May 4, 2015 By

Q&A: “File and suspend”

Dear Liz: You recently encouraged a reader to listen to his financial advisor, who wanted him to file for his Social Security benefit at his full retirement age of 66 but then suspend the application until his benefit maxes out at age 70.

Another good feature of this “file and suspend” maneuver is the ability to ask for all the unpaid benefits in a single lump sum in the event one develops a terminal illness or needs funds for some other exigent circumstance, such as long-term care. The potential lump sum “back pay” can be a pretty good insurance policy while waiting for age 70.

Answer: Thanks for highlighting this important feature. Many people who are on the fence about delaying Social Security don’t understand that their decision is reversible — as long as they wait until their full retirement age to file.

At that point, they have the option to file and suspend. If they later change their minds, they can request a lump sum for all the benefits back to the date they filed.

They lose any “delayed retirement credits” from waiting — in other words, their benefit is reset to what it would have been had it started at full retirement age — but they get a big chunk of cash when they may need it most.

People who file before their full retirement age, which is currently 66 and rising to 67 for people born in 1960 and later, don’t have the option to file and suspend.

Filed Under: Q&A, Retirement Tagged With: , ,
April 27, 2015 By

Q&A: Postponing Social Security

Dear Liz: My question is on when to take Social Security. My financial advisor recommends that I file for my benefit at age 66 but suspend the application so my benefit can continue to grow until it maxes out at age 70. At 66, I would receive $2,614 per month. At age 70 I would receive $3,451 per month. In those 48 months I would have received $125,472. I calculate that it would take me 12.49 years to make up the difference of $837 a month. So why should I postpone until age 70? What am I missing?

Answer: There’s a big difference between postponing Social Security until your full retirement age of 66 and postponing again until age 70.

Postponing until full retirement age is pretty much a slam-dunk, if you can afford to do so. That’s because most people will live beyond the break-even point, which is typically somewhere between ages 77 and 78.

The break-even point for postponing until age 70 is between age 83 and 84, which is cutting it closer in terms of average life expectancy. A man who reaches age 65 is expected to live on average until age 84. Women reaching 65 are expected to live until 86.

But focusing just on break-even points ignores other, more important factors.

One is that waiting offers an 8% annual return between age 66 and 70. No other investment offers a built-in, guaranteed return that high.

Another has to do with survivors. If your spouse earned less than you, she would end up depending on your check alone should you die first. (Survivors get the larger of their own benefit or their spouse’s, but not both.) The larger the check, the better off she’ll be.

You can think of Social Security as a kind of longevity insurance that protects you against poverty in old age. The longer you or your spouse live, the greater the chance that your assets will be exhausted and that one or both of you will end up depending on Social Security for the greatest part of your income.

Filed Under: Q&A, Retirement Tagged With: ,
April 20, 2015 By

Q&A: Social Security spousal benefits

Dear Liz: I’m 52 and my wife is 57. I recently retired from the military and will have a small retirement from my new job. When should I take Social Security and when should she take hers? Her letter from the Social Security Administration says that based on her work record, she will receive $88 a month. She has spent most of our married life as a homemaker and caregiver to our children.

Answer: Your wife can’t file for spousal benefits until you file for your own benefit, and that can’t happen until you turn 62 in 10 years.

You may not want to file that early, though, since that would force you to take a permanently reduced benefit. You would be settling for about half of what you could get by letting your benefit grow, which also means a much smaller benefit for your wife should she outlive you.

A better strategy may be for each of you to wait to apply at least until you reach your own full retirement ages (66 1/2 for her, 67 for you).

Your wife would get her own small benefit until you turned 67. At that point, you could “file and suspend.” That means you file so she could get her much-larger spousal benefit, but you would immediately suspend your application so your own benefit could continue to grow.

The “file and suspend” strategy is really helpful for maximizing what married couples can get from Social Security, but the maneuver is available only for those who have reached their full retirement age.

Three years later, when your benefit maxes out at age 70, you can end the suspension and start getting your checks.

It’s especially important for higher-earning spouses to avoid locking themselves into permanently reduced checks. If your wife outlives you, she’ll have to get by on a single check — yours — so you want the amount to be as large as it can be.

