Jarvis Law Office

Baby Boomers May Have Problems Managing Retirement

Despite years of experience Baby Boomers can make mistakes in planning their retirement which can leave the estate without assets as recently discussed by Fox Business in "Baby Boomers' Retirement Woes Summed Up in 5 Statistics."

These mistakes include:

• Social Security – 59% of Baby Boomers are planning to rely heavily on Social Security. The problem is that Social Security benefits are not designed to provide a full income and they may need to be cut in the future.
• No Savings – 45% of Baby Boomers do not have any retirement savings at all.
• Postponed Plans – 30% of Boomers report that they have had to postpone their planned retirements due to lack of savings.
• Stopped Contributions – 30% of Baby Boomers stopped making regular contributions to their retirement accounts. It is important to make contributions even if you do not think you need any more money in the accounts.
• Debt – 44% of people over the age of 65 still have debt that needs to be paid off. Debt payments cut into the amount of money they have for living expenses.

An estate planning attorney can be helpful in planning for retirement and in leaving assets.

Reference: Fox Business (May 15, 2016) "Baby Boomers' Retirement Woes Summed Up in 5 Statistics"

'Mr. Social Security' Is Indicted

A Kentucky attorney focused on Social Security Disability law became the target of an FBI investigation into his practices and is now charged with defrauding the government of $600 million, according to a Special Needs Answers report "'Mr. Social Security' Indicted for Defrauding Government Out of $600M in Disability Benefits."

Eric Conn built one of the largest Social Security Disability law practices in the country and marketed himself as "Mr. Social Security." However, it appears his practice may have been built on fraud.

He worked with a team of doctors to falsify his clients' medical records. If one of his client's was denied benefits, he is charged with then bribing an administrative law judge to approve the claim. The FBI investigation has resulted in an indictment.

This is extremely good news for people with special needs and their families.

The Social Security Disability trust fund is in dire straits and would have run out in 2016 had Congress not acted to save it in late 2015 by reallocating some funds from the Social Security Retirement Trust. Eliminating a large scale fraud helps preserve funds for those who need them.

Seniors also benefit as the retirement trust fund is only slightly better off in the long term so reallocating money from it is not optimal. The two programs while different are often linked in people's minds so when people see others receiving disability benefits who should not be, they might be more likely to support cuts in retirement benefits.

Reference: Special Needs Answers (April 28, 2016) "'Mr. Social Security' Indicted for Defrauding Government Out of $600M in Disability Benefits."

What Is Impact of Trump's Support for Social Security?

There is a general concept even in Presidential election years that Democrats are likely to preserve and expand Social Security while Republicans are likely to cut the benefits or privatize the program. Elder law advocates are particularly anxious this year as recent Republican budget proposals have included Social Security benefit cuts and without changes to the program it will eventually run out of money to meet obligations.

One Next Avenue columnist, however, finds hope in what might be an unlikely place, which he wrote about in "Why Social Security Benefits Won't Be Cut."

One Republican Presidential candidate has stated that any cuts to Social Security benefits are completely off the table and he happens to also be the current frontrunner for the nomination, Donald Trump.

The theory is not that Trump will win the election and be personally responsible for preserving Social Security. Instead the theory is that his position indicates a shift in the thinking of Republican voters.

It may now be true that voters for both political parties agree that Social Security benefits should not be reduced. If that is the case, then it remains to be seen if more politicians on both sides of the aisle agree with those voters.

Reference: Next Avenue (April 15, 2016) "Why Social Security Benefits Won't Be Cut."

More Seniors Face Tax on Social Security Benefits

In an attempt to head off the anticipated revenue shortage expected for Social Security, lawmakers set up a tax for the richest seniors eligible for benefits in the 1980s. The idea was a form of "means testing" for benefits in order to limit or stop benefits to taxpayers defined as wealthy. At the time it was anticipated that only about 10% of beneficiaries would be taxed on any portion of their benefits. Nevertheless, the law included no mechanism to adjust for inflation.

Consequently, the same raw numbers from 1983 are still used today to determine whose benefits get taxed and how much of those benefits gets taxed. As My San Antonio points out in "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?" that means many more Americans are taxed today than was originally intended.

As of 2010, 47.1% of beneficiaries were taxed on some portion of their Social Security benefits. That number is expected to rise to 58% in 2030 if no changes to the law are made.

As you near retirement be aware of these taxes and plan accordingly for the impact they may have.

Reference: My San Antonio (April 10, 2016) "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?"

Delaying Social Security May Not Always Be the Best Option

While delaying Social Security benefits is often considered the best option, it is not the best option for everyone as Wills, Trusts & Estates Prof Blog recently discussed in "Considerations To Chew Over When Choosing When To Take Social Security" including:

• Monthly benefits are determined based on actuarial data and average life expectancy. While you can receive more money per month by delaying benefits, your expected total lifetime amount will be the same on average whenever you start benefits.
• Your health and your family's health history can play a key role in the decision. If you are in poor health or you have a family history of serious health problems in retirement, then it might be better to take benefits sooner rather than later.
• Your current financial situation is also very important. If you need money now, then taking benefits as soon as you are eligible is a good idea. However, if you do not need the money or plan to continue working for a few years, then delaying benefits is often a better idea.

Reference: Wills, Trusts & Estates Prof Blog (April 3, 2016) "Considerations To Chew Over When Choosing When To Take Social Security"

There Is Still Plenty of Life in the Social Security System

The key to Social Security is to have enough people employed to pay the taxes for pension benefits but the U.S. has an aging population and it is forecast that obligations will outpace taxes.

