Social Security puzzle: Married couples can claim 8,000 ways

By Ilana Polyak, CNBC.com

If you thought saving for retirement was complicated, you’re in for a whole new world of confusion when it’s time to claim Social Security, most people’s biggest retirement asset. For the average married couple, Social Security amounts to $1 million or more, said Bill Meyer, a founder and managing principal of Social Security Solutions, a software company that helps its consumers analyze the impact of different claiming decisions. And according to the Social Security Administration, the benefit represents close to 40 percent of the average retiree’s income.

“The difference between a good strategy and a bad strategy can be hundreds of thousands of dollars,” Meyer said. “People should not take this decision lightly.” Consider this: A married couple has more than 8,000 different claiming possibilities between them. What’s more, once you’ve settled on when and how to claim, you only have one year for a do-over.

That’s why Social Security has become such a big part of what financial planners like Nancy Hecht of Certified Financial Group offer clients—even those only in their 20s. “When you’re analyzing retirement from a cash flow and tax and benefits standpoint, Social Security is such a big piece of it,” Hecht said.

A financial advisor or software can analyze every possible combination of strategies, but here are some of the most common mistakes people make around Social Security.

1. Jumping to claim. You are eligible to receive Social Security at age 62, but your benefit is reduced for each month you claim it before reaching full retirement age, around 66 for most baby boomers. On the other hand, you get a bonus of about 7 percent a year if you wait until 70, on top of the yearly inflation adjustment (it was 1.7 percent in 2014).

“For singles, the magic year is 80,” Meyer said. “The cumulative benefits equal each other at 80 years old, so for every year you live past 80, it is better to wait.”

It may be impossible to make the gamble with a real level of certainty. “Nobody knows how long they’re going to live, so you have to play it safe,” said Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research.

With life expectancy being what it is—a typical 65-year-old is likely to live beyond 85, according to the Centers for Disease Control—delaying is a wager worth making for many.

“If someone is looking at filing at 62, chances are good that person needs the income,” said Hecht at Certified Financial Group. “Then you just need to bite the bullet and do it, but if you can wait, then by all means do.”

2. Ignoring the earnings test. If you have not yet reached full retirement age and are still working, taking Social Security is a doubly bad idea. First, you miss out on letting your Social Security benefit grow. Second, you must give up $1 for every $2 you earn above the limit for that year ($15,720 in 2015).

During the year that you reach full retirement age, however, you give up $1 for every $3 earned above a higher limit ($41,880 in 2015) until the month you become full retirement age, at which point you no longer give up any benefit due to earnings.

3. Failing to coordinate with your spouse. While delaying Social Security is often wise for singles, it’s not so straightforward for married couples. Couples with a big earnings discrepancy might benefit from a “file and suspend” strategy. ”I also call it ‘Take some now, take some later,’” Hecht said.

The higher-earning spouse can file his or her benefit at full retirement age and suspend it, letting the benefit grow presumably to age 70. The other spouse can then claim a spousal benefit—half of the filer’s benefit—at that time. When reaching full retirement age, the spouse can file for his or her own worker benefit if it’s bigger than the spousal benefit. ”It typically works better than if both wait until 70,” Schwab’s Spiegelman said.

4. Deferring tax deferral. The conventional wisdom has always been to let your tax-deferred accounts, such as a 401(k) plan or individual retirement account, grow as long as possible, even if it meant taking Social Security early. It’s time to rethink that strategy, said James Mahaney, vice president of strategic initiatives with Prudential Financial. In fact, you might come out ahead doing the opposite: dipping into your nest egg while your Social Security benefit continues to grow.

“People become emotionally attached to their IRA and 401(k) because they worked so hard saving for it,” he said. “But you saved for your Social Security, too, and you need to look at ways to maximize that income.”

Spending down your tax-deferred savings earlier has the added benefit of reducing the taxes you pay on Social Security income later on, as well, helping you avoid the dreaded “tax torpedo.” By reducing your nest egg, your required minimum distributions are spread out over a greater number of years and are therefore smaller each year.

If Social Security is your only source of income, it won’t be taxed. However, if your modified adjusted gross income—that is, all your sources of income including wages, taxable interest and realized capital gains—is greater than $32,000 for married people filing jointly and $25,000 for singles, as much as 85 percent of your Social Security can be taxed. So keeping your withdrawals down in later years helps you avoid some of this tax.

5. Forgetting you were married before. Divorced couples who were married for at least 10 years can apply for spousal benefits starting at age 62, even if their former spouse hasn’t claimed Social Security yet and is married. “And your ex never needs to know about it,” said Hecht at Certified Financial Group. The one catch is that the person seeking the spousal benefit must not have remarried themselves.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


3 Retirement Problems and Solutions That Millennials Face Today

Start saving now, and put off that around-the-world vacation until you can really afford it. Retirement is decades away for even the oldest millennials, but there are some very real problems ahead if they don’t take action soon.

