SS

When to Take Social Security

This week we kicked things off with Troy from Seattle who was wondering if he's being charged too much by his current advisor. Does he even need an advisor? I gotta say, this is quickly becoming a very common question on the show. 

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Next up was Kevin from Minnesota with the million dollar question of when is the right time to start taking Social Security? Great question, and also a very simple one to answer if you can give me one key piece of information...

If you’re working in an office environment, it’s hard to ignore the massive shift that’s taking place in the workplace. In today’s average company, up to 80% of employees’ days are now spent working in teams.

And yet the teams most people find themselves in are nowhere near as effective as they could be. They’re often divided by tensions, if not outright dissension, and dysfunctional teams drain employees’ energy, enthusiasm, and creativity.

How can we fix it? That’s where today’s episode comes into the picture, and our chat with Chester Elton, who along with Adrian Gostick, recently published The Best Team Wins: The New Science of High Performance.

Throughout the pages of their latest book, the duo share the proven ways managers can build cohesive, productive teams, despite the distractions and challenges every business is facing.

The pair studied more than 850,000 employee engagement surveys to develop their “Five Disciplines of Team Leaders,” explaining how to:

  • Recognize and motivate different generations to enhance individual engagement
  • Ways to promote healthy discord and spark innovation
  • Techniques to unify customer focus and build bridges across functions, cultures, and distance

They’ve shared these disciplines with their corporate clients and have now distilled their breakthrough findings into a succinct, engaging guide for business leaders everywhere.

Throughout the pages you’ll find practical ways to address the real challenges today’s managers are facing, such as the rise of millennials, the growing number of global and virtual teams, and the friction created by working cross-functionally.

Have a money question? Email us here or call 855-411-JILL.

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"Jill on Money" theme music is by Joel Goodman, www.joelgoodman.com.

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Social Security Refresher

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I like to write about Social Security around its anniversary date (President Franklin D. Roosevelt signed The Social Security Act into law on August 14, 1935). I have written a considerable amount about Social Security, some of which I used to compose this annual refresher. Social Security is a pay as you go system, which is funded by payroll taxes (the FICA line item you see on your pay stub). Every employee (and employer) pays a 6.2 percent tax on earnings up to a limit, which changes each year with changes in the national average wage index. This year, the Social Security wage base is $118,500. If you are self-employed, you have to pay as both the employer and the employee, for a total of 12.4 percent.

In 1977, Congress enacted a change in Social Security, whereby a planned 2011 rate hike became effective in 1990. As a result of the change, the government received more money from taxes than was necessary to fund the Social Security obligations, creating a surplus. According to The 2016 Annual Report of the Board of the SS Trustees, over the program's 80-year history, it has collected roughly $19 trillion and paid out $16.1 trillion, leaving asset reserves of more than $2.8 trillion at the end of 2015 for the Old-Age and Survivors and Disability Insurance trust funds.

With thousands of Baby Boomers retiring every day, the combined surpluses are now shrinking and are scheduled to be exhausted in 2034, the same year projected in last year's report. When the Trustees separate the two programs, they project the old-age fund (OASI) will be exhausted by 2035, after which it would be able to pay just 77 percent of benefits, while the disability fund (DI) is likely to be spent down in less than a decade--in 2023, at which point it could only pay out 89 percent of promised benefits.

The Trustees note that there are plenty of options available that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. “Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

Some of the options include increasing the Social Security wage base or the amount of payroll tax; means-testing benefits (tough to enforce); cutting benefits (highly unpopular); and slowly increasing full retirement age. This would likely phase in for younger Americans and it would occur over a long time horizon.

As politicians grapple with those tough choices, there is something retirees can do to help bolster their future income: wait as long as possible to claim Social Security retirement benefits. Although you can claim benefits as early as age 62, if you do so, your benefit will be permanently lower - for some as much as 25 percent less. This may not only be bad news for you, but if your spouse plans to claim one-half of your benefit, he or she also will face a lifetime of lower benefits. For those who need income, claiming early is not a choice, it is essential for monthly cash flow, but if possible it is so much better to wait.

If the system penalizes you for claiming early, it rewards you for waiting to claim benefits beyond your FRA. For every month you delay, you are entitled to Delayed Retirement Credits, which are worth 0.66 percent per month, for a total of 8 percent per year, until age 70.

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#258 Valentine's Day with Dynamic Duo of CFPs

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Sameer Somal, CFA, CFP and Marguerita ("Rita") Cheng, CFP are the future of the financial planning profession...they bring smarts and passion to the table! Thankfully, Rita is the Social Security Queen, so she helped answer a number of your most pressing SS questions.

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Rita notes that the best time to call Social Security is in the middle of the month, mid-week and mid-day. She also reminds those who are still eligible for SS File and Suspend that your Full Retirement Age (FRA) is when "claiming magic happens!"

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World...and yes, I owe Mark a bottle of scotch for correctly selecting the Broncos as Super Bowl Champions. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 
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#245 The Pre-Pre Thanksgiving Show

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It's the weekend before the weekend before Thanksgiving and we are answering your financial questions! Before we got going, we needed to discuss some ramifications of the recently signed budget deal. For those who were planning to execute one of the interesting Social Security strategies that we have discussed here, listen up!

