. These numbers don’t include the income taxes that will be saved because of the longer “stretch” a spouse receives on an inherited IRA or retirement plan.

The moral of the story is that for many life-long partners, gay or straight: Get Married for the Money. Obviously the decision to marry hinges on more than whether marriage is a financially strategic move. But if you are simply avoiding the formalities, it might make sense to think about the long-term tax consequences on your financial security—for both you and your partner. Marriage is usually a big plus for purposes of Social Security, especially if one partner has a much stronger earnings record than the other partner.

More Information Is Always Available

For more information visit www.paytaxeslater.com.To schedule an appointment with Jim Lange, please call his office at 412-521-2732. You can always contact Jim at jim@paytaxeslater.com.

James Lange, CPA/Attorney of Lange Financial Group, LLC, is the author of several books on retirement and estate planning, including Live Gay, Retire Rich. His books on retirement strategies have been endorsed by Charles Schwab, Larry King, Jane Bryant Quinn, Ed Slott, and many more. He hosts a weekly financial show on KQV News Radio in Pittsburgh. PA.

Tax Cuts and Jobs Act of 2017: Ten Huge Take-Aways

Posted on November 3, 2017 by James Lange in Current Events, Economy, Home Buyer, Income Tax, Market News, Tax Law and tagged Current Events, Jobs Act, Tax Cut and Jobs Act of 2017, Tax Cuts, Tax Law.

Ten Huge Take-Aways from the Tax Cuts and Jobs Act by Jim Lange

Ten Huge Take-Aways from the Tax Cuts and Jobs Act of 2017

by James Lange, CPA/Attorney

The first thing to consider about the proposed Tax Cuts and Jobs Act is that it is just a proposed tax bill. It is possible it will face stiff resistance in the Senate and possibly get no votes from the Republicans. Jeff Flake, John McCain, Bob Corker, and Lisa Murkowski might be on that list of Republican “no” votes. So, like health care it is possible, and even likely, that nothing will happen this year and maybe not in the foreseeable future.

Depending on your personal circumstances, the Tax Cuts and Jobs Act of 2017 could be good or bad for your family. Critical factors like how many children you have, whether you live in a high-tax state and itemize your deductions or take the standard deduction, whether you own a home or are looking to buy one could sway you from benefiting from these changes or suffering from them.

In fact, there are so many variables to consider that it is difficult to make a blanket statement that the proposal will offer you tax relief. Corporate America is a clear winner. Reducing the corporate tax rate from 35 to 20 percent, Speaker Paul Ryan argues, will create more jobs and drive up wages. But critics, even Republican critics, say it is not a given that companies will pass their savings on to workers vs. shareholders through higher dividends.

However, the bill as it stands now is far from becoming law. Ultimately, the Senate will introduce more changes and what we will end up with and whether it will pass are still great unknowns. But, going forward it will still be helpful to understand some of the main provisions the bill advances so you can begin to assess the impact on you and your family.

Champions and underdogs in the Tax Cuts & Jobs Act of 2017:

This doesn’t appear to be an overall tax-cut for the middle class, as promised. What we see in this bill is a tax cut for some, and a tax hike for others. As usual, it all depends on how much you make, how you earn your living, where you live, the mortgage on your home, your property taxes, student loans, etc. The Tax Policy Center commented that the bill wasn’t really tax reform but rather it was more of a complicated tax cut. We have compared differences for different hypothetical clients and the results were less dramatic than we thought. In one case, the elimination of the alternative minimum tax was helpful, but the dis-allowance of state and local income taxes netted out to a tax increase for one client.
The bill reduces the number of tax brackets from seven to four. Currently the brackets are 10-15-20-28-33-35-39.6%. Under the new provisions there will be a zero bracket (in the form of an enhanced standard deduction according to the bill), and from there the brackets will be 12-25-35-36.9%. Here is how they break down:

