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Retirement Category

Q&A: Social Security and marriage

Jul 20, 2014 | | Comments Comments Off

Dear Liz: Each year, I track my estimated Social Security benefit on the SSA.gov website. At full retirement age of 67, my estimated benefit is $1,504. Is it true that my actual benefit may be reduced by 50% since I am married?

Answer: Good heavens, no.

If you’re married, your spouse may be entitled to a benefit that equals up to half of your check. But your check is not reduced to provide this spousal benefit. Instead, the Social Security Administration typically would calculate the benefit your spouse earned on his own, compare that to his spousal benefit, and then give him the larger of the two amounts.

If you have ex-spouses from marriages that lasted at least 10 years, they too could be entitled to spousal benefits. But those benefits wouldn’t reduce your check or your husband’s.

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Q&A: How to fund a Roth IRA

Jul 14, 2014 | | Comments Comments Off

Dear Liz: I have quite a bit invested in stocks in a regular brokerage account. I’ve held them for many years, and to sell them would mean huge capital gains taxes. I’d like to move some of these into a Roth IRA, so that I can avoid paying taxes on their appreciation and dividends, since I plan to hold these for quite some time. Is it possible to move these stocks into a Roth IRA without selling and repurchasing?

Answer: Nope. Uncle Sam typically gets his due, with one major exception.

Roths have to be funded with cash, and direct contributions are limited to $5,500 per person per year, plus a $1,000 catch-up contribution for those 50 and over. Your contributions would be further limited once your modified adjusted gross income exceeds $181,000 for married couples and $114,000 for singles, said Mark Luscombe, principal analyst for tax research firm CCH Tax & Accounting North America. A big-enough capital gain, on top of your regular income, could push you over those limits.

If you want to avoid paying capital gains, just hold the investments until your death. Your heirs will get the investments at their market value and can sell them immediately without owing any capital gains. There may be other taxes involved, however. If your estate is worth more than $5 million, it may owe estate taxes, and a few states levy inheritance taxes on heirs.

Categories : Investing, Q&A, Retirement
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Dear Liz: I am 64. I recently reviewed my Social Security summary online and saw that it does not have an accurate listing of my income, so the projections of my benefits aren’t accurate either. How do I correct these errors?

Answer: There are a number of ways the Social Security database could be wrong. An employer could have reported your earnings incorrectly or not at all. Or your earnings could have been reported using the wrong name or an incorrect Social Security number. If you married or divorced and changed your name, but failed to notify Social Security, that also could lead to errors in your record.

You can call the Social Security help line at (800) 772-1213 to start the process of correcting your records. It would be best if you have proof of your earnings, such as W-2 forms, tax returns or pay stubs from the years in question. If you don’t have such proof, the Social Security Administration asks that you provide as much information as possible about where you worked, the name of your employer(s), the dates you worked and how much you earned.

Your experience shows why it’s important to periodically review your Social Security records to make sure they’re accurate. This year the Social Security Administration will resume sending paper statements to certain workers (those aged 25, 30, 35, 40, 45, 50, 55 and 60), but in the meantime you can check your records online by signing up at http://www.ssa.gov/mystatement/.

Categories : Q&A, Retirement
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Dear Liz: You’ve often talked about delaying the start of Social Security benefits to maximize your check. But what about in the case of a widow? My husband died in 2006 at the age of 57. I will be 62 this year and could start receiving benefits based on his earnings. (I did not work during our marriage as I was a home-schooling mom.) I’ve been living off my husband’s modest pension benefits. Would waiting until full retirement age increase the monthly payment I would ultimately get? One of the reasons I ask is that I have an adult son who lives with me and who probably will never be able to have a job. Yet he is not officially disabled and, as far as I know, is not eligible for any kind of benefits. I wondered if it might be a good idea to start taking Social Security as soon as I could and either save or invest the monthly checks to add to what I could leave my son (I have an IRA and other assets I hope not to have to touch). My pension will cease when I die.

Answer: You could have started receiving survivor’s benefits at 60. (Those who are disabled can start survivor’s benefits as early as age 50, or at any age if they’re caring for a minor child or a child who is disabled under Social Security rules.) Since your husband died before he started benefits, your check would be based on what your husband would have received at his full retirement age of 66. If you start benefits before your own full retirement age, however, the survivor’s benefit is permanently reduced.

