Why You Should Not Rely on Social Security

The first thing you need to find out is if you are eligible for SS benefits. The time to find this out is at each job you work or by calling the Social Security Administration.

A common misconception by most people is that if SS taxes are taken out of your paycheck then you must be eligible for SS benefits. This is not true. Some employers do not pay into SS but are required to participate in a retirement plan. Find out whether your employer participates in SS and whether your position is be covered by SS. If jobs you work are not eligible for SS benefits and do not offer a retirement plan, you will need to create an alternative to make up for the missing income. Many federal government employees, certain railroad workers, and employees of some state and local governments are not covered by SS.

You will need at least 40 credits to be eligible to collect SS benefits provided you meet all the other requirements. If you are eligible for SS benefits the amount shown on your yearly statement, is an estimate and is not the amount you will receive when you begin collecting SS benefits. This is due to the windfall elimination provision reduction formula the Social Security Administration applies to determine your monthly SS benefit.

However, there are limits on how much you can earn while collecting SS benefits, and if you exceed those limits, your SS benefits will be considerably reduced. If your earnings exceed a certain level, up to 85 percent of Social Security benefits may be taxable. At full retirement age, no income restrictions apply and there is no penalty for additional income earned.

According to research by Prudential, SS benefits for those aged 65-74, accounts for 54 percent of total retirement income, for those aged 75-84, 61 percent and those 85 and older 66 percent.

One advantage of collecting SS benefits - it is guaranteed income for life that increases over time due to a mandatory Cost of Living Adjustment (COLA). COLA increases SS recipients’ benefits by a specific percentage because of yearly inflation. SS benefits also include spousal coverage. Benefits of a deceased recipient can be passed to a current spouse or child under age 18.

You must contact a Certified Financial Accountant (CPA) to determine the portion of your SS benefits that will be subject to taxes. You will also need to consultant a financial advisor to find out the best strategy to maximize your SS benefits. The best approach is to setup a meeting with your CPA and Financial Advisor and ask them to develop a strategy for you.

Most financial advisors do not calculate replacement rates the same way the Social Security Administration does which substantially changes the retirement income calculation. Ensure your financial advisor uses the Social Security Administration’s replacement rate to determine the most accurate retirement income calculation.

Unfortunately, most employees do not have a pension plan or retirement plan so their only income during retirement is Social Security. Pension plans are nearly extinct and employees now have to rely on employer provided retirement plans or their own personal savings in addition to SS benefits. In many instances, a combination of these is required to meet basic financial needs during retirement; some retirees may need all three sources. One factor to consider is living cost increases and many retirees are living longer. Other factors to consider: where you live, your needs, your health status, and your other financial obligations that can quickly erode your fixed monthly income.

State without pension plan and social security taxes are: Alabama, Alaska, Florida, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wyoming. The cost of living varies state by state and city by city. New York City has the highest cost of living in 2015 followed by Washington DC, San Francisco, California, Chicago Illinois and Boston Massachusetts and Cocoa Beach Florida has the lowest.

Retirement must be carefully planned and must include the expertise of professionals such as a Certified Financial Accountant and Financial Advisor to ensure that you maximize your SS benefits and minimize your tax liabilities.

Why Social Security Should Be Included in Your Retirement Portfolio

                                         

Last week was Social Security Week. One of the biggest questions of those near retirement or in retirement ask is, “Will I have enough income during retirement to cover my living expenses?" The second biggest question asked is “Should I factor in Social Security (SS)”? Retirees should always include Social Security when creating their retirement portfolio.

The first thing you need to find out is if you are eligible for SS benefits. The time to find this out is at each job you work or by calling the Social Security Administration.

A common misconception by most people is that if SS taxes are taken out of your paycheck then you must be eligible for SS benefits. This is not true. As of 2015, anyone who earns up to $118,000 pays SS taxes. Some employers do not pay into SS but are required to participate in a retirement plan. Find out whether your employer participates in SS and whether your position is be covered by SS. If jobs you work are not eligible for SS benefits and do not offer a retirement plan, you will need to create an alternative to make up for the missing income. Many federal government employees, certain railroad workers, and employees of some state and local governments are not covered by SS.

You will need at least 40 credits to be eligible to collect SS benefits provided you meet all the other requirements. If you are eligible for SS benefits the amount shown on your yearly statement, is an estimate and is not the amount you will receive when you begin collecting SS benefits. This is due to the windfall elimination provision reduction formula the Social Security Administration applies to determine your monthly SS benefit.

However, there are limits on how much you can earn while collecting SS benefits, and if you exceed those limits, your SS benefits will be considerably reduced. If your earnings exceed a certain level, up to 85 percent of Social Security benefits may be taxable. At full retirement age, no income restrictions apply and there is no penalty for additional income earned.

According to research by Prudential, SS benefits for those aged 65-74, accounts for 54 percent of total retirement income, for those aged 75-84, 61 percent and those 85 and older 66 percent.

One advantage of collecting SS benefits - it is guaranteed income for life that increases over time due to a mandatory Cost of Living Adjustment (COLA). COLA increases SS recipients’ benefits by a specific percentage because of yearly inflation. SS benefits also include spousal coverage. Benefits of a deceased recipient can be passed to a current spouse or child under age 18.