However, as My San Antonio explains in "Will Social Security Last Until I Retire?" that does not mean that Social Security will go broke soon nor does it mean that Social Security will disappear when its benefits exceed its revenues.

Currently, Social Security has another source of revenue.

In years when taxes exceed benefits the extra money is invested in Treasury securities and earns interest. For now the total revenue from taxes and interest is still greater than the amount paid out in benefits.

That is expected to continue for another few years.

In fact, the situation does not become too problematic until 2034 based on current projections, which gives ample time to fix the system. Even if the system is not fixed by 2034, that does not mean that Social Security would disappear entirely in that year. At that time revenue would still cover approximately 79% of projected benefits.

In a worst case scenario, people would most likely just receive smaller benefit checks.

There is still plenty of time to fix Social Security despite the fact that the two major political parties disagree on how to fix the system.

Reference: My San Antonio (March 19, 2016) "Will Social Security Last Until I Retire?"

Social Security Benefits Can Be Taxed

As My San Antonio explains in "Will I Pay Taxes on My Social Security Benefits?" many Americans are surprised to learn that they can be taxed on their Social Security retirement benefits. People believe the money they receive was already taxed when they paid into the system.

As a result, taxing it again amounts to double taxation but the federal government views it differently.

The total amount most people pay into the system equals 15% of the total value of lifetime benefits. As a result, up to 85% of Social Security benefits can be taxed and it will not be double taxation.

But not everyone is required to pay federal income taxes on their benefits. It depends on the other income a person makes.

The basic rules are as follows:

• Single people whose total incomes are between $25,000 and $34,000 may have 50% of their Social Security benefits taxed. A total of 85% of benefits may be taxed for people making more than $34,000.
• Married people filing jointly may have up to 50% of their benefits taxed if their combined income is between $32,000 and $44,000. Up to 85% of benefits could be taxed for couples with higher incomes.
• The government is direct when it comes to married people who file separately. They are almost certain to pay taxes on their Social Security benefits.

Social Security benefits also face state income taxes in 13 states.

Reference: My San Antonio (March 20, 2016) "Will I Pay Taxes on My Social Security Benefits?"

Applying for Social Security Isn't Always Easy

The question always arises on when one should apply for Social Security benefits. But how to apply for Social Security benefits comes up occasionally and there is no shortage of advice.

A potential recipient needs to know where to apply and what they will need in the process. Recently, My San Antonio provided some of that information in "Can I Apply for Social Security Online?"

You can apply for Social Security by going to your local Social Security office, by calling a representative or by filling in the application yourself online.

Regardless the method of application, you will need to provide information to satisfy the Social Security Administration that you are entitled to benefits. That information does not necessarily have to come in the form of specific documents. However, the Social Security Administration does commonly ask for a copy of your original birth certificate or some other proof of your date of birth.

If your birth certificate does not establish it, then you will need to provide proof of citizenship or other legal status.

It is common to be asked to provide proof of income for the last tax year. You will also need to provide information about your spouse, any dependent children and whether you have previously applied for Social Security benefits.

An elder law attorney can answer your questions and advise you on the process.

Reference: My San Antonio (March 14, 2016) "Can I Apply for Social Security Online?"

What Percentage of Income Should Come from Social Security?

It was never the intent that Social Security would be the total replacement for income earned prior to retirement or to duplicate the same standard of living prior to retirement. Instead, the system was designed to help elderly people living in poverty while giving greater benefits to those putting more money into the system.

Social Security is only intended to give retired Americans a percentage of their pre-retirement income as discussed by My San Antonio in "How Much of My Income Will Social Security Replace in Retirement?"

Of course, this begs the question of exactly what percentage of your income you can expect to receive in monthly Social Security benefits when you retire. Unfortunately, the answer to that question is "it depends."

Generally, the system is designed to give American's 40% of their pre-retirement income, but what that means for any individual varies widely. Generally speaking, the less you earn now the more of your income Social Security will replace. This is because when calculating a monthly benefit the first $856 of income is multiplied by 90% while income between that amount and $5,157 is multiplied by 32%. Income above $5,157 is multiplied by 15%.

An elder law attorney could be helpful in clearing up any confusion and advising you on what to expect upon retirement.

Reference: My San Antonio (Feb. 28, 2016) "How Much of My Income Will Social Security Replace in Retirement?"

What Is the Right Age to Take Social Security?

Full monthly Social Security benefits begin at age 67 for Americans born after 1960 so many people plan to retire at that age. But there are many reasons that people may benefit from applying for Social Security at a different age as detailed in the Wills, Trusts & Estates Prof Blog "Considerations To Keep In Mind For Taking Social Security At 67."

Things to keep in mind when considering your own retirement age include:

• You can start receiving Social Security benefits as early as age 62. While your monthly benefits will be lower than if you wait, the system is designed so your lifetime benefits will be the same.
• Many people plan to "file and suspend." In other words, they plan to draw from a spouse's benefits and delay filing for themselves until their monthly benefits are higher. Unfortunately, this option will no longer be available after April 29, 2016.
• If you wait to take benefits until after the age of 67, then you can increase your monthly benefits by 8% a year until the age of 70.

An elder law attorney can be helpful in presenting your options for Social Security and the best time to apply.

Reference: Wills, Trusts & Estates Prof Blog (Feb. 29, 2016) "Considerations To Keep In Mind For Taking Social Security At 67."