For many people, starting survivor’s benefits isn’t as bad an idea as starting other benefits early. That’s because survivors can switch to their own work-based benefit any time between age 62 and 70 if that benefit is larger. Starting survivors benefits early can give the survivor’s own work-based benefit a chance to grow.

In your case, however, the survivor’s benefit is all you’re going to get from Social Security. While it may be tempting to take it early and invest it, you’re unlikely to match the return you’d get from simply waiting a few years to start.

Your description of your non-working adult son as “not officially disabled” is a bit baffling. If he has a disability that truly prevents him from working, getting him qualified for government benefits would provide him with income and healthcare that would continue despite whatever happens with you. (You may not want to touch your assets, but that might be necessary if you need long-term care.) If he can work, then getting him launched and self-supporting would be of far greater benefit than hoarding your Social Security checks for him.

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Q&A: Medicare premiums

Jun 01, 2014 | | Comments Comments Off

Dear Liz: I wanted to comment on the person who was wondering why her multimillionaire friend receives less Social Security. One reason could be that higher-income people pay more for Medicare, the health insurance program for people 65 and older. Instead of the standard $104 a month that most people pay, my wife and I pay about $375 each per month for Parts B and D. So if the person writing to you is thinking about net Social Security checks, Medicare would make quite a difference.

Answer: That’s a very good possibility. Some people don’t make the distinction between Social Security and Medicare. They’re separate government programs, but Medicare premiums are typically deducted from Social Security payments.

Categories : Q&A, Retirement
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Q&A: An Update

May 12, 2014 | | Comments (1)

Dear Liz: I think you were way too hard on the young man who said his 30-year-old girlfriend’s lack of retirement savings was a potential deal breaker. You told him to get off his high horse. He was just being prudent.

Answer: It would be prudent to regard massive debt, alcoholism or drug use as deal breakers for a relationship. Elevating the young woman’s lack of retirement savings to this level is just over the top. But let’s hear what the young man himself had to say:

Dear Liz: I want to say thank you for taking the time to write on my question. I was able to find a few charts online and show her [the power of compounded returns]. She got excited about it and is now putting in to get the company match (5%).

Thank you very much for putting me in my place. I did not mean to come across as if I was better. I have been very lucky to have been able to save and be taught about compounding at an early age.

Answer: One of the potential hazards of being good with money is arrogance. We can become convinced that we know better and that other people should do things our way. It takes some humility to understand that not everyone has had the advantages we’ve had or been able to take in the information as we’ve done. Understanding that makes it easier to find compromises in a relationship that work for both parties.
Good luck with your relationship. She sounds like a keeper.

Comments (1)

Q&A: Social Security Payouts

May 12, 2014 | | Comments (10)

Dear Liz: My wife and I, 63 and 62, plan to continue working till at least 65. We will begin collecting Social Security benefits in September. Our combined income is $58,000, we own our home outright, and we have no debt, no children, $84,000 in a traditional IRA and $90,000 in a stock portfolio.

I just sold a portion of a mutual fund for a $30,000 gain that is in the bank for the time being. How long do we have to reinvest without paying a capital gains tax? Or would it be best to pay the tax now, leave the money in the bank and be done with it?

Answer: Unless you sell another investment for a $30,000 loss to offset the gain, you’re going to have to pay taxes on your profit.

“There is no way to do a tax-free reinvestment,” said tax professional Eva Rosenberg, an enrolled agent who runs the TaxMama.com site. “And the time to ask questions like that is before you sell the mutual funds.”

You still have time to avoid a much bigger mistake: signing up for Social Security now.

Your Social Security checks would be reduced $1 for every $2 you earn over a certain level, which this year is $15,480. That “earnings test” applies until you reach your full retirement age (which is 66, not 65, for both you and your wife). What’s more, you would lock in lower benefits for life and give up a chance to boost your Social Security payout in a way that’s available only to married couples who wait until full retirement age to start benefits. (More on that in a moment.)