It’s no secret that millennials have had a tough time getting started with careers, families and saving for retirement. Everything from the Great Recession, to the rising cost of higher education, to the increasing scarcity of better-paying jobs has taken its toll on people born in the last two decades of the 20th century. And while retirement may be three to four decades away for even the oldest of this bunch, there are some very real problems that they will face if they don’t take action soon. Let’s look at three:

1. Long-term impact of student loan debt. Getting into the college of their choice and earning a degree is just the first step for many. In 2015, the average college graduate walked off the stage not only with a diploma in hand, but with about $35,000 in loans they’ll need to repay, according to a report in The Wall Street Journal. What this does is hamstring them with not being able to save as early or as much for retirement. With that, they won’t benefit from one of the greatest advantages they have: time. By starting later, they lose the benefit of compounding interest, and no investor wants that.

2. Low wages. Workers entering the labor force are experiencing not only lower wages due to stagnation, which has been reported by various institutions such as the Pew Research Center, but they also can expect to see low wages throughout the first decade or more of their careers.

3. Poor benefits. Benefit packages are not what they once were, and that could be a contributing factor to the projected retirement age for millennials. Some have hypothesized that they will continue working into their early to mid-70s, which is up from a current average retirement age of 62. Baby boomers and Generation X had the benefit of pensions, and at this point very few companies are offering them unless you work for the government (and who knows, those may even be in jeopardy in the next few decades). And while no one can be 100% sure what to expect from Social Security, it might be a good idea to not expect to have these payments be the sole source of your income.

While it may seem pretty bleak on the surface, there are actions that can be taken to combat these problems in order to keep an enjoyable retirement a reality. Here are three:

1. Save earlier. This may seem like a solution that is extremely challenging (or even impossible) given student loan responsibilities. But even putting away just $20 to $50 a month in your early 20s can grow over time. This gives you the ability to take advantage of our friend, compounding interest, and get into the habit of saving on a regular basis. If you wait until your late 30s when your loans are paid off and you feel you can save more per month, you may be surprised at how much more you’ll need to put away in order to catch up. For example, starting at 20 and saving $50 per month at 6% interest will yield about $135,000 by the time you reach 65. If you waited until you’re 40 to try to reach that $135,000 mark, you’d need to save almost $200 per month at the same interest rate. (Another way to look at it is an outlay of $27,000 in principle with the $50 plan earlier versus $60,000 if you went the $200 route later.)

2. Adjust living standards. This is one that folks don’t like to hear. “Retirement is 40 years away, why can’t I take a trip to Rome and Barcelona now?” It’s true that your full-time working days may be ahead of you for a while. But just because that’s the case doesn’t mean you need to spend like you’ll be making money forever. By looking realistically at income and expenses, and what savings goals you have, you’ll be in better shape down the road to have money set aside for these types of trips.

3. Continue to work longer. I’m not advocating continuing to put in 80-hour weeks when you’d rather be playing with your grandkids. But this generation, more than any in history, will be able to take advantage well into their golden years of how the economy is changing. Our economy used to be based off factory work and most employees needing to be physically fit. But once you reached a certain age, (for most in their 50s) you were no longer fit for that type of work and retired shortly after. Our current economy has shifted to a knowledge-based or connection-based economy, and we are seeing people now work well into their 70s, 80s and beyond. By keeping your mind sharp you’re going to be in a better position to continue to earn as long as you’d like. For example, if your line of work is in management, coming on as a part-time consultant with a local firm can help offset some unexpected costs, or even allow you to take those trips you thought were once out of reach.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


6 Roads to Relocating in Retirement

By Tom Sightings, US News & World Report, July 27, 2015

Some retirees are looking for a better lifestyle, while others move to be closer to family. Many people choose to relocate near their children and grandchildren in retirement.

When many of us dream of retirement, we envision living in a picturesque cottage down by the sea, enjoying pristine beaches and tropical breezes. Or maybe we see ourselves with a golf course outside our back door and green fairways leading down to a clubhouse where we’ll join our friends for evening cocktails. But most of us cannot afford to live near the water or in a golf community, and many of us don’t really want to.

People spend half their lives trying to imagine their retirement lifestyle, and it often involves moving from their so-called boring suburban development to a more charming town, or to another state or even another country. But the reality is often quite different and a lot less exotic, but not necessarily less satisfying or less fulfilling. Consider these six issues when mapping out your future retirement destination:

1. The majority of retirees stay in their homes until they are no longer able to do so. Only about 2 percent of the 36 million Americans who move in a year – or fewer than 1 million people – say they’re relocating because of retirement, according to Census Bureau data. People age 65 and older were more likely to relocate for health reasons than other age groups.

2. Retirees who move are happier than those who stay in their own homes. According to a 2009 study by the Center for Retirement Research at Boston College, homeowners who move “experience improvements in psychological well-being.” Even for households with a negative shock, such as sickness or financial difficulties, the experience of moving had benefits. The movers experienced either more positive or less negative emotions than the non-movers.