Filed Under: Q&A, Retirement Tagged With: , ,
April 9, 2015 By

Thursday’s need-to-know money news

scamToday’s top story: Last-minute tax filers need to watch out for an Obamacare scam. Also in the news: Paying to check your credit, how to delay taking Social Security, and retirement planning tips for women.

Last-Minute Tax Filers: Beware of This Obamacare Scam
Scammers are taking advantage of Obamacare tax penalties.

Should I Pay To Check My Credit Score?
The pros and cons of free credit reports.

3 Ways to Delay Taking Social Security
A delay could be financially advantageous.

Key Retirement Concerns And 7 Planning Tips For Women
What women need to know to prepare.

Filed Under: Liz's Blog Tagged With: , , , , ,
April 6, 2015 By

Q&A: Social Security and Divorce

Dear Liz: Can my 63-year-old ex-husband, who was a slacker who never worked, collect on my Social Security? I am 59 and happily remarried. He hasn’t remarried. We were married for 25 years before I left him.

Answer: Since you were married for more than 10 years, your former husband can apply for spousal benefits based on your work record. He can’t do so, however, until you’re old enough to get retirement benefits, which means he has to wait another three years until you’re 62. If you were still married, he would have to wait until you actually applied for your own retirement benefits to get a spousal benefit. That requirement is waived for divorced spouses to keep a vengeful ex from deliberately withholding the right to benefits. His ability to claim spousal benefits on your work record would end if he remarried.
Any spousal checks he gets won’t affect or reduce your benefit or any benefits claimed by your current spouse. Should you die first, both your current and your former husbands could claim survivors’ benefits — again, without affecting each other’s checks

Filed Under: Divorce & Money, Q&A, Retirement Tagged With: , ,
March 23, 2015 By

Q&A: Social Security solvency

Dear Liz: Can you tell us what the status is of the Social Security system? Will the money that I and my employers have paid into the system be there for me when I need it in 15 or 20 years?

Answer: The money you pay into the system provides benefits for current retirees. When you’re retired, other workers will provide the money for your benefits. It isn’t a retirement plan where you contribute money that you later withdraw. It’s an insurance fund to protect you against poverty in old age.

The Social Security system isn’t about to disappear. The depletion of its trust funds is expected in 2033, but that doesn’t mean Social Security will go out of business. The system will continue to receive enough in payroll taxes from current workers to pay 77% of promised benefits. So even if Congress doesn’t get its act together to make necessary and sensible reforms, you’ll still get a check. If Congress does get its act together, the reforms probably will affect younger workers more than those close to retirement.

For more on how Social Security works and its benefits, read “Get What’s Yours: The Secrets to Maxing Out Your Social Security” by Laurence Kotlikoff, Philip Moeller and Paul Solman.

Filed Under: Q&A, Retirement Tagged With: , , ,
March 16, 2015 By

Q&A: Social Security spousal benefits

Dear Liz: I am 61 and going through a second divorce. Would I be able to start drawing my first husband’s Social Security now or would I have to wait till I am 62 later this year? Also, could I draw off my second husband’s work record, since he made more money? Which would benefit me more?

Answer: To qualify for spousal benefits as a divorced spouse, the marriage has to have lasted at least 10 years and your ex must qualify for Social Security retirement or disability benefits. The minimum age to qualify for retirement or spousal benefits is 62.

If your ex is 62 or older but hasn’t applied for retirement benefits, you can receive spousal benefits if you have been divorced at least two years.

Even if you qualify to start benefits early, though, you probably should wait. When you apply for spousal benefits before your own full retirement age of 66, you’re permanently locking yourself into a smaller payment (you’d get 35% of your ex’s benefit, rather than 50%). You also lose the ability to switch to your own benefit later, even if it’s larger.

When you apply early, Social Security forces you to apply for both your own benefit and the spousal benefit. You’re given the larger of the two. If you wait until 66, you can file what’s called a restricted application and get just the spousal benefit, retaining the option to change to your own benefit when it maxes out at age 70.

Most people will live well past the “break even” point where they’ll receive more by delaying Social Security than they would by starting early. More important, a bigger Social Security check also serves as a kind of longevity insurance. The longer you live, the more likely you are to outlive your other assets and end up relying on Social Security for most if not all of your income.

