Outside Economics

Act Now to Maximize Your Social Security Benefits - Changes Made

Posted by Wendell Brock, MBA, ChFC on Fri, Mar 04, 2016

Deciding when to start taking Social Security benefits can have a tremendous impact on the amount of lifetime benefits you may receive.  Furthermore, the Bipartisan Budget Act of 2015 recently signed into law may impact your Social Security income and increase your retirement health care expenses. 

Fortunately, the software we use has been adjusted to reflect the changes made with the law and can help you assess its impact on your projected retirement budget.

Aside from providing no 2016 Cost Of Living Adjustments (COLAs), Social Security will also significantly limit the benefits from one claiming option (File and Suspend) and eliminate another (File Restricted).   



















Under the new legislation, those who file and then suspend benefits will no longer be able to allow a spouse or dependent(s) to collect a percentage of their Social Security benefits.  But, qualifying Americans can still employ this strategy until April 30, 2016.

The File Restricted option, which allows an individual to earn income based on the spouse’s record – then later file for benefits with accrued income credits, will be eliminated for anyone who has not reached 62 by the end of 2015.

There are also changes coming to Medicare, including new annual premium surcharges and a 14.4% increase to Medicare premiums for individuals who earn over $85,000 per year (and couples who earn over $170,000). 

These are complex issues.  Let me help simplify them.

As your financial professional, I am looking forward to working with you as you take control of your income, focus on managing your health care expenses, and strive to improve your financial stability in retirement.

Schedule your no cost or obligation analysis today and when we meet, you will receive a comprehensive Social Security report detailing a claiming strategy designed specifically for you.

I shared this with a client recently and she was amazed at the clarity it provided her in making the important decision on when to take her Social Security benefits and how much more she would receive - for her it was a great blessing. Your time will be well spent in learning about these changes and receiving the FREE Analysis Package.



"If you have enemies? Good. That means you have stood up for something, sometime in your life."  - Winston Churchill

Topics: Social Security, Social Security Benefits

Social Security

Posted by Wendell Brock, MBA, ChFC on Fri, Jul 24, 2015

Little did we know that this week is “National My Social Security Week”! WeeHa! It’s a week where the Social Security Administration (SSA) is encouraging people to sign up for an online account. Much like many other financial institutions we have the ability to manage our account, the SSA wants people to do the same. There are a few other interesting thoughts and statistics I thought might be interesting to the average American who at some point will be drawing income from this massive bureaucratic government agency. For example average benefits paid out by the SSA to recipients; and the age old question, will there be any money left when I am ready to receive my benefits?myssaweek-top

As a Personal CFO, this is one thing I think folks should do – go online and create/open your own account on the SSA website. This provides quick easy access to info which will help in your planning your future finances. While Social Security Income (SSI) may not be a large portion of your overall retirement plan or your income, it is still important to review it periodically, if nothing else to make sure they are recording contributions properly.

From the Social Security website at www.ssa.gov:

Get your free personal online my Social Security account today!

You probably plan to receive Social Security benefits someday. Maybe you already do. Either way, you’ll want a my Social Security account to:

•    Keep track of your earnings and verify them every year;
•    Get an estimate of your future benefits if you are still working;
•    Get a letter with proof of your benefits if you currently receive them; and
•    Manage your benefits:
o    Change your address;
o    Start or change your direct deposit;
o    Get a replacement Medicare card; and
o    Get a replacement SSA-1099 or SSA-1042S for tax season.

Setting up an account is quick, secure, and easy. Join the millions and create an account now!

*With instant access to your Social Security Statement at any time, you will no longer receive one periodically in the mail, saving money and the environment.  Thank you for Going Green!

If you would like to receive your Social Security Statement by mail, please follow these instructions.

Current Paid benefits from SSA

It is interesting to see what the current benefits are that the SSA pays and to whom, see Table 1 below. As with many government agencies, over the years they have felt the need to grow and expand – and grow they did! It started out in 1935 as an Old-Age and Survivors Insurance fund to help pay some benefits to folks in their old age and the widows of workers. It was supposed to be a safety net, it is just that that safety net continued to grow to include many different conditions, without collecting specific premiums for those new conditions. This expansion has welded the SSA into the foundational grid-work of our country.