You must contact a Certified Financial Accountant (CPA) to determine the portion of your SS benefits that will be subject to taxes. You will also need to consultant a financial advisor to find out the best strategy to maximize your SS benefits. The best approach is to setup a meeting with your CPA and Financial Advisor and ask them to develop a strategy for you.

Most financial advisors do not calculate replacement rates the same way the Social Security Administration does which substantially changes the retirement income calculation. Ensure your financial advisor uses the Social Security Administration’s replacement rate to determine the most accurate retirement income calculation.

Unfortunately, most employees do not have a pension plan or retirement plan so their only income during retirement is Social Security. Pension plans are nearly extinct and employees now have to rely on employer provided retirement plans or their own personal savings in addition to SS benefits. In many instances, a combination of these is required to meet basic financial needs during retirement; some retirees may need all three sources. One factor to consider is living cost increases and many retirees are living longer. Other factors to consider: where you live, your needs, your health status, and your other financial obligations that can quickly erode your fixed monthly income. There are three options that you can take when collecting SS benefits:

·        Early retirement. If you take your SS benefits at 62, your monthly payments will be permanently reduced between 20% and 30%, depending on your date of birth.

·        Normal retirement. The "normal" or "full retirement age" that ranges from 65 to 67 depending on your date of birth.

·        Late retirement. You can wait until 70 to take your SS benefits.

According to a recent Bankrate.com survey, the average Social Security payout is approximately $15,000 per year, which stresses the need to have additional sources of income during retirement. State without pension plan and social security taxes are: Alabama, Alaska, Florida, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wyoming. The cost of living varies state by state and city by city. New York City has the highest cost of living in 2015 followed by Washington DC, San Francisco, California, Chicago Illinois and Boston Massachusetts and Cocoa Beach Florida has the lowest.

Retirement must be carefully planned and must include the expertise of professionals such as a Certified Financial Accountant and Financial Advisor to ensure that you maximize your SS benefits and minimize your tax liabilities.

What You Can Do About the 2013 COLA Increase

                                                        

In September 2012, the media first began announcing that COLA adjustment that would go into effect in January 2013.  This gave everyone who would be affected at least 3 months to make necessary adjustments to their budget and spending habits to ease the burden of the reduced COLA increase.  However, many recipients forgot about it and didn’t start complaining until they received their first benefit check in January 2013.   

Social Security and disability benefit recipients and those who receive a federal or military pension are affected by the COLA adjustment. Fifty-six million receive social security benefits.  The COLA adjustment was effective December 1, 2012 and increased by 1.7% in January 2013. The 2012 COLA increase was 3.6%.  The COLA adjustment increased the average monthly benefit payment by $21, from $1,240 to $1,261.

For people still working, the COLA increase resulted in a higher earnings ceiling for Social Security payroll taxes. The ceiling was raised to $113,700 in 2013.  The COLA adjustment also affects how much money employees need to earn each quarter to qualify to earn credits for Social Security payments when they retire.
Unfortunately, the COLA adjustment seemed as though it did not help benefit recipients due to the increase in food prices, housing costs and prescription drug costs.   

Seven of the top 10 prescription drug plans increased costs by 11% or more in 2013.  Some of the drug plans affected include Humana Wal-Mart Preferred RX Plan which increased 23%, First Health Part D Premier, First Health Part D Value Plus, Cigna Medicare Rx Plan One which increased 15% and Part D premiums. One of the cheapest drug plans available is United Health's Medicare Rx Saver Plus PDP which costs $15 a month. However, Part D premium increased out-of-pocket expenses more than the 1.7% COLA adjustment. Part B premiums are $99.90 a month for those who make up to $85,000 a year as single or up to $170,000 for married couples. 

Create a life where you are minimally impacted by the effects of the economy.  Ensure you are at least able to meet all of your basic needs. Here are 17 ways to minimize the effect of changes to your benefits.

1.  Exercise.  Exercise every day to improve your health and reduce stress.  This will result in less medical costs.

2.  Ask for help. Ask your church, family or friends for help. Find out about other social services such as Catholic Charities for America or the Salvation Army.

3.  Save Money. Create an emergency fund with enough money to cover at least 9-12 months’ worth of monthly bills.

4.  Barter. Barter for services or use sites such as www.barternews.com/mappage/default.htm.

5.  Eat like people did in the depression. Eat peanut butter and jelly, mustard, mayo or egg sandwiches. Make inexpensive dishes like casseroles, soups or stews.

6.  Online banking. Pay bills online to save money on postage and writing checks.

7.  Prices. Ask about discounts and specials to find a cheaper price or negotiate to get a lower price.

8.  Comparison Shop. Get at least 3 price quotes for every item you need to purchase.

9.  Buy generic. Guy generic brand prescriptions and food. Shop at thrift stores and discount stores.

10. Cancel phone service. Cancel your landline service and use your cell phone for all calls. Get the cheapest plan possible.

11. Share space. Don’t be afraid to share living space with others to save money. Consider co-sharing or elderly housing.

12. Cancel subscriptions. Cancel newspaper and magazine subscriptions.

13. Clothes. Buy wash and wear clothes or wear hand me downs.  Buy clothes in off-season, winter clothes during summer and summer clothes during winter.

14. Grow your own food. Grow your own fruits and vegetables and spices.

15. Cable. Get basic cable, rent movies from the library or cancel cable completely.

16. Make your own food. Make you own bread, pasta, ice cream, soda, juice, and deserts.

17. Complain to your congressman about the high costs of prescription drug plans.