October 30, 2019 — For years the curiously named Windfall Elimination Provision (WEP) has frustrated countless workers in the public sector. The WEP was created to try to help protect Social Security as well as prevent so called “double-dipping” by public workers who are eligible for pensions as well as Social Security retirement. Most public workers feel that the WEP unfairly takes away some of the benefits they earned from Social Security. Now a Republican Congressman from Texas, Kevin Brady, has proposed its elimination and replacement with a new system. This is his statement:
“For years, lawmakers on both sides of the aisle have called for a permanent solution to fix WEP. This arbitrary Washington compromise has resulted in unfair treatment for our teachers, fire fighters, and police officers; and Texans simply cannot afford Congress to remain inactive and let this unfair policy be the law of the land. Now is the time for Congress to put forth a solution that can actually be signed by the President. This legislation permanently repeals the current WEP, and instead uses a fairer formula that treats public servants like all other American workers. Democrats agree that this is a problem we must address now, and we hope they join us in fixing this long-standing problem this year. While I am introducing a bill today, I am committed to staying at the table to get a bill to the President’s desk.”
The WEP is complicated, and relies on a formula. Basically, if you have less than 30 years of substantial earnings subject to Social Security, you will give up a portion of benefit. For example, if you had less than 20 years of paying into the system and became 62 in 2019, you would forfeit $463 of your promised monthly benefit. If you had 25 years the forfeit $231, and $0 if you had 30 years. SSA has a WEP chart to help you figure this out (see below).
Comments: It is anyone’s guess if Brady’s bill will ever become law. Are you affected by it, and do you think the current system is unfair? Let us know in the Comments section below.
August 14, 2019 — Some of the questions about Social Security that come up most frequently concern claiming benefits. People are confused or unsure about when they can claim, how much they will receive, spousal benefits (including those for divorced people), special filing strategies, etc. This article will go over some of those questions and, hopefully, provide helpful answers.
When can I claim Social Security retirement benefits? Most people have a pretty good idea of the answer to this question – the earliest you can claim is age 62. The longer you wait to claim, the higher your benefit, up until age 70.
What is my “Full Retirement Age” (FRA)? This is the age when you fully qualify for your Social Security benefits. For people born between 1943 and 1954 the FRA is age 66. For those born in 1955 or after, it increases two month per year until it reaches age 67 for those born in 1960 or later. Note that “Full” is not a totally logical term, since if you delay collecting your benefits past your FRA you will get higher than “full” benefits anytime up to age 70.
July 15, 2019 — Hiring a good financial advisor is a difficult job for most people. Although there is no shortage of solicitations that appear in the newspaper, come in the mail, or through a phone call – how do you know if the person who tells you they are so gifted is really that great? Someone who will look out for your interests, not cheat you, protect your hard earned savings, and actually make your savings grow. After all, your money represents your financial security, which makes making this decision so important and so difficult.
A while back we profiled a number of tips for hiring a good financial advisor (see Further Reading at end). This feature will build on that and provide some tips for how to evaluate the person you hired, or the one(s) you might be considering for the job.
Seven things to look for
Trust your instincts. Your intuitions and first impressions are always important. If you feel like you are being swept along into a decision and little voices tell you something might not be right – stop and listen. Further exploration might clear them up, but never dismiss your reservations.
June 24, 2019 — Women tend to do more of the worrying than men, at least in the circles we travel in. And for us men, that is usually a good thing for our preservation. When it comes to women’s big fears about retirement, the research primarily focuses on money concerns, but there is no shortage of other worries. We’ll cover the common concerns that we are aware of, but we are eager to hear what yours are in the Comments section at the end.
Top Worries – Money
A study published by the nonprofit Transamerica Center for Retirement Studies reported that 46% of women were concerned they wouldn’t have a comfortable retirement lifestyle. By comparison, only 31% of men had similar concerns.
June 16, 2019 — Most of retirement age America, with the possible exception of our elected representatives in Washington, D.C., has some inkling that Social Security retirement is facing big benefit cuts as early as 2034. The commonly held reason why is that are too many baby boomers collecting their Social Security retirement checks, with too few millennials and Gen Xers paying into the system to keep it in balance. While that is not inaccurate, there is another, more fundamental reason for the shortfall, which dates back to the beginning of the Social Security program.
When the program started in the 1930’s there was an intrinsic problem. Half of the working population at the time was at least halfway towards retirement age. Yet because the program was new, no one had yet contributed anything into the system. It was decided that these Depression-era workers would be given full benefits anyway. Enough money was being collected that benefits could be paid as these workers retired. So they essentially had a windfall – they collected far more than they ever paid into the system. The benefits paid to them would ordinarily have been paid into the trust fund reserves, forever reducing the trust funds. In retrospect, it might have been better to have funded the shortfall from the general treasury at the time.
June 2, 2019 — The number one Google search about retirement is “How much do I need to retire”. Or, phrased slightly differently, “how much can I spend in retirement”. It is a tough question, dependent on a lot of factors unique to you. The short answer is: “a lot more than you thought”.