2017 Single Filer	2017 Married Filing Jointly	2017 Head of Household
$0- $9,325 – 10%	$0-18,650 – 10%	$0- $13,350 – 10%
$9,326- $37,950 – 15%	$18,651- $75,900 – 15%	$13,351- $50,800 – 15%
$37,951- $91,900 – 25%	$75,901- $153,100 – 25%	$50,801- $131,200 – 25%
$91,901- $191,650 – 28%	$153,101- $233,350 – 28%	$131,201- $212,500 – 28%
$191,651- $416,700 – 33%	$233,351- $416,700 – 33%	$212,501- $416,700 – 33%
$416,701-$418,400 – 35%	$416,701- $470,700 – 35%	$416,701- $444,550 – 35%
$418,401 + – 39.6%	$470,701+ – 39.6%	$444,551 + – 39.6%

Proposed Single Filer	Proposed Married Filing Jointly	Proposed Head of Household
$0-$44,999 – 12%	$0-$89,999 – 12%	$0-$67,499 – 12%
$45,000-$199,999 – 25%	$90,000-$259,999 – 25%	$67,500-$229,999 – 25%
$200,000-$499,999 – 35%	$260,000-$999,999 – 35%	$230,000-$499,999 – 35%
$500,000+ – 39.6%	$1,000,000+ – 39.6%	$500,000+ – 39.6%

Additionally, the bill would eliminate the alternative minimum tax (AMT), a second tax calculation for people earning about $130,000 which reduces the impact of many tax breaks.

The bill doubles the current standard deduction, giving $12,000 to single filers, $24,000 for married filing jointly, and $18,000 for heads of household.

But before you get too excited about a larger deduction, they’ve decided to repeal the personal exemption—currently $4,050 per person—and the deductions for state and local taxes. So, it isn’t as much of a break as you think it is.

They are taking away one of our favorite, and edgiest strategies. No more recharacterization of Roth IRAs. If you’ve heard me talk about Roth IRAs, you’ve probably heard me mention recharacterization. The ability to recharacterize, basically undo the Roth conversion, adds enormous flexibility in our Roth IRA conversion planning. This will mean that the days of do-it-yourself Roth IRA conversion calculations will be highly risky. Having a professional you can trust, who knows the system in and out, and who has the experience to get it right will become incredibly important.

Taxpayers with a net worth of $10 million or more (and their children) have a reason to cheer as the plan almost doubles the current federal estate tax exemption from $5,490,000 to $10,000,000 per individual, with spouses exempt from any limits. The Joint Committee on Taxation has commented that this provision, while being a boon for business owners and wealthier Americans will reduce the federal revenue by around $172 billion over 2018-2027. Oh, yeah…and after 2023, the estate tax will be repealed all together. Compensating for that loss of revenue is a huge stumbling block for the proposed tax reform. Though hard to confirm, rumor has it that originally they were going to eliminate the estate tax entirely but put this provision in to secure the support of Alaska.

While the bill does simplify many areas, it also complicates many areas. It is not a major tax simplification. I do not fear that our CPA firm will lose business because clients will find it so easy to complete their tax returns.

While corporations and businesses will see a reduced corporate tax rate—from 35% to 20% – it will come with a price¾a much more involved and complicated filing process. New anti-abuse rules, complicated multi-national corporation rules, new tax treatments on interest, and changes in international income rules will make navigating your business tax return much more difficult. Shareholders of pass through entities, like Subchapter S corporations will get a big break, but the complications for claiming that break are considerable.

The Act is silent on the Death of the Stretch IRA. We still aren’t sure if and when this will happen. It is very possible that they are holding it in reserve to for future negotiations pertaining to reducing the deficit. The tax cuts in this bill will massively reduce federal revenue. We’re talking in the trillions of dollars here. To get any version of this to pass, it is very likely that the GOP will have to come up with ways to offset some of the deficit. Killing the ability to stretch IRAs and retirement plans for generations is one way to do that.

Even the Republican’s admit that this bill will increase the deficit by $1.5 trillion dollars over the next ten years, and that is a huge issue. Critics on both sides see increasing the deficit as unacceptable. Further, the Tax Policy Center and other tax policy commentators on both sides of the aisle think that this estimate is too low or too high, and many do not believe that this bill will provide the economic growth or tax-relief promised to the middle class.