Additionally, the premiums are not voluntary, so for example many people have their own private disability insurance, and yet part of the tax collected covers disability benefits that they would never need because of their own insurance.

How Social Security Is Financed

Social Security is largely a pay-as-you-go program. Most of the payroll taxes collected from today's workers are used to pay benefits to today's recipients. In 2013, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $855.0 billion in revenues. Of that amount, 85.5% was from payroll tax contributions and reimbursements from the General Fund of the Treasury and 2.5% was from income taxes on Social Security benefits. Interest earned on the government bonds held by the trust funds provided the remaining 12.0% of income. Assets increased in 2013 because total income exceeded expenditures for benefit payments and administrative expenses.

Sources and uses of Social Security revenues in 2013

SOURCE: 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Table II.B1.

Will Social Security ever go away?

I am often asked; “Will Social Security every go away?” We can’t keep funding this social program… Well let’s take a look at the program from a different perspective and see if it will go way or not.  According to the SSA there are 161,673,000 (2012) people in the United State who earn income taxable by the SSA.

Of those employed people there are 2,711,000 employed by the Federal Government (Nov. 2014). Of the 2.7 million Federal employees 60,771 are employed by the SSA (2013). In my lifetime I don’t know of a time when the Federal Government has closed an agency and told the employees to go find a job someplace else.

Now to dig a little deeper on this according to the SSA, 0.7% of the annual tax revenue is used to fund the SSA administrative expenses.  The SSA takes in $855.0 billion in revenue (including: payroll taxes, interest, and taxation of benefits) and the administrative expenses are $5.985 billion, for an average cost per employee of $98,484.

Again, I do not think the Federal Government will shutter this program. The government will continue to tweak it in one form or another, so it will be for a long time to come. Which means I would expect three things to happen: 1) taxes will go up. 2) Amount of SSA benefits to be taxed will increase, and 3) future benefits will be reduced.

Another challenge is that we have so many people receiving benefits; the worker to beneficiary ration keeps dropping. As mentioned above that the system is based on a pay as you go model, we have fewer worker paying into the system than people who are taking income. Post WWII in the mid 1950’s there were just over eight employees paying into the fund for every person receiving benefits. That has dropped over the years to a mere 2.8 employees in 2013 paying into the system for each person receiving benefits.

The problems of this agency are difficult and challenging, clearly it will not be going away, and this year, being its 80th anniversary year, while its future does not look bright, it will be around another 20 years to celebrate its 100th anniversary!

Topics: Social Security, Social Security Benefits, Social Security Administration

Offensive Taxes

Posted by Wendell Brock, MBA, ChFC on Thu, Aug 14, 2014

Hardly anyone likes taxes, but some are more offensive than others. Here are three that are pretty big offenders. I don’t think folks mind paying some taxes, but it’s when it takes nearly five months of work to hit tax freedom day that it becomes a greater burden. Not to mention the waste that is found in government, so these three taxes can and ought to be fixed.

Alternative Minimum Tax - AMT

Once upon a time, Congress dreamed up the alternative minimum tax (AMT), which is an add-on to the “regular” federal income tax. The stated reason for the AMT was essentially to make sure that the rich who benefit from multiple federal income-tax breaks still have to pay at least something to the Treasury. Oddly enough, the rules for this tax were poorly crafted, thereby allowing for creative math to come into play, of course, erring on the side of the IRS.TaxReady

One can consider the AMT as a separate tax system. The AMT will affect certain types of income that are tax-free under the regular tax system, while not allowing some regular tax deductions. Also, the maximum AMT rate is “only” 28%, versus 39.6% under the regular tax system.

The most likely AMT victims are upper-middle-income individuals who pay relatively high state and local income and property taxes and have spouses and kids. The truly rich ($750,000+) are rarely affected, and this is for two reasons.

First: Their marginal regular federal income rate is 39.6%, while the maximum AMT rate is 28%. So the regular tax bill for a person with really high income will usually exceed the AMT bill. On the other hand, folks in the upper-middle-income zone may have enough regular tax deductions that they pay an average regular tax rate lower than the AMT rate. If so, they will get hit with the AMT.