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Congress has decided to close perceived “loopholes” in the Social Security rules and has killed off the “File and Suspend” strategy, which allow spousal and dependent benefits to be paid while still earning delayed retirement credits AND, it will no longer be possible to file a restricted application for just spousal benefits.

According to SS expert and JOM guest Mary Beth Franklin, "existing beneficiaries are grandfathered. So are those who are 66 with the next six months. Gone after that. Restricted claim for spousal benefits will still be available at 66 for those who are 62 or older by the end of this year. Gone for people who are younger. Oh well...

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 
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Americans Get Failing Grade on Social Security

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Whenever I write about Social Security, I am inundated with follow up questions. It’s no wonder, since there are about 2,800 rules that govern the system and thousands of retirement claiming strategies. What is worrying about Social Security is NOT that it is going to run out of money (there are a number of ways to address shortfalls), but that there is so much confusion around an eighty-year-old entitlement program. According to a survey released by the Financial Planning Association and AARP, about half of Americans ages 45 to 64 expect that Social Security will be a major source of their household retirement income. But according to the Certified Financial Planners who provide advice to consumers, those numbers are way off: 94 percent of CFPs surveyed said that SS will provide 50 percent or less of clients’ retirement income.

What explains the gap between what the pros and consumers think? As the report notes, “Overall, Social Security knowledge is lacking for Americans.” Just 9 percent of consumers believe they are very knowledgeable about how Social Security benefits are determined and another 38 percent believe they are somewhat knowledgeable about how their benefits will be determined. CFP® professionals think those numbers are high—just one percent of the planners think that their clients are very knowledgeable and 31 percent said their clients are somewhat knowledgeable.

In fact, the survey revealed that most soon to be retirees did not know the nuts and bolts of claiming strategies, like waiting to claim benefits can result in a significantly higher benefit over the course of retirement. 67 percent underestimated the impact on waiting until full retirement age to claim benefits and there was great confusion about claiming benefits on a former spouse. In fact, the vast majority of questions that I fielded about Social Security centered on claiming benefits after a divorce.

To clarify the issue, I consulted with nationally recognized Social Security expert, Mary Beth Franklin. Mary Beth writes regularly about retirement income planning, including her valuable downloadable book, “Maximizing Your Social Security Benefits”. Franklin said “The basic rule about claiming benefits on a former spouse is that you must have been married for at least ten years before you got divorced and you must be currently single, (single or widowed from a subsequent spouse). Many were concerned that claiming benefits on an ex’s record would diminish the benefit for the ex, him or herself. Not so, says Franklin.

There were also a lot of questions about whether an ex can claim retirement benefits as early as age 62. “The answer is yes, with a caveat. You can claim on your ex, but the other Social Security rules apply. That means that you would have to claim a reduced benefit (usually about 25 percent and it is permanent) on your own record and then if one-half of your ex’s benefit is greater than your own, you could collect the difference.

Here’s an example: Jack (67) and Jill (62) were married for 20 years and then divorced. Jill is currently single and would be entitled to $1,000 per month on her own record, if she were to wait until her full retirement age (FRA) of 66. Instead, she wants to claim at 62, which reduces her monthly benefit to $750.

Jack claimed his $2,500/month benefit at his FRA. If Jill had waited until her own FRA, she would have been entitled to one-half of his benefit, which would have been $1,250/month. BUT, because she is claiming at 62, her share of his benefit would also be reduced, so she would only be entitled to $875/month. (From the perspective of SS, Jill would be entitled to two benefits at age 62: her $750 + $125 from her ex-husband, for a total of $875.)

Pretty confusing, right? And that’s just one example of the intricacies of the system.

 

 

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#238 Social Security Questions Answered

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Since her last appearance on the show, I have been saving your Social Security questions for nationally recognized SS expert, Mary Beth Franklin. Mary Beth is a contributing editor at Investment News and writes regularly about the latest research and thought leadership on retirement income planning. You can follow her on Twitter here and download her book, “Maximizing Your Social Security Benefits” here.

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Thank goodness for Mary Beth, because it is so difficult to wade through the SS system’s 2,800 rules! The part of the program was devoted to the strategies around claiming SS benefits on the record of an ex-spouse.

The basic rule is that you must have been married for at least 10 years before you got divorced and you must be currently single, which also could include being widowed from a subsequent spouse. We fielded a lot of questions about making the claim retroactively, but Mary Beth notes that you must be at or beyond full retirement age (FRA), the maximum retroactive benefit is six months.

There were a lot of questions about whether an ex can claim as early as 62. The answer is yes, with a caveat. You can claim on your ex, but other SS rules apply, so you would have to claim a reduced benefit on your own record and then if ½ of your ex’s benefit is greater than your own, you can collect the difference.