If you want to read an excellent 82-page summary of the bill, check out The Fiscal Times online:

http://www.thefiscaltimes.com/2017/11/02/Read-House-GOPs-Tax-Bill-or-Summary-Key-Points

If you are looking for more of a brief overview summary, these are excellent resources:

https://taxfoundation.org/details-tax-cuts-jobs-act/

http://www.taxpolicycenter.org/taxvox/house-gop-tax-bill-mostly-business-tax-cut-will-create-new-winners-and-losers

As I mentioned above, this bill is simply the first iteration of what the final bill might look like, and it isn’t clear that anything in it is going to become law. But it bears some scrutiny since some of the main points are likely to provoke debates. We will continue to watch as the process evolves. We might even have to interrupt our series on Lange’s Cascading Beneficiary Plan once again! If that happens, I hope you will bear with us. But unless there is major news, we will see you next week as we continue exploring the advantages of the LCBP

Disclaimer: Please note that the Tax Cuts and Jobs Act of 2017 removed the ability for taxpayers to do any “recharacterizations” of Roth IRA conversions after 12/31/2017. The material below was created and published prior the passage of the Tax Cuts and Jobs Act of 2017.

Four Ways Women Can Improve Their Outlook in Retirement

Posted on July 25, 2016 by James Lange in Retirement Planning, Retirement Planning for Women, Social Security and tagged pension benefit, poverty, Required Minimum Distributions, retirement income, Retirement Planning, Roth IRA, Roth IRA Conversions, Social Security, women.

Women and Retirement Lange Financial Group Pittsburgh PA

Recent studies have shown that women, even those who worked outside of the home, are much more likely to slip below the poverty line in retirement than men are.

Recent studies have shown that women, even those who worked outside of the home, are much more likely to slip below the poverty line in retirement than men are. Approximately 8 percent of adults aged 65 and older must rely on food stamps to survive and, of those, two-thirds are women. Why is there such a financial inequity between men and women in their golden years?

In years past, women typically earned much less than men (fortunately, this has started to change). Because they earned less than men, women were not able to save as much for retirement. Federal law establishes the maximum percentages that workers can contribute to retirement plans. Assuming that two workers both contribute the maximum percentage to their retirement plans, a male worker who earns $60,000 will save more dollars than a female worker who earns $40,000. Women must also make what they can save last longer. According to the Social Security Administration, the life expectancy of a man who is 65 today is 84.3. The life expectancy of a female, who is 65 today, is 86.6—a difference of almost two and one-half years.

Many women who are now retired are not as educated about finances as women of subsequent generations. They let their husbands manage the money, and frequently are unintended victims of poor decisions made by their spouses. This is especially true when considering both defined benefit pensions and Social Security elections. Retirees generally have the choice of applying for a higher benefit that lasts for their own lifetime, or a reduced benefit that is paid over the course of both their and their surviving spouse’s lifetimes. Many insist on applying for the higher benefit under the premise that they need a higher income to live on. If they are the first to die, though, their spouses are cut off completely. Many of the primary wage earners also make bad decisions when applying for Social Security benefits, never considering how their actions will affect their spouses. The decisions they make can mean a difference of about $25,000 in Social Security income every year, for their surviving spouses.

The good news is that, even if you are retired now, there are steps that you can take to improve your outlook in retirement. Consider some of these options:

1. If you are saving for retirement, take advantage of qualified retirement plans such as 401(k)s, 403(b)s, and IRAs. These plans offer tax advantages that, in the long run, will provide you with a much larger nest egg in retirement than buying identical investments inside a non-retirement account. Make sure that you manage the money that you do save, well. Many women are afraid to invest their money in anything other than CD’s, and never consider that the low rates of return they offer may cause them to run out of money before they run out of time.

