Posts Tagged ‘social security administration’

Social Security myths solved

Posted on: March 10th, 2013 by

Eric L Bach, CPA- Rockville, MDSocial Security is America’s largest source of retirement income.  But most of us have little or no idea how it works.  Worse yet, misinformation causes many to make poor retirement decisions.  Here are the facts you need to know.

First, some background.  Social Security is insurance, paid for by workers and employers.  Only workers and their families benefit from it.  It insures against loss of your work income due to retirement (or age), disability or death.  It has an annual cost of living adjustment (COLA) equal to the inflation rate, to protect your long-term buying power.

Mystery #1: Will Social Security be there for me? Social Security can pay 100% of all promised benefits until 2033.  After 2033 it can pay about 75% of promised benefits.  There are numerous options to extend solvency indefinitely with a mix of tax increases and/or benefit cuts.  If you’re a pessimist, subtract 25% from your SSA benefit estimate.

Mystery #2: Is Social Security a good deal? Social Security is a complete package of worker benefits, including retirement, disability and life insurance.  The average worker earning $43,000, with a non-working spouse, would need to save over $700,000 to duplicate their retirement payments, plus buy additional disability and life insurance.  The Social Security Administration’s administrative overhead is a low 0.8%.  Social Security payments are at least 15% tax-free.

Mystery #3: How does Social Security compute my payment? Your payment is based on three steps:

  • Once eligible, your payment is based on averaging your 35 highest-paid work years (or fewer years for mid-career disability or death).

Mystery #4: How can I get the most lifetime payments—by filing early, at FRA, or later? It’s an individual and financial-planning decision.  In simple dollars, it’s best to apply later, if you have average life expectancy or above.  But in ”present value” dollars, counting inflation, taxation, withdrawal options and interest rates, it may be best to apply early.  See this post for some considerations and software resources.

Mystery #5: What are good Social Security planning tools? Definitely sign up for a ”My Social Security” account at  See SSA’s suite of calculators at  And see the software products at the link in Mystery #4.

Mystery #6: Will Social Security pay my family members?
Yes, in certain circumstances.

  • Your spouse or former spouse can get up to 50% of your FRA payment if they are at least FRA; less if they file early (as early as age 62).
  • Your spouse can be paid 50% at any age if caring for your child under 16.
  • Your unmarried child can be paid 50% if under 18, under 19 and in high school, or at any age if totally disabled since youth.
  • In most cases, your family member must first file for any benefits on their own work record.  (An exception is your spouse who is over FRA.)

Mystery #7: Can family members receive Social Security after I die? Yes.  Payments to your survivors are possible whether you die before or after your own Social Security eligibility.

  • Your widow(er) or surviving former spouse can be paid up to 100% of your payment if they are at least FRA, or a reduced amount as early as age 60.
  • Your widow(er) can be paid 75% at any age, if caring for your child under 16.
  • Your unmarried child can be paid 75% if they are under 18, under 19 and in high school, or any age if totally disabled since youth.
  • Your parent over 62 can be paid if they were dependent upon you.

Mystery #8: Can I work and still get Social Security? Yes.  If you are over FRA, there is no work limit; you can earn as much as you can and still get full Social Security payments.  Before FRA, some of your Social Security is withheld if your earnings exceed the annual earnings threshold, $15,120 in 2013.  (Higher limits apply the year you turn FRA.) Only work income counts against Social Security; not counted are pensions, interest, dividends, capital gains, etc. Remember, your Social Security does not stop as soon as you reach the threshold; that’s where partial withholding begins.  If you get Social Security disability, different work rules apply.

Mystery #9: How do I file for Social Security? You can file by visiting an office, by calling (800) SSA-1213, or online at  You can file up to 3 months before you want payments to begin.

Mystery #10: When can I enroll in Medicare? Medicare age is 65.  You should file promptly by contacting SSA (see Mystery #9), preferably 2-3 months early.  Late filing causes penalty fees and delayed coverage.  If you are covered by health insurance from current work done by you or your spouse, you can postpone Medicare until that insurance or work ends.  Note that it must be insurance from current work, not a retiree plan or COBRA. Everyone should contact SSA 3 months before their 65th birthday to make sure their Medicare enrollment is on track.

You now have a good start at understanding your retirement’s cornerstone.  For more detail, see my book.  But remember, everything here has individual nuances and exceptions.  Only SSA can make official decisions, so be sure to study their website and consult with them by phone or in-office.

As always, keep on planning.