Your savings are too small to generate much income, particularly if you want to minimize the chances of running out of money. You should be looking to maximize your Social Security benefits to help make up for that deficit. Your benefits grow substantially each year you put off applying for them, and most people will live past the break-even point where delaying benefits until full retirement age results in more money than taking them early.

Many people erroneously think they should grab Social Security as early as they can, but the Social Security system isn’t going away, and you are likely to regret settling for a smaller check. Remember that your wife probably will outlive you and will have to get by on one check, so you should make sure your benefits are as big as they can be.

One way to do that is for the lower-earning spouse to claim spousal benefits at his or her full retirement age. Once the lower earner’s benefit maxes out at age 70, he or she can switch if that benefit is larger.

But spousal benefits can’t start until the higher earner files for his or her own benefit. If the higher earner waits until full retirement age to apply, he or she has the option to “file and suspend” — a maneuver that lets the spouse claim spousal benefits while leaving the higher earner’s benefit untouched so it can continue to grow.

This “claim now, claim more later” strategy is available only to people who wait until their full retirement age to start.

Your tax question and your plan to start Social Security early indicate you could really use some sessions with a fee-only financial planner. Such a consultation is a good idea for everyone as they’re approaching retirement, but in your case, it’s essential.

Comments (10)

Q&A: Millionaires and social security

May 05, 2014 | | Comments Comments Off

Dear Liz: I have a friend who is a multimillionaire. He told me what he collects in Social Security, and it was much less than what I receive even though my income while I was working was small. He said because of his status, Social Security pays him much less. Is that true? I thought your benefits are based on what your income was.

Answer: They are. The Social Security system was designed to replace a larger percentage of income for lower-paid workers, based on the idea that these workers had less opportunity to save for their future. The higher your income, the lower the percentage of your pay the system is designed to replace.

But people who earned high salaries during their working lifetime will reap bigger checks than those who didn’t, all other factors being equal.

Assuming your friend is telling the truth about his benefit, there are several explanations for why he’s getting less. One is that he was a business owner who controlled his own pay and deliberately kept down the amount of his salary that was subject to payroll taxes. (People think they’re saving money by doing this, until it’s time to claim Social Security and they realize what it has cost them.)

Another possibility is that he has income from another source, such as a public pension, that would reduce his check because of the government’s windfall elimination provisions.

Other possibilities: Perhaps he started his benefits early, while you delayed yours to let them grow. Or maybe he was one of those diligent, frugal people who built wealth on a smaller income. Or it could be he was talking about his after-tax benefit, since Social Security benefits are taxable once your income exceeds certain amounts.

Those are just some possibilities, but he definitely isn’t receiving a smaller check than you just because he’s rich.

Categories : Q&A, Retirement
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Q&A: Social Security and spousal benefits

Apr 28, 2014 | | Comments Comments Off

Dear Liz: I just got laid off and will be collecting unemployment. In January, I will be eligible for Social Security at my full retirement age of 66. Can I collect 50% of my spouse’s benefits (he is 76) instead of collecting on my record and continue to let my Social Security benefits grow until age 70?

Answer: Yes. As long as you wait until your own full retirement age to apply for spousal benefits, you retain the option of switching to your own benefit later. If you apply for spousal benefits early, you are locked into the smaller payment and can’t switch.

Categories : Q&A, Retirement
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Q&A: What to do with an old IRA?

Apr 27, 2014 | | Comments Comments Off

Dear Liz: I left a job several years ago to become a full-time freelancer. I have a SEP IRA and a SIMPLE IRA from that job that have basically just been sitting there. What are my options in moving this money to a better retirement investment?

Answer: SEPs and SIMPLEs are just the tax-advantaged buckets into which you (and your then-employer) put money. It’s the investments you choose within those buckets that determine what kind of returns you’ll get. The financial institution that’s holding these accounts can be a factor as well: If it’s charging a lot of fees, your returns will suffer accordingly.

Your best bet is to make sure the accounts are being held at a low-cost provider and that you have sufficient exposure to stocks to offer growth that will offset inflation over time. Most discount brokerages and mutual fund companies offer target-date maturity funds that give you diversification, professional asset allocation and automatic rebalancing at a low cost.

Categories : Investing, Q&A, Retirement
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