2. If your spouse is entitled to a defined benefit pension when he retires, or if he will receive payments from an annuity, make sure that he chooses the payment option that covers your life as well as his own – especially if you are younger than he is. If he chooses the option that covers only his life, the payments will stop when he dies. If you can’t afford to live on the reduced benefit amount that covers both of your lives, then you can’t afford to stop working.

3. If your spouse earned more money than you did, ask him to think twice about applying for Social Security benefits at age 62. If he does, his benefit will be reduced by 25 percent for the rest of his life. Your spousal benefit, as well as your survivor benefit if he predeceases you, will also be permanently reduced. If it’s possible, encourage your spouse to wait until age 70 to apply for benefits. If he does, his benefit will be increased by 32 percent. If you survive him, the benefit you receive after his death will also be significantly higher.

4. Many women are not educated about financial and tax strategies they can use to make their money last longer. Consider making a series of Roth IRA conversions during the years after you retire, but before you start taking withdrawals or Required Minimum Distributions from your retirement plans. The money you save in a Roth IRA is not taxable, and so lasts longer than money that is in a traditional retirement plan.

It is important to remember that there is no one-size-fits-all answer to this problem. In order to make sure that you are financially secure, it is imperative that you contact a financial professional that you can trust and discuss these points in detail. A good fee-based advisor will be able to guide you through the best possible choices for pensions, Social Security, investment planning, and retirement expenses.

For more information about the financial challenges affecting women in retirement, please listen to our radio show at “Women Don’t Ask: How Married Women Can Advocate for their Own Financial Protection”

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The Aftermath of Brexit

Posted on July 6, 2016 by James Lange in Investing, Market News, The Lange Money Hour and tagged brexit, IRA, Retirement Planning, Roth IRA, Roth IRA Conversions.

The Aftermath of Brexit

Pros and Cons: What Options Do Individual Investors Have?

What should you do about your own retirement plan in the aftermath of Brexit? Find out why now could be a great time to do a Roth conversion!

On June 23, 2016, a majority of British citizens voted to leave the 28-member European Union – an action referred to as the “Brexit”. The following day, Americans awoke to learn that global stock markets had not reacted well to the news. Our major domestic indices followed suit, with the Dow Jones Industrial Average declining more than 600 points in one day. Trillions of dollars in wealth were estimated to have been wiped out overnight, and more is likely to follow as the world adjusts to the news.

Prior to the historic Brexit vote, I watched with interest as the pollsters interviewed people on the streets and then confidently predicted that Britons would vote to stay in the union. The British pound made gains, and even the lethargic US stock markets seemed cheered at the news. Life, it seemed, would be good as long as the union remained intact. Investors throughout the world thought that the good citizens of Great Britain would never upset the apple cart, and placed their bets accordingly. And guess what? They bet wrong!

Time will tell, but I suspect that much of this market chaos is happening because the investors who relied on the pollsters got caught with their pants down. Plans were made and fund managers structured their portfolios assuming that the citizens of Great Britain would vote to stay – and they didn’t. Now these investors find themselves having to scramble to put their Plan B – assuming they even have one – in place. What does their mistake mean for you?

If you’re clients of ours, you know that we have always advocated using a balanced approach to money management. And we never advocate making changes to your portfolio based solely on what the market is doing. However, for many of you, now would be a great time for you to take that trip to London that you’ve always wanted to do. The US dollar strengthened on the news of the Brexit, and will stretch much further now than it would have a week ago. Or, consider establishing Roth IRAs or college tuition accounts for your grandchildren. If they have ten or more years to wait out a market recovery, you can fund those accounts with equities purchased at prices much lower than they were last week at this time.

What should you do about your own retirement plan in the aftermath of Brexit? If you hold any global funds in your IRA, now could be a great time to do a Roth conversion. By converting when the market value of the fund is low, you pay less in federal income tax than you would when the fund value is high. And if the market continues to drop even further, you can always recharacterize your conversion. I’ll be talking about some of these points on my next radio show on 1410 KQV. You can call in and ask questions during the live broadcast on Wednesday, July 6^th, from 7:00 – 800 p.m., or catch the rebroadcast on Sunday, July 10^th at 9:00 a.m. You can also read more about Roth conversions by clicking this link on my website: https://www.paytaxeslater.com/roth_ira/

Please call our office soon if you have been thinking about doing a Roth conversion, and we will run the numbers to see if it makes sense for you. And if you do go to London, send me a postcard!

