Ellicott Accountant Explains: “The Reason We Even Have a Weekend”
"For our own success to be real, it must contribute to the success of others." – Eleanor Roosevelt
How were those burgers?
Listening to the radio on Monday morning, I heard a story about the labor movement (seems as if there were a ton of those flying around on Monday) — and it did remind me of how far we have come.
"Labor Day" was a political gesture made by Grover Cleveland in a (futile) attempt to cater to the masses after he bungled the Pullman strike in 1884. He thought that by establishing the holiday, he would signal his Democrat Party bona fides. Unfortunately, it didn’t work–William Jennings Bryan got the nomination (and lost).
The labor movement has had some great successes over the years. We can, in fact, thank them for the notion of a 2-day weekend (have you seen that bumper sticker about that?), paid vacations, overtime pay, health benefits, and more. I’m grateful for these advances.
Unfortunately, as the movement has piled up victories, in my opinion, they haven’t recognized victory. Sadly, much of the government debt we now see accruing has come from promises made (not *just* to labor unions, but with their leadership), which seem to have been unrealistic.
We wait to see how that problem will be fixed.
And one of those promises made is Social Security. Much in the news now — but one common problem is for people who are nearing eligibility: when should you take it?
It’s a six figure issue, and I have some advice:
John Curtin’s
"Real World" Personal Strategy
Bungling This Decision Can Cost Six Figures
Social Security benefits can represent a big stack of cash. A typical monthly benefit of $2,200 has a present value of well over $500,000.00! So, despite the fact that it seems like an easy decision, you need to consider all your Social Security options carefully to avoid making a costly mistake.
Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health 2) income before retirement and 3) income during retirement and 4) taxes.
Retirees cannot rely on conventional wisdom! Simplistic "rules" such as "Always file for early benefits" or "You need to stop working to receive benefits" are NOT always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.
At least four methods are used when electing how to take Social Security. And if you’re married, the two of you can mix and match these in more than 16 different ways (!). Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.
So these methods differ significantly… they depend on your historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more. Filing options include "early filing," "standard filing," "delayed filing," "file and suspend," and many combinations of these options for married couples. It is DEFINITELY worth careful study and analysis of each option… yet a majority of Americans make their choice impulsively and emotionally.
The decision is even more crucial for women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.
So couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime. Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully.
Unfortunately, many people file after considering only one or two options in isolation. Even worse–the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.
Before filing, then, you obviously should be informed about all the options. To begin, you need to know your personal Social Security earnings and the projected benefits for both you and your spouse. You can request an estimate at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of "Retirement Benefits" (Publication No. 05-10035) online.
Social Security planning is crucial for everyone. People with significant assets should carefully consider both the lifetime benefits and tax consequences of Social Security in light of their overall portfolio strategy. For the less well-off, Social Security benefits will dictate their retirement lifestyle. Proper planning could well determine what they can afford to eat.
So … there’s obviously a lot to consider here. I recommend you sit down with somebody you trust that can walk you through your different options. It could make a BIG difference in your lifestyle!
To You and Your Family’s Peace of Mind!