3. More people are moving to age-restricted communities focused on senior living. The number of new single-family houses built with age-restricted communities jumped from 15,000 in 2013 to 21,000 in 2014, according to Department of Commerce data. About half of these new homes in age-restricted developments were constructed in the south. One survey from Better Homes and Gardens says more than a quarter of baby boomers, or 27 percent, would consider moving into a traditional retirement community.

4. Many developers have been updating and improving senior living communities to cater specifically to baby boomers. People moving into senior communities are not usually looking for a bigger house. They want a nicer house in a more convenient location. New developments tend to offer more contemporary design features, modern appliances and access to technology. Furthermore, many facilities offer community activities such as adult education classes as well as health and fitness opportunities.

5. Baby boomers want to stay close to home. Even among those who relocate after retirement, most stay in the same state and even the same county. Most retirees who move have a desire for a new type of housing, such as a place that is more affordable or has more amenities, or to be closer to family, the Census Bureau found. People age 65 and older are the least likely to move for job-related reasons.

6. There are plenty of resources for people who want to move. Various websites, publications and organizations offer suggestions about the best places to retire for all different kinds of people. You might want to take a look at the 10 best places to retire on Social Security alone, the best places for those who can afford it or even historic places to retire. Most of these recommendations consider such factors as crime rates, climate, cost of living, taxes, access to medical facilities and opportunities for an active lifestyle.

Or you can just ask a friend. All the experts agree that the best place to retire is the place where you’re going to fit in with a friendly, like-minded social group and where you’ll feel comfortable in your own skin.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Why Even the Wealthy are Biting Their Nails Over Retirement

By Krystal Steinmetz , MoneyTalks.com  July 27, 2015

This may surprise you, but even affluent Americans fret about money issues in retirement. Wealthy Americans seem to have the same retirement worries as their less-affluent counterparts, including concerns about having enough money saved for retirement, reducing personal debt and curbing overspending.

The survey revealed a big difference in opinion about money and retirement between affluent working Americans and their retired counterparts, which could be because the financial landscape of retirement is becoming more complex amid rising health care costs and Social Security concerns.

“The most stressful part about planning for retirement for me is all summed up into one word – uncertainty,” said one survey respondent. Based on their retirement savings, 73 percent of affluent retirees said they’re confident they have enough money to last them through retirement, while just 57 percent of non-retired wealthy Americans said they think they’ll have enough money for retirement.

“Unknown factors scare me the most about retirement,” said one survey respondent. “Will Social Security still be around? Will my employer change or eliminate my pension plan or cut retiree benefits? What will medical costs be like or will a family member have a catastrophic illness?” While the majority (59 percent) of affluent retired Americans said they don’t feel stressed about their retirement finances, just 33 percent of non-retirees could say the same.

“Perhaps one cause of this anticipated financial stress is that a large number of non-retired Americans believe they’ll need to rely on their personal savings and investments to live on in retirement,” said Aron Levine, head of Merrill Edge. “Even though current retirees report they are not as anxious about money, younger Americans can learn from their example — that preparation pays off.”

One survey respondent said the key to lowering financial stress in retirement is simple: “I feel that what has made my retirement secure is during my productive years I lived below my income and invested wisely.” Obviously, that piece of financial advice is sound, though it’s likely easier for an affluent American than a low-income American to save more and spend less of their income.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Americans’ Biggest Regret Is Not Saving More for Retirement

By Gregg Greenberg, TheStreet.com, 07/28/15

U.S. workers are more likely to regret not saving enough for retirement more than they are to regret not having been a better human being, said Diane Gallagher, vice president of Defined Contribution Investment Only Practice Management at American Century Investments.

In its third annual defined contribution participant study, “Who’s In the Driver’s Seat? Participants Just Want to Ride Along,” American Century surveyed 2,031 full-time workers ages 25 to 65 who participate in their employer’s retirement plan. One of the survey’s major findings was that participants have a great deal of regret about their past saving behaviors.

Among those surveyed, “not saving enough for retirement” was the most commonly mentioned regret, even more common than wishing they’d done better with personal relationships or careers, or being a better person overall. Respondents highlighted their first five years of working as the period for which they have the most regret over not saving more.

“American workers understand the power of compounding, we’ve done a great job of telling them how important it is to start early,” said Gallagher. “But they also are aware of their own habits, and they have a lot of self-awareness around, ‘If I had started earlier, I probably would have kept going throughout my career.’”

Another surprising finding from the survey is that most workers aspire don’t actually aspire to affluence in retirement — just independence. And, contrary to what one might expect, the large majority said it would be far worse to have too little in retirement than to miss out on enjoying things today.

“What they really want to do is stay in their own house,” said Gallagher. “They don’t want to be a burden to their kids. They want to have a comfortable, independent lifestyle, and they are maybe not looking for a tremendous amount of affluence.”

Finally, a large majority of respondents said they would not mind a “slight nudge” from their employers when it comes to saving. And 65% had a positive view about a company that offers automatic enrollment, automatic increases and target-date funds.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®