Jim

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Changes to Social Security Rules: File & Suspend vs Restricted Applications and Social Security Benefit Strategies for Married Couples

Posted on June 2, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Retirement Planning for Women and tagged apply and suspend social security, best Social Security for couples, Social Security, Social Security Benefits, social security spousal benefits.

The Little Black Book of Social Security Secrets, James Lange

The Little Black Book of Social Security Secrets evaluates options for collecting Social Security benefits and recommends the most advantageous strategies for them.

Changes to Social Security Rules: File & Suspend vs Restricted Applications and Social Security Benefit Strategies for Married Couples

Social Security Options after the 4/29 Apply and Suspend deadline

A couple of people who have written in want to know why I’m taking such a passionate interest in the changes to the Social Security rules. “What’s in it for you?” they ask. When I wrote The Little Black Book of Social Security Secrets, my plan was to make it available as a resource to my own clients. It received such an overwhelming response, though, that I quickly realized that I should make it available to as many people as possible – even though it’s unlikely that I’ll ever derive a benefit from doing so.

I am a CPA and an attorney, and my area of expertise lies in retirement and estate planning. As part of our services, we have always evaluated our client’s options for claiming Social Security benefits. Social Security is an integral part of retirement planning. If your income from all sources is high enough, your Social Security benefits will be taxed. Required minimum distributions from traditional retirement plans, which begin at age 70 ½, will compound that tax problem. It seems obvious to me that, if I want to give clients good advice about the money they will have available to spend during their retirement years, I must evaluate their options for collecting Social Security benefits and recommend what I believe are the most advantageous strategies for them. From the feedback I’m getting, though, it seems that many of the professionals in my field are quite happy to refer their clients to their local Social Security office for advice. Frankly, this is one topic on which I’m more than happy to hold the minority opinion!

But let’s go back and look at some real-life questions presented by people who have read my book, and who want to know what they should do with their own Social Security benefits. Ralph is 67, and hasn’t applied for Social Security yet because he wants his monthly benefit to grow by Delayed Retirement Credits (DRCs) of eight percent every year, and Cost of Living Adjustments (COLAs). His Primary Insurance Amount (PIA) is $2,400. His wife, Alice, just turned 65. She worked for most of her life, and her PIA is $1,800. What is the best Social Security strategy for this couple?

Social Security Options

Ralph has several options. If he files for his own benefit now, he would be eligible to collect about $2,600 (his PIA, plus the years’ worth of DRCs that he has already earned, plus COLAs) every month. He can also delay filing for benefits until age 70. Not filing will allow his benefit to grow by additional DRCs and COLAs, but he will need to file when he turns 70 because he cannot earn additional DRCs after that. Ralph can even change his mind. If he started to collect his benefit at age 67 and later regrets his decision, he can suspend his benefit and earn DRCs every month that his benefit is suspended, until he turns 70.

What about Alice? She is eligible to collect a benefit based on her own record, but, if she wants to collect it now, her benefit will be permanently reduced because she has not reached her Full Retirement Age (FRA) of 66. If she waits until she is 70 to collect her own benefit, the outlook is much better. Like Ralph, she is eligible to earn DRCs and COLAs on her own benefit. Her PIA is $1,800 and, if she waits until 70 to collect it, her monthly benefit amount will be about $2,400. If she is already collecting her own benefit, she can also suspend it when she reaches FRA and earn DRCs until she turns 70.

Spousal Benefits Give More Options to Married Couples

Ralph and Alice have been married for at least a year, so both have another option – Social Security spousal benefits. Even if Alice had never worked outside of the home, she would be eligible to collect spousal benefits based on Ralph’s record. The general rule is that spousal benefits can be paid as early as age 62, but they will be reduced. In order for Alice to receive the maximum possible spousal benefit – which is 50 percent of Ralph’s PIA – she must wait until 66 to apply. (Note, Social Security has something called a deemed filing rule, discussed below, that could affect whether she will receive her spousal benefit or her own benefit.) There is no benefit to Alice waiting beyond age 66 to apply for spousal benefits.