As a single woman, you’re in greater danger of poverty than most retirees. You could wind up living for decades on an inadequate check if you’re not careful about how you claim your benefit.

To find out the amounts you’d get from spousal benefits, call Social Security at (800) 772-1213. Also find out what your own benefit would be at 62, 66 and 70, for comparison purposes.

AARP and T. Rowe Price have free calculators that can help you make this decision.MaximizeMySocialSecurity.com offers a more sophisticated calculator for about $40.

Filed Under: Uncategorized Tagged With: , ,
March 12, 2015 By

Lies, damn lies and press releases

Customer Support liarA recent press release from an “identity theft protection company” was so filled with misinformation, I had to double-check make sure it wasn’t April Fool’s Day.

Here’s what it said:

The Federal Trade Commission believes ID Fraud will be a significant issue during this tax season. Many people will consider freezing their credit report if they fear they’ve been a victim of ID Theft but national ID theft protection company, Protect Your Bubble, says consumers may want to be patient before going through the the credit freeze process.

Reasons To Rethink Freezing Your Credit During ID Fraud Scare

Here are some reasons you may want to consider for any stories you might be planning around tax season:

  • If you do put a freeze on your credit report it can take up to a month for the credit bureaus to do the unfreeze

  • During a freeze, all credit cards are frozen

  • Your debit card may also be impacted

  • Consumers may need to go to a cash lifestyle even to pay bills

  • All of your automated bill payments are then frozen and that can negatively impact your credit even further if/when you miss payment

It goes on, but each of those bullet points is patently, demonstrably untrue. In reality:

  • Unfreezing a credit report takes a few minutes by phone or online. Credit bureaus have to respond to written requests within three days.
  • Credit cards are not affected by a credit freeze.
  • Debit cards are not impacted by a credit freeze (freezes apply to credit reports, not bank accounts).
  • There’s no reason to go to cash when your credit and debit cards still work.
  • Automated bill payments aren’t affected, since neither your credit cards nor your bank accounts are altered by a freeze.

When I asked the public relations person who sent out the press release to explain, I got back an apology for for “miswording the bank/credit card payments in the pitch” but then she repeated some of the [baloney]:

If they [individuals] are alerted to the fact that they may have been a victim of ID Theft, they should not rush to freeze their credit report since it can be a lengthy process to unfreeze. Due to the growth in phishing scams consumers need to be cognizant of the realities of what may or may not be taking place.

Um, what?

I tried again, contacting the company itself. This is what I got back:

Upon reviewing the press release, we see how the statement about the payment of bills and credit cards when a credit report is frozen was misleading. You’re correct: A frozen credit account will not prevent you from paying bills. But, I think it’s important to point out that consumers will have a difficult time applying for a new credit / debit card while their account is frozen. In any case, consumers should check with their financial institutions and creditors to verify their unique policies.

I’m not sure why you’d have trouble getting a debit card, unless you were opening a new account and the bank ran a credit check. But the fact that you have to unfreeze your credit reports if you want to apply for a new credit card is indeed a potential downside. It’s a potential downside that wasn’t even mentioned in the press release, however. And the statements weren’t “misleading.” They were wrong. As in “Holy cow, we blew it, this is embarrassing” wrong.

Credit freezes are something you should consider if you’ve already been the victim of identity theft or you’re at high risk because your Social Security number has been stolen or exposed in a breach. Credit freezes pretty much prevent new account identity theft, where someone opens new credit accounts in your name. If you’ve got a freeze in place, you likely won’t need “identity theft protection,” which is an oxymoron anyway because the companies can’t protect you from anything; at best, they can give you early warning and help you clean up the mess. The press release’s suggestion that you hold off on a freeze “until there has been an activity reported against you specifically” is rather witless. Waiting for the bad guys to steal your credit after they’ve got their hands on the keys is like closing the barn doors after the horses have fled.

Credit freezes come with costs. You typically must pay to freeze and unfreeze your reports ($2 to $15 per bureau, depending on your state law, for each freeze and thaw). If you’re planning to apply for credit, change insurers or wireless carriers, or start utility service, you have to remember to thaw your report so those providers can have access. So there’s a hassle factor, but credit freezes won’t mess up your day-to-day financial life.

