Maximize Your Social Security Benefits

Social Security (SS) is one of the largest retirement assets and makes on average 64.8% of total household incomes and is often the largest and most mismanaged asset in your retirement income plan. 74% of Americans voluntarily receive reduced income.

When you retire your income stops and you start living off the money you’ve saved. You need to maximize your Social Security benefits to put as little pressure on your retirement assets.  Every dollar you increase your Social Security income means less money you’ll have to withdraw from your nest egg to maintain your lifestyle.

When you elect to start your SS benefits it could be the difference between tens of thousands if not a hundred thousand dollars or more in lifetime benefits, impacting your retirement lifestyle.

1. What’s the best option and time to elect Social Security benefits? 

Nearly 50% of all Americans file for benefits at age 62. Some need income because of poor health and don’t think they’ll live long enough to benefit them or their family. For married couples, a simple break even analysis is usually the wrong answer. I believe people collecting at age 62 simply don’t understand their options and make decisions based on rumors or emotion.  It’s tough to generalize SS strategies.  Each spouse’s age, benefit amounts and health outlook play a big role in how and when to claim.  The point is, don’t claim before you look at the multiple benefits and strategies. These strategies are available for married, single, widowed, government employees and people that have already started benefits but are not 70 years old yet.  Don’t be fooled into thinking SS is a “Slam Dunk!”  Through, 2728 separate rules and guidelines outlined in a 170 + page manual by the Social Security administration, 9 strategies which include switch options, 81 yearly or 972 monthly age combinations, and 567 sets of calculations.  You need to maximize your lifetime benefits by using strategies available to both you and your spouse.

Who will provide you with reliable advice for making these decisions?

Most people look to their financial advisors for SS claiming advice, but most financial advisors don’t understand SS’s complex rules or guidelines. People tell me all the time that their financial advisors tell them to call the Social Security Administration or start your benefits as soon as possible and invest the income.  Which could have significant risk.

2. Why not ask Social Security for advice?

SS representatives are actually prohibited from giving election advice, are not licensed to ask you about your retirement accounts, other assets, or evaluate the impact of your decision on the rest of your financial plan. Plus SS representatives in general are trained to focus on monthly benefit amounts for the individual not lifetime income for the family. Taking SS benefits at the right time will be one of the biggest financial decisions you’ll ever make, so you need to get it right.  Getting it right on your own is almost impossible.

3. Why is it important to use someone trained in SS timing?

Taking your SS benefits at the right time will have a lifetime impact and could make a huge difference to a retiree’s standard of living.  It will have an effect on your retirement and savings accounts.  That’s why it’s imperative to coordinate the preservation and distribution of these accounts to delay your SS income and avoid paying excessive and unnecessary taxes. SS is taxed at a lower rate than your retirement accounts or any other income.

4. How will earnings effect my benefits?

When taking benefits prior to your Full Retirement Age (FRA) could cost you 50% of your benefits.  At ages 62-65 $1 of your SS benefits is deducted for every $2 of earnings over $15,120. In the year of your FRA, $1 of your SS benefit is deducted for every $3 of earnings over $40,080 (only applies to months before FRA). Once you reach FRA, you will receive your full benefit payment regardless of how much you earn but Federal taxes will apply.

As an example: 

Social Security Taxation (Filling Jointly)
 
Threshold Income                                       Taxable Portion of Benefits

Less than $32,000                                                      0%
$32,000 to $44,000                                                  50%
More than $44,000                                                     85%

Managing the impact of taxes.  As much as 85% of your benefits may be subject to income taxation. Nearly every source of income is included: wages, pensions, dividends, capital gains, business income; tax-exempt interest. It’s important to time your SS benefits along with the withdrawals from your retirement accounts to reduce or eliminate unnecessary or excessive taxes. Forbes had an article in reference to SS “Secrets.” “When it comes to possibly paying federal income taxes on your Social Security benefits, withdrawals from Roth IRAs aren’t counted, but withdrawals from 401(k), 403(b), regular IRAs, and other tax-deferred accounts are. So there may be a significant advantage in a) withdrawing from your tax-deferred accounts after you retire, but before you start collecting Social Security,  b) using up your tax-deferred accounts before you withdraw from your from your Roth accounts, and  c) converting your tax-deferred accounts to Roth IRA holdings after or even before you retire, but before you start collecting Social security.

5. How can you maximize your lifetime Social Security benefit?

This is not the government’s money it’s your money that you’ve paid into the system for years. This is not Welfare or Food Stamps. You need to know the rules to maximize your SS benefits for yourself and your family.  Get what you are owed!

6. Why should I delay my Social Security benefits?

From age 62 to 66 your benefits will increase by an average of 6.25% per year and from age 66 to 70 it goes into supercharge mode at 8% per year plus Cost of Living Adjustment (COLA). Most people are unaware that married couples have strategies like restricting or filing and suspending their application available to them, leaving money on the table. These strategies have the potential to increase their lifetime benefits by tens of thousands if not a hundred thousand dollars or more.