Social Security is cheating widows out of money

Posted on: August 27th, 2012 by

Eric L Bach, CPA - Rockville, MDIt’s no secret that women live longer than men.  But a new study by the Wharton School’s Retirement Research Center suggests that some professional financial advisers neglect to take that fact into account when they tell clients how to time their Social Security benefits.

The mistake could cost women who outlive their husbands, and who might benefit from a significant monthly check into their 80s or 90s.  Slightly more than half of women 65 and older rely on Social Security for three-quarters of their income, according to the Employee Benefits Research Institute. Choosing when to start taking benefits—a decision that can be affected by factors like health, savings and other sources of income is complex even for pros.

While seniors can start receiving checks as early as age 62, doing so means they’ll get less each month than they would if they waited until the maximum age of 70 to start taking distributions.  Spouses that don’t work, usually women, in the baby boomer generation currently reaching retirement age—also receive benefits based on their partners’ earnings.

But women’s longevity is not being taken into account in the calculus, the study found.  “At age 62, there’s a lot you can do,” says co-author Andrew Biggs, a former Social Security Administration official.  “You may have a big 401(k), you can go still go back to work.  At 72, there are a lot fewer options.”

The study, which posed questions about a number of specific scenarios to a group of about 400 professional financial advisers, suggests that many are tailoring their advice to the needs of the husband without thinking as carefully about the impact on the wife.

For instance, presented with a 62-year-old man in average health who wants to retire right away but has, together with his wife, saved $800,000, only one in five advisers suggested he put off taking Social Security as long as possible.  The recommendations were made despite the fact that with such a large nest egg, the couple appeared to face little immediate need for cash and the decision would significantly crimp the woman’s survivor benefit should she become a widow.

Of course, while most financial advisers are men, the study doesn’t prove that these conclusions were driven purely by chauvinism.  A more charitable explanation might be that the advisers perceived the chief breadwinner in each scenario as their client.

Another, says Biggs, is that the educational materials provided by the government, while recently improved, haven’t historically done a good enough job of emphasizing the issue.

Stop Paying Dead People

Posted on: June 20th, 2010 by

Financial Planning - Rockville, MDThe Federal deficit is over $13 trillion; what’s an easy to start cutting the debt?  Stop writing checks to dead people.

The government sent benefit checks to 20,000 departed Americans over three years, totaling more than $180 million.  This ridiculous number provoked the Obama administration to create a government-wide “do not pay” list as part of its brainstorming for ways to save taxpayer money.  Once the database is  up and running, agencies will have to search it before sending out payments.  A pre-check check.  “We’re making sure that payments no longer go to the deceased — it sounds ridiculous to even say it,” acknowledged Vice President Joe Biden in describing the database.

Also planned for inclusion: contractors who’ve fallen behind in their payments or, even worse, landed in jail, and companies that have been suspended or otherwise deemed ineligible for government work.  “This stuff seems obvious on its face,” Biden acknowledged.  “The voters will go, ‘My God, isn’t that happening already?'”  In fact, the Social Security Administration does have what it calls a “Death Master File.”  But some other agencies don’t routinely check it before issuing benefits.  The same goes for the General Services Administration, which has an “Excluded Parties List System” for ineligible contractors. An order signed by President Barack Obama on Friday centralizes the information from numerous sources.

The figures don’t just stop at payments to the deceased; the figures also show that checks went to 14,000 convicted felons, both in jail and still on the lam. The three-year total there: $230 million.  With the federal debt mounting and red ink worries spreading across Europe, Obama is under increased pressure to cut spending sharply.  Recently, he told federal agencies to come up with ways of trimming 5 percent from their budgets next year, and of saving billions in Federal building costs. Another cost-cutting measure announced Friday was an online fraud detection program for Medicare and Medicaid.  The Office of Management and Budget said those programs made $65 billion in erroneous payments last year.

The software, developed by officials charged with scrutinizing Obama’s stimulus plan, was demonstrated for reporters by OMB Director Peter Orszag.  A slide show portrayed auditors using it to discover that a number of contractors and subcontractors scheduled for payment by the government were in fact located in a single home.  Plus, a satellite photo showed the home had a pool and a boat.  “Suspicious,” Orszag said.  The White House believes there are improper payments of all kinds — from outright fraud to checks to inmates to simply mistyped pay stubs — totaled $110 billion in 2009.  “We think we have the tools now to take a real bite out of this,” Biden said.

How To Get the Largest Social Security Checks

Posted on: April 7th, 2010 by

Accountant - Rockville, MDYou 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.