We liken the problem to a maxim our old friend Ralph came up with on a fall camping trip. After a night when the temperature dropped, the fire died down, and we ran out of firewood well before bedtime, he came up with the solution for the next campfire. Before it gets dark go out and collect about as much wood as you think you will need. Then go back out and gather at least that same amount again…. now you will probably be OK!
Here in this article we will address how to identify how much you need to retire comfortably. We want to stress that people usually underestimate two related things: how much is needed, and how long they will live. To be safe, keep Ralph’s maxim in mind. We will also explain the major withdrawal techniques, and provide a list of the situations that cause people to underestimate their needs.
How much do you need – the budget
The lifestyle you plan to live will determine how much you need. Step 1 is to figure out how much you are spending now, and estimate how that might change once you retire, including estimates for future medical expenses. You probably won’t spend a whole lot less than you do now, particularly if plan to travel a lot. If you make big changes to where you live, those expenses might go down a lot.
May 25, 2019 — The Democratic lead House of Representatives passed a bill this week, the Secure Act of 2019, that would make major changes to 401(k) plans. If it goes into law those changes could have a very positive effect on retirees and people who hope to retire someday. Since neither the Senate nor Pres. Trump seem to have any major objections, the bill seems to have a very good chance of becoming a reality.
The law has come into being as a reaction to a number of factors including a recognition of the growing importance of 401(k) plans, as well as the increasing longevity of Americans dependent on those plans for their financial security. Here are some of the many changes in the Secure Act of 2019, which passed by a whopping 417-3 margin:
Required Minimum Distributions (RMDs) not required until age 72 (currently required at age 70 and 1/2)
Granting companies with 401k plans permission to offer annuities as an investment option
Employers must disclose on 401(k) statements the amount of sustainable monthly income the employee’s balance would support
Part time workers would be allowed to participate in 401(k) plans
Unaffiliated companies could band together to offer 401(k) plans
May 4, 2019 — Were you born before Jan. 2, 1954? Are you married? Not already claiming a Social Security retirement benefit?
If you answered yes to all of these questions, time is running out on a very valuable Social Security claiming strategy, the Restricted Benefit option. In brief, this option allows you (or your spouse) to collect a spousal Social Security benefit while preserving the right to collect on your own benefit later. If you turn 66 this year, now is the time to think about taking it.
The key point for eligibility to take the Restricted Benefit is being born before Jan. 2, 1954. If you were born after that date, the term “deemed filing” applies to you when you apply for Social Security retirement benefits, and you are not eligible for the Restricted Benefit option.
In addition to your birth date, the two additional questions we asked at the beginning also apply. Are you married? If you are not, it doesn’t work because you have no spouse to claim a spousal benefit on. If you are already receiving Social Security benefits, it is too late to reverse that decision. So you answered yes to all three questions – great – the Restricted Benefit might be for you.
April 26, 2019 — The Social Security Trustees annual report is out, which shows some small changes in the status of Social Security. This year, 2019, will be the last time that the amount paid out in retirement benefits is less than the money coming in – taxes paid into the system by workers combined with interest earned on reserves. But in 2034 the real crisis begins. That is when the reserves in the retirement portion of Social Security (OASI) are exhausted and the fund must rely exclusively on taxes paid in from working people to cover promised benefits. Starting that year, unless something is done soon, Social Security will be able to only pay about 77% of promised retirement benefits.
There are a variety of different ideas on how to fix the problem. Only one proposed solution has been proposed in Congress so far, and it has achieved solid partisan support. Introduced by Democratic congressman John Larson of Conn., his solution would increase both benefits and taxes. A few of the many Democratic presidential candidates are tossing out ideas that would eliminate or expand the maximum income subject to FICA taxes, increase payroll taxes, and/or add an investment tax. The Republican approach is to hold the line on increasing taxes while curbing benefit growth. Whatever the approach, the Trustees are urging Congress to do something, as the longer they procrastinate, the more serious the problem. The crush of baby boomers collecting Social Security retirement benefits finally starts to abate in 2030, when the last baby boomers should be starting to take their benefits.
One significant change in this year’s report is what is happening in the disability component of Social Security (DI). For whatever reason, new disability claims are declining, with the result that the fund is predicted to remain solvent much longer than thought earlier (2052 vs. 2032 last year).
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 64 million beneficiaries and 178 million covered workers and their families during 2019. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations
This is the conclusion of the 2019 Trustees Annual Report on Social Security – We agree!
Comments? What is your favorite solution to solving the Social Security problem? Do you think Congress will act in time to head off the 2034 crisis? Please use the Comments section below to voice your opinion.
April 22, 2019 — Have you been wondering how your retirement investments and strategies stack up to other people in your situation? Do you make the same types of investments as others… use a financial advisor… think you saved enough? Well, thanks to the almost 500 members who took the time to contribute their valuable data and insights to last week’s “The State of Your Retirement Portfolio” survey, you will know the answers to a lot of these questions. Special thanks to all contributors to the survey – we appreciate you giving back to this community!
As promised, here is a detailed report on the survey. It includes a link to 100 interesting Member comments to the survey. And you will find a list of all our previous survey reports at the end of the article.
Background This is the second time we have asked for data about your retirement investments and expectations. Here are the highlights from the most recent 14 question poll, with comparisons to the 2015 survey results when available. Detailed findings for each question are listed below that.