Second: Many tax breaks for really high-income folks are already cut back under regular tax rules before they even get to the AMT calculation. For instance, the passive activity loss rules restrict tax benefits from traditional tax-shelter investments like rental real estate and limited partnerships. And if your income exceeds certain limits, you’ll run into phase-out rules that chip away or eliminate your personal and dependent exemption deductions, your biggest itemized deductions, and your tax credits. So you may have little or nothing left to lose under the AMT rules. In contrast, folks in the upper-middle-income zone often have lots to lose, such as significant deductions that are allowed for regular tax but disallowed under the AMT rules. As a result, they wind up owing the AMT.

You are allowed a relatively generous AMT exemption, which would be the equivalent to a deduction when calculating your AMT bill. But unfortunately, the exemption is phased out at higher income levels. If your AMT bill exceeds your regular tax bill, then of course you will owe the higher AMT amount.

Varying factors make it difficult to figure out who will be affected by the AMT and who won’t. But here are some general guidelines:

  • Your income is high enough ($250,000 or more) that a good part or all of your AMT exemption is phased out.
  • You have relatively hefty deductions for state and local income and property taxes under the regular tax rules (say, $20,000 or more). These deductions are not allowed under the AMT rules.
  • You have a spouse and several kids, which translates into four or more personal and dependent exemption deductions under regular tax rules. These deductions are not allowed under the AMT rules.
  • You exercised an in-the-money incentive stock option (ISO). The so-called bargain element (the difference between the market value of the shares on the exercise date and the ISO exercise price) does not count as income under the regular tax rules, but it counts as income under the AMT rules.
    • You have a significant deduction for home equity mortgage interest. Under the regular tax rules, you can deduct interest on up to $100,000 of home-equity loans. But under the AMT rules you can only deduct interest on loan balances of up to $100,000 that are used to acquire or improve a first or second residence.
    • You have write-offs for miscellaneous itemized deduction items (such as investment expenses and fees for tax advice and preparation) under regular tax rules. These deductions are disallowed under the AMT rules.

Social Security or FICA Tax

The second tax that has some serious flaws is the Social Security tax. It can be just as expensive as the federal income tax for many folks, especially self-employed individuals.

If you are an employee, your wages will be reduced by the 12.4% Social Security tax up to the annual wage ceiling. Half the Social Security tax bill (6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer.

Unless you closely examine your pay stubs, you may be completely unaware of how much the Social Security tax is actually costing you. Potentially, a lot! The Social Security tax wage ceiling for 2014 is $117,000, and it will be even higher next year. If your wages meet or exceed the $117,000 ceiling for this year, the 2014 Social Security tax hit will be a whopping $14,508 (12.4% x $117,000).

If you are self-employed as a sole proprietor, partner, or limited liability corporation (LLC) member, you know the full cost of the Social Security tax all too well. That’s because you must pay the entire 12.4% rate out of your own pocket, via the self-employment tax.

But there is a disconnect between the Social Security tax and the benefits. While the Social Security tax ceiling increased by 2.9% from 2013 to 2014 (from $113,700 to $117,000), Social Security benefits only increased by 1.5%. This scenario has occurred routinely in the past few years, and they aren't stopping now! According to Social Security Administration projections, the Social Security tax ceiling in 2022 will be $165,600, which equates to a $20,534 Social Security tax bill (12.4% x $165,600). That is a hefty tax, especially considering it is in addition to regular income tax as well as all the other taxes!

Social Security Benefits Tax

And this leads us to the third unfair tax. When you start receiving Social Security benefits, you may be surprised to discover that between 50% and 85% of your payments get hit with federal income tax (the taxable percentage goes up with your income). Incredible, right?

As I just explained, you already paid Social Security tax years ago in the form of withholding from your wages or the self-employment tax. Plus, you already paid federal income tax on those Social Security taxes years ago, because they were included as part of your taxable salary or self-employment income. Now you are paying tax on the benefits too. That amounts to double taxation, or maybe even triple taxation depending on how you look at it. While retirees with very low income, less than $32,000 per year, won’t get taxed on their Social Security benefits, everybody else will take a hit.

Tell us what you think about these taxes are they a burden on your family? How would you solve the problem of these taxes?

Topics: Social Security, Alternative Minimum Tax, AMT, Social Security Benefits, income tax


Wendell W. Brock, MBA, ChFC

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