Eric L. Bach & Associates – Yes, filing your taxes can be trying and extremely annoying… therefor we like to put the whole ordeal off until the last possible moment.  Other than getting your refund sooner or having more time to gather up the funds to pay your tax bill, there is another good reason to get your taxes done early: identity theft.  Simply, this is when someone gets your Social Security number or other identifying information and forges a tax return in your name to get a refund.

It’s understandable that many people don’t want to deal with the IRS because it can be a very trying experience.  But, just imagine how frustrated you would be if you found out someone had filed a false tax return using information stolen from you.  Identity thieves will often submit their fake returns early in the filing season before the victim finishes their real return.

Tax refund identity theft is a growing problem.  In 2010, the IRS was able to identify and remove almost 49,000 returns seeking fraudulent refunds.  Last year, it removed 262,000 fraudulent returns.  The IRS is taking every step they can to try to combat this problem.  If you suspect you are a victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490.  You will then be asked to complete IRS Form 14039, the identity-theft affidavit.  Also, remember that the IRS will not contact you by email to request any personal or financial information.  If you get any such message, delete immediately.  Do not, however, dismiss IRS notices you receive in the mail that indicate that more than one tax return was filed for you.

Trying to reform retirement benefits has always led to volatile politics in Washington, but Europe proves to be no different.  Today, many debt burdened European countries, as well as the United States, are considering raising the age at which retirees can collect partial and full pension benefits.  Not surprisingly, the you know what is already hitting the fan.

Retirement ages vary between countries.  While many have set 65 as the official age that you can collect full benefits, some places favor an earlier break from the rat race.  Some groups of workers in Greece are now able to claim benefits in their 50s, while the retirement age for everyone else is 60 for women and 65 for men.  A planned overhaul of the system would change all that.  Greece, as part of its broader austerity plan, has committed to bringing the minimum early retirement age up to 60 for everyone.  This means that pension benefits for many will be reduced if they’re claimed between 60 and 65.

In France, 60 is the kick-off point for most people to collect full pensions IF they’ve worked 40 years.  Those who started work in their teens can collect benefits as early as 56.  But there is a proposal to raise the age to 62.  French unions last week expressed their disdain in a nationwide strike.  So chances are they won’t like hearing this: 62 may not be enough for the long run.

In Europe and the United States, life expectancy and time spent in retirement have been increasing, while fertility rates and the number of workers paying into the social security systems have been falling.  This, obviously, does not add up or bode well for younger generations.  In the late 1960s, men in Spain spent less than 10 years in retirement; now they spend more than 20.  In France, the time in retirement has risen from 10 years to almost 25.  The jump in the United States is also large, but not as drastic, from just under 10 years to roughly 18.

Of course, increasing the retirement age is only one piece of the pension reform puzzle that spurs controversy.  Changes to the taxes that support pension benefits and adjustments to the formulas that determine them are also on the table.  Many social security systems, like the one in the United States, are largely pay-as-you-go.  Workers and their employers pay into the system and that revenue is used to support present-day retirees.  Since public pushback can limit how much policymakers can do at any one time, and because unforeseen circumstances such as an economic crisis can create new concerns, pension reform is rarely a one-and-done deal.

Some countries that have embarked on reform in recent years, such as Sweden and Germany, created fail-safe mechanisms that automatically adjust benefits as needed to keep their systems solvent.  Whether those kinds of changes will be accepted in the United States isn’t at all clear. But what is clear is that when U.S. policymakers choose to take up Social Security reform, which they haven’t done since 1983, chances are that every proposed change will make for a tough fight with the American public.

You can start collecting Social Security as early as age 62, however, this is not the most financially savvy move to make.  You could suffer a reduction of benefits of 25% or more for the rest of your life.  But if you continue to work past the normal age of retirement, you could be running up against the cap in which you can be penalized for earning too much.  You should try to retire at the normal age, as provided by the Social Security Administration, which, at this point in time is 66.

Second, marriage has its perks.  If, for example, your husband has higher lifetime earnings than you and you are ready to retire, but he’s not, all he has to do is file and suspend.  This means that you can collect your share, while he waits to collect benefits until later, when they will be worth more.  If the you have comparable incomes, though, there is another strategy that you can employ to boost your household income.  If one spouse wants to stop working earlier than the other, one spouse can retire and the other can claim spousal benefits only on the retired spouse’s record and wait until normal retirement age to collect their own, qualifying for the maximum benefits.

You also may be able to collect on your former spouse’s benefits as long as you were married at least 10 years and are 62 or older.  If your ex-spouse dies, you are entitled to a monthly survivor benefit (even if he or she remarried) equal to 100% of what your ex received during his or her lifetime (assuming that it is higher than your benefit amount, as you cannot collect 2 checks).

Lastly, if you started collecting Social Security and wish you had waited in order to get a higher benefit, the government will allow you to hit the re-do button.  You just have to pay back everything you have received, the government won’t charge you interest, and request a refund on the taxes you paid on that money (I recommend speaking to an accountant if you do this).  In essence, this strategy is allowing you to take an interest-free loan from the government.  Once you have paid the money back, the SS Administration will restart your benefits at a new, higher rate.  Speaking to a financial adviser before doing this is advisable because it could take up to 8-10 years to recoup your investment.