Ralph can also apply for spousal benefits based on Alice’s earnings record. Why would he want to, when his own benefit would be higher? There are some situations where it might actually make sense for the person whose own benefit is higher than his spousal benefit, to apply for the lower spousal benefit. We’ll cover more about that in a minute.

Suppose Ralph and Alice were divorced, and that only Ralph has remarried. As long as their marriage lasted at least ten years, Alice would still be eligible to file for spousal benefits based on his record. Does that mean that his current wife can’t get spousal benefits? As long as they’ve been married at least one year, his current wife can, when she is eligible, also file for spousal benefits based on Ralph’s record. Ralph could have been married four or five times and, as long the marriages lasted at least ten years, all of his ex-wives would be able to collect spousal benefits based on his record. The interesting part is that none of his ex-wives’ spousal benefits will be reduced because others are claiming on the same record!

How are Spousal Benefits Calculated?

The spousal benefit calculation can be complicated, so let’s look at an example. Let’s assume that Alice didn’t work much outside of the home, and that her PIA is only $400. Her full spousal benefit would be half of Ralph’s PIA, or $1,200. The difference of $800 is what is often referred to as the “spousal excess” – and the distinction between that and her PIA is very important if Alice wants to apply when she turns 62. If she does, and if Ralph is already claiming, she will receive 75 percent of her PIA ($300), plus 70 percent of the spousal excess ($560), for a total of $860. Of course, if Alice waits until FRA to apply, she’d get the equivalent of 50 percent of Ralph’s PIA ($1,200).

In our original scenario, though, Alice worked for most of her life and her own PIA is $1,800 – higher than the maximum spousal benefit to which she’d be entitled. Why would she apply for a spousal benefit if her own benefit is higher? We’ll cover the reasons why in the next section but, before we do we need to take a look at how much she’d be eligible to receive as a spousal benefit. If she applies at FRA, she’s eligible for the maximum – or 50 percent of Ralph’s PIA. Alice can certainly apply for benefits now, but her age (65) presents a complication. Social Security’s deemed filing rule says that, since she is not yet FRA (for our purposes here, 66), she will be “deemed” to be applying for both her own benefit and her spousal benefit. In other words, if she applies at 65, she has no choice – Social Security will figure out how much she would receive as a spouse, and how much she would receive based on her own record, and pay her the higher of the two. In this case, her own benefit, even reduced because she applied early, is higher than her spousal benefit. She’ll get $1,679 ($1,800 x 93.3%).

Maximize your Social Security benefits by Combining the Apply and Suspend Strategy with Restricted Applications

So how can Ralph and Alice use the options they have available to maximize the amount they receive from Social Security? Let’s look at some ideas.

Suppose Ralph is currently collecting his own benefit or that he applied for and suspended his benefit by the April 29, 2016 deadline. What happens if Alice waits one year, and applies for benefits when she is FRA (66)? If she waits until FRA, Alice’s application will no longer be subject to the deemed filing rule. She can submit her paperwork and specify that she only wants to apply for whatever spousal benefit to which she might be entitled. This is also known as filing a Restricted Application. Since she’s now FRA, she’d be eligible to receive 50 percent of Ralph’s PIA, or $1,200. She can collect her spousal benefit until she turns 70 and, in the meantime, the benefit based on her own earnings record will continue to grow by DRCs and COLAs. When she turns 70, she can switch to her own benefit, which will have increased by at least 32 percent – or, to almost $2,400 every month. Note, in order to be able to file a Restricted Application for spousal benefits, you had to have been at least 62 years old as of December 31, 2015. If you weren’t, you’ll be in the same boat as I am. We’ll be subject to the deemed filing rule regardless of when we apply for benefits.