Here’s an example: Jack (67) and Jill (62) were married for 20 years and then divorced. Jill would be entitled to $1,000 per month, if she were to wait until her FRA, but instead, she claims at 62, which reduces her monthly benefit to $750—remember, if you claim early, the reduction is permanent! Let’s assume that Jack has claimed his $2500/month benefit at his FRA. If Jill had waited until her own FRA, she would have been entitled to half of his benefit, which would be $1250/month. BUT, because she is claiming at 62, her share of his benefit is also reduced, so she would only be entitled to $875/month. From the perspective of SS, Jill would be entitled to two benefits at age 62: her $750 + $125 from her ex-husband, for a total of $875.

Mary Beth also covered survivor benefits; how to execute a Social Security “Do-Over”; some of the rules around SSDI; the two rules that may limit your Social Security benefits: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO); and of course, Mary Beth’s GOLDEN RULE FOR SOCIAL SECURITY!

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 
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#222 The Triple Crown of Financial Shows

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This weekend marks the 71st anniversary of the Allied invasion of Normandy (D-Day). In the sports world, the weekend could mean the  end of thoroughbred racing's 37-year Triple Crown drought. As American Pharoah tries to reign at the Belmont Stakes, we’re tackling your financial questions. The "Jill on Money" Triple Crown means that the show aims to be fun, informative and free!

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We started with Mitch from MN, a 26-year-old engineer, who just got engaged. He and his soon-to-be wife are juggling savings, paying down student loans and retirement planning. What’s the best game plan to attack the debt? Should they refinance their mortgage to pay it off early? So many questions and we have the answers!

Jan from Alaska is 62.5 years old and wants to know if she should avoid filing for Social Security retirement benefits before her Full Retirement Age -- YES! Steve wants to minimize losses before a stock market correction occurs and Stanley from CT is wondering about rolling over his 401 (k) into an IRA.

It was a delight to have guest Eleanor Blayney, the CFP Board of Standards’ Consumer Advocate join the show to discuss inheritance disputes. As Eleanor says, fights over estates “are not just a problem for the rich and famous, or for blended families.” Find out who has a right to contest a will and the ways that families can take proactive steps to avoid these messy post-mortem dustups. You can read Eleanor’s great post about the topic here.

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 
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Retirement Confidence: On the Mend

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After dropping to record lows between 2009 and 2013, the percentage of workers confident about having enough money for a comfortable retirement, continues to increase, according to the 2015 Employee Benefit Research Institute Retirement Confidence Survey. 22 percent of Americans are now very confident (up from 13 percent in 2013 and 18 percent in 2014), while 36 percent are somewhat confident. That’s the good news. Unfortunately, 24 percent are not at all confident (statistically unchanged from 2013 and 2014). EBRI notes that confidence is strongly related to whether or not people have retirement plans. Among those with a plan, the percentage of very confident doubled from 14 percent in 2013 to 28 percent in 2015.

The fact that 67 percent of all workers (or their spouses) – and 78 percent of full time workers – have saved for retirement is misleading, because total savings remain low. A staggering 57 percent say total value of savings and investments is less than $25,000, including 28 percent who have less than $1,000. As you would expect, retirement savings increase with household income and education.

Lack of education has become a big problem for Americans. According to research from the Hamilton Project, the median, inflation-adjusted earnings of men without a high school degree fell by 20 percent between 1990 and 2013 and for women, earnings fell by 12 percent. In contrast, both men and women with a bachelor’s degree saw their earnings rise between 1990 and 2013, by 7 and 16 percent respectively.

With median income dropping, it’s no wonder that half of the respondents to the EBRI survey said that cost of living and day-to-day expenses were the two main reasons that they are not saving (or saving more) for retirement. Even so, it is still amazing to learn that even those who are under pressure say that they could save $25 a week more than they are currently saving.

Instead of saving more, respondents are relying on a later retirement date. In 1991, just 11 percent of workers expected to retire about age 65. This year, the number has more than tripled to 36 percent. Working longer always sounds like a great solution, but what happens if your boss hasn’t bought into your plan, or you have a job that is too physically demanding to continue late in life? In fact, while 67 percent of workers say they plan to work for pay after they retire, just 23 percent of retirees report they have actually worked during retirement.

It should also be noted that while 63 percent of today’s retirees say that Social Security is a major source of income in their retirement, about half that number (31 percent) of current workers expect Social Security to be a major source of income in retirement. That result probably speaks to a misunderstanding of the current state of the Social Security system.

According to The 2014 Annual Report of the SS Board of Trustees, the trust funds' assets are now $2.76 trillion and should keep growing through 2019. After 2033, the annual revenue from taxes will still be enough to cover 75 percent of future costs, so while many say flippantly, “Social Security won’t be there for me,” the numbers say otherwise.

Finally, the EBRI survey found that most people do not like to step on the scale to see just how much work they need to do. Just 48 percent have tried to calculate how much money they will need in retirement. For the other 52 percent, EBRI’s Choose to Save Ballpark E$timate is a great resource to crunch numbers. You can even play with some of the variables to see the impact of working longer, saving more and living longer. Retirement confidence may be influenced by a variety of external factors, but it is clear that those who take action will likely feel a lot better.