A final thought: The press release mentions tax season identity theft, a reference to the fact that identity thieves are filing phony tax returns right and left. But nothing–not a credit freeze, and certainly not an “identity theft protection company”–can protect you from that crime. That’s what’s so awful about it. For more, read my Reuters column, “Why identity thieves are targeting your tax return.”

 

 

Filed Under: Liz's Blog Tagged With: , , , , , ,
March 10, 2015 By

Q&A: Social Security survivor benefits

Dear Liz: I earned more than my wife, who died at age 57 after 18 years of marriage. When I turn 60, can I take survivor Social Security benefits based on her work record and then request my benefit at age 70?

Answer: In a word, yes, and doing so may be smart.

Survivor benefits are different from spousal benefits, which inflict some severe penalties for starting checks early. When you start spousal benefits before your own full retirement age, you’re locked into a permanently smaller check and you can’t later switch to your own benefit, even if it’s larger. The only way to preserve the ability to switch is to file a restricted application for just the spousal benefit at your own full retirement age (which is 66 for people born from 1943 to 1954 and gradually increases to age 67 for people born in 1955 and later). Then you preserve the right to change to your own benefit when it maxes out at age 70.
With survivor benefits, starting early means a reduced check — your widower benefit at 60 would be 30% smaller than if you waited until your full retirement age — but you can switch to your own benefit later. And if you don’t work, starting survivor benefits at 60 is the better course, said economist Laurence Kotlikoff, coauthor of “Getting What’s Yours: The Secrets to Maxing Out Social Security.”

“Getting a reduced benefit for 10 years, from 60 to 70, is better than getting an unreduced benefit for fewer years,” Kotlikoff said.
If you work, however, the math becomes less clear. When you start benefits early, your check is reduced $1 for every $2 you earn over a certain limit, which in 2015 is $15,720. That penalty disappears once you hit your full retirement age.

Online calculators can help you determine the best Social Security claiming strategy. AARP and T. Rowe Price are among the sites that provide free calculators, but they don’t factor in survivor benefits. Consider spending about $40 for one of the more sophisticated calculators, such as Kotlikoff’s MaximizeMySocialSecurity.com, that can include this important benefit.

Filed Under: Q&A, Retirement Tagged With: , , , ,
February 23, 2015 By

Q&A: Surviving on Social Security Disability

Dear Liz: I’ve been on disability for over 10 years, and I currently receive $1,527 a month in Social Security Disability Insurance. My rent starting in March will be $1,400. I’m not opposed to moving, but after checking literally thousands of listings, I found that what I’m paying is not unusual for my area. I’m living on savings now. I’d like to have a job but am hard-pressed to find work. What should I do?

Answer: You don’t have to do anything if you have enough savings to last the rest of your life. Assuming that’s not the case, you need to do something to dramatically lower your cost of living.

You may qualify for housing assistance. You can use federal government sites such as Benefits.gov or HUD.gov to explore your options, or search for the name of your community and “rental assistance programs.”

You may discover that your low income is still too high for the available programs or that there’s a massive waiting list. If that’s the case, you still have options.
If your disabilities allow, you could earn low or even free rent by working as an apartment manager, a companion to an elderly person, a babysitter for a family with young children or a caretaker for a home or estate.

If your apartment is in a desirable area, you may be able to rent it out a few days a month on Airbnb, Homeaway or another vacation rental site to offset your cost. (Check with your landlord first.)

You could look for a roommate or other shared housing in your community, or consider moving to a less expensive area. You may need to move only a few miles to find a more affordable place, or you may have to consider transferring to a different city or state.

If you’re willing to be truly mobile, you could do what some retirees on limited incomes do and live full-time in a recreational vehicle. Some get jobs as camp hosts or other campground workers in exchange for a free site.

In general, you shouldn’t pay more than about 30% of your gross income for housing. Limiting your rent to 25% is even better, since it will give you more wiggle room to afford the rest of your life.

Filed Under: Budgeting, Insurance, Q&A Tagged With: , ,