Best Social Security Strategy for Married Couples

What does this mean in terms of money? If Alice applies for her own benefit at 65, she’ll receive about $1,679 every month, for the rest of her life. If she waits until age 66 to apply for just her spousal benefit – filing that Restricted Application – she’ll give up all the money she could have received from age 65 to 66 – a little over $20,000 ($1,679 x 12 months). Her spousal benefit of $1,200 every month will give her some income from the time she is 66 to 70, but not as much as if she’d applied for her own benefit at age 65. The difference between taking a spousal benefit and her own benefit during that four year period is significant – she’ll miss out on about $23,000 ($479 x 48 months). If you’re keeping track, she’s already missed out on about $43,000! But once she turns 70 and starts to receive her own benefit that has been increased by DRCs, the outlook is different. From that point on, Alice will get about $700 more ($2,400 – $1,679) every month than if she had applied at 65 – and she will get it for the rest of her life.

Confusing? You bet! But I hope you understood the general idea that, even though Alice collected no money when she was 65, and collected less money than she could have from the time she was 66 to 70, the handsome payoff that she received after she turned 70 made up for her sacrifice – and the payoff happened in a little over 5 years ($43,000 / $700 = about 61 months).

There is one catch. In order for Alice to be able to collect that 50 percent spousal benefit from the time she is 66 to 70, Ralph either has to be collecting his own benefit, or had to have applied and suspended by the deadline of April 29, 2016. Suppose Ralph is 70 years old but has not applied for benefits yet. He should go ahead and do so, because he won’t earn any more DRCs beyond this point. And once he files, Alice will be able to file a Restricted Application for spousal benefits.

Suppose Ralph just turned 66, and was not eligible to file for and suspend his benefit. Well, he can certainly apply for and collect his own benefit and Alice can file a restricted application for her spousal benefit, but then Ralph won’t earn those DRCs that can increase his check by 32 percent. Unless there were very unusual circumstances involved, it probably wouldn’t make sense for Ralph to collect when he is 66, just so Alice can get a spousal benefit for four years.

Suppose Ralph is 65, and Alice is 64 – so neither has reached FRA yet. Both are allowed to apply now, but, if they do, we know that each will receive the benefit based on his or her own record, and that their benefits will be permanently reduced. But what happens if they wait until next year, when Ralph turns 66 and Alice turns 65? Ralph can apply for his own benefit and receive his PIA of $2,400. Alice, though, has to be FRA in order to submit a Restricted Application for spousal benefits. If she waits until she’s 66, she’ll get the maximum spousal benefit of 50 percent. But because she restricted the scope of her application to her spousal benefit, she can collect about $1,200 every month until she turns 70. Once she turns 70, she can switch from her spousal benefit and collect her own benefit, which by now has grown to $2,400 every month.

In reality, these calculations are oversimplified. Before we make specific recommendations to our clients about Social Security, we take in to consideration such factors as life expectancies, income taxes, other sources of income, and COLAs. But the one thing I wanted to make sure you understood by these examples is that the ability to file a Restricted Application and collect spousal benefits might be able to provide one of you with a source of retirement income while your own benefit still continues to grow. And, as long as you were at least 62 years old by 12/31/2015, it is an option that you can take advantage of when you finally do apply for Social Security benefits.

My next post will give some additional examples of how Restricted Applications can be useful. If you have questions or comments, please feel free to write them below. Stop back soon!

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.

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New Social Security Rules Causing Confusion Among Retirees

Posted on April 27, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Retirement Planning for Women, Social Security and tagged apply and suspend, file and suspend, restricted application, Social Security, Social Security Benefits.

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.

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Restricted Applications vs File and Suspend – Which is Best?

Posted on April 22, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Retirement Planning for Women, Social Security and tagged apply and suspend, file and suspend, restricted application, Retirement Planning, Social Security, social security spousal benefits.

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 15^th?

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.

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

Posted on April 13, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Retirement Planning for Women, Social Security and tagged apply and suspend, best Social Security for couples, Social Security, Social Security Benefits, spousal benefits.

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 29^th 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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