7. What else is there to consider?

People learn to focus on tax efficient ways to acquire assets, my responsibility is to find the most tax efficient way to distribute your assets.  Your SS may be taxed, if you have a pension, depending on what state you live in could be taxed (like Michigan), and when you turn 70 1/2 you have Required Minimum Distribution (RMD) your retirement account is taxed.

The IRS has a plan for you, what’s your exit strategy?  One simple approach is to provide more money for your retirement and less for the IRS. This requires a complete in depth look at your overall financial situation and determining what assets should be planned for retirement, education and other life expenses.$
www.RayBuckner.retirevillage.com

Indexed Annuities: What Are They? Should You Invest In One?

Indexed Annuities are also known as Fixed Indexed Annuities (FIAs) and occasionally as Equity Linked Annuities (EIAs). It is easy to become confused with the term “indexed” but the explanation is really quite simple. It means that your actual annual yield (interest earned) is tied to an independent third party source, such as the Standard and Poor’s 500 Stock Index (S&P 500). Your funds are NOT invested in the stock market; they are on deposit with the insurance company who issued the annuity.

What exactly is indexing? Indexing is simply an investment strategy that follows the performance of select securities, the S&P 500. It is a collection of 500 American stocks which help measure the overall performance or benchmark of the US economy.

Think of it this way, you are outsourcing the yield for your annuity, trust a third party instead of taking what an insurance company decides to credit you.  It is really a hands off approach that uses an outside source to determining yields, a disinterested third party.

FIAs are not for everyone and I will let you in on a little secret; your actual yields will not mimic the actual results of the S&P 500. Your actual yields will be a percentage of the actual return. Is that fair?  Yes it is because for that reduced return you will never be exposed to loss or any risk of loss.  Your funds are fully guaranteed.

In the past you were offered only two choices about investing. Put your money in the stock market and be exposed to gains and losses. Or, deposit your funds in safe places such as banks and treasuries and earn a lower rate of return. You had your choice: safety or higher returns.

With the invention of the Fixed Indexed Annuity you were offered a wider choice, higher chances of yields but no chance of loss. Now you can have the best of both worlds: safety and yields.

If the S&P 500 has a down year and is worth less than it was a year ago (your anniversary) you do not participate in any downside movement, your account remains exactly as it was the previous time period, fully guaranteed from loss of principle.

Other benefits of Fixed Indexed Annuities:

Tax Deferral

The Power of Tax Deferral is the ability to defer any tax liability until a future date. Annuity values accumulate on a tax deferred basis until either withdrawn or inherited by a named beneficiary.  Your money can grow faster because the interest you earn is not taxed until a later date. “Annuity compounding” means you will continue to earn interest on you money and on the taxes which are tax deferred

Guaranteed Lifetime Income

Along with the protection from exposure to risk, FIAs can provide you with a guaranteed income stream, an income stream that can be for any time period desired, even lifetime.  Most plans allow for the inclusion of a spouse so income can continue for both lives. Income riders are now available on FIAs, these riders allow for better control over how an income is received and management of the actual money in the annuity. Numerous options exist to meet almost an income need of the annuity owner.

Stability

Annuities are safe, secure and stable.  Money in an annuity is managed by the general investment fund of the insurance company. The funds are invested in bonds, US Treasuries and often some stocks.  The company is absorbing any risk of asset performance by assuming all contractual promises to the annuity owner. This guarantee provides stability for your important funds, funds that need to be there for your retirement needs or your personal goals.

Guarantees

Annuities have layers of protection in place for the owner of an annuity.  The first is the insurance company itself.  An insurance company invests in conservative assets primarily bonds.  The bond portfolio can be corporate bonds, US Treasury bonds and municipal bonds. The second layer of protection is regulation. Insurance companies are some of the most regulated institution in the financial world.  They are audited by individual state departments of insurance who access the financial condition of the insurance company. Insurance companies are rated by independent rating companies such as A.M. Best Company, Standard and Poor’s and Fitch Ratings. The ratings services look deep into the assets and liabilities of the insurance company and assign a financial strength to them.  Generally any insurance company with at least a “B” rating has more than ample strength to meet any and all contractual obligations.

We have examined benefits and advantages of annuities, now let’s look at the disadvantages.  Remember annuities are not for everyone.

 Disadvantages of annuities

If you access your money in an annuity prior to age Pre-59 1/2 the IRS will add a pre-distribution tax penalty of 10 percent.  Annuities are designed to be used later in life, after age 59 1/2

Surrender penalties: Almost all annuity contracts have a penalty for early withdrawal much like a bank certificate of deposit. Annuities are longer term commitment (generally a minimum of 5 years) so if an insurance company holding your funds is an issue, then an annuity may not be for you.

Investments held for a time period may qualify for a capital gains tax liability which is generally less than an ordinary income tax liability.  Annuities are tax deferred vehicles and do not qualify for capital gains treatment.

Annuities are not included in step-up in basis at death.  Current tax laws allow for non-qualified assets such as stocks, bonds, and real estate stock to have a tax basis change at death to whatever the current value of the asset.

Is an annuity right for you?  It all depends on how an annuity will be used in your specific situation. Make certain you fully understand the details of your annuity as well as the benefits you can enjoy.$

www.RayBuckner.RetireVillage.com