There Are Now 8 States No Income Tax

November 18, 2020 — Although there are many good reasons to choose a state for retirement, for many well-heeled retirees, finding one without an income tax is right up there. Up until 2021, only 7 states could claim that particular attraction. But coming in 2021 an 8th will join the list, Tennessee (the State previously taxed dividends and interest, but not other income). Other states have made moves to make their tax situation more favorable in 2021 as well, mainly by increasing standard deductions and personal exemptions.

Starting in 2021 the eight states that charge no income tax will be: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire almost makes the list because it only taxes interest and dividends (up until 2021 Tennessee was in the same category).

November 4, 2020 — Data from the Centers for Medicare & Medicaid Services predict that Social Security benefits will provide an ever smaller portion of replacement income for retirees in the years to come. This prediction takes into account the delay in the Full Retirement Age from 65 to 67, along with increases in Part B Medicare premiums and federal taxation. The Centers sees the replacement level of income after those deductions falling from 41% in 1995 to to 29% by 2035. All of which puts more pressure on retirees for other sources of retirement income.

Pandemic might accelerate this. Employees and their employers pay taxes on their wages to fund the Social Security Trust Fund. As people lose their jobs and unemployment rises in the pandemic, and if it that were to persist for a long time, the Trust Fund would be negatively impacted. Social Security currently predicts that it only be able to pay 75% of benefits in 2035, but if a bad economy persists that percentage might even be smaller.

404(k) Balances growing. For those fortunate to have one, 401(k) balances increased through 2019. The median 401(k)/IRA balance for working households nearing retirement rose from $135,000 in 2016 to $144,000 in 2019. Since the stock market has also generally been up in 2020, it stands to reason that those balances are a little higher as 2020 ends. This information comes from the Survey of Consumer Finances by the Federal Reserve and summarized by the Center for Retirement Research at Boston College (CRR).

October 28, 2020 — Thank you for taking our 2020 Social Security IQ Test. We hope you found it useful. (If you haven’t taken it yet, here is the link). Please find below a detailed summary of all the questions and answers, along with an explanation of each correct response. So far 500 people have taken the latest version; over 10,000 people have taken previous versions. We hope even more take it to advance their Social Security education.

Note: most of the links provided in these explanations go to excellent advice on the SSA.gov website. The correct answer in each case is indicated in bold either by a ? or a check mark.

Conclusions – Underestimation most frequent kind of incorrect answer

Of the 500 people taking the test so far the average score is 64% (we set 60% as the passing score). There were 3 questions that 80% or more folks got right: Full Retirement Age (#1), collecting on the benefits of a divorced spouse (#10), and withdrawing your application within 12 months (#11). There were 4 questions which most people could not answer correctly. Unfortunately, these were mostly questions that are important for Social Security recipients to know.

Underestimating will cost people money

The questions that most people missed had to do with:

-How many years are used to calculate your benefit

-How much your benefit will increase if you wait to claim past your Full Retirement Age (FRA) and the difference between claiming at age 62 vs. 70

-And when a spouse can collect their full spousal benefit.

Unfortunately, underestimating how much they could get by delaying their benefits instead of taking them at the first opportunity could cost them and their spouses a lot of money down the road.

1. Assuming you were born in 1960 or later, what is considered your Full Retirement Age for Social Security benefit purposes? (The rest of the questions in this quiz assume you were born in 1960 or later, unless otherwise specified).

•  62
•  65
•  66
•  67?

Comment: “Full Retirement Age” is when you are eligible for your full Social Security benefits without penalty. For those born between 1943 and and 1954, it was age 66. For those born in 1955 and later the FRE increased 2 months per year, until for those born in 1960 and later, it became age 67. But you can actually qualify for “more than full” and get a larger benefit at any age up to 70. (See Full Retirement Age Chart). 80% got this correct.

October 28, 2020 — Perhaps you have already voted in the U.S. Presidential election. If so, congratulations on fulfilling an important responsibility of citizenship. But if you haven’t voted yet here are some facts, as best we can determine, to help you understand where the two presidential candidates stand on the future of Social Security, one of the most important issues for current and future retirees. For this article we have relied mainly on an excellent article on NextAvenue.org, “What Biden’s Plans Mean for Social Security“.

The nonpartisan Urban Institute think tank analyzed Biden’s plans for Social Security in that article. They concluded that his plan could “close about a quarter of Social Security’s long-term financial shortfall”, which as currently projected would reduce promised benefits by slightly more than 20% in 2035.

October 25, 2020 – Just how much do you really know about your Social Security benefit? This quick 12 question quiz, will tell you with an instant score. This year’s edition covers the basics you need to know with new, revised, and updated questions to reflect your benefit in 2020. It is a great opportunity to learn what you know, and don’t know, about this important benefit.

Take The Social Security Quiz!

Let us know what you think of the Quiz in the Comments section below. Preliminary results show it is not that easy. If you have suggestions, we would love to hear them! We will have a detailed question by question review very soon to better understand each question.

October 18, 2020 — We have had several members who posted about rival delivery services to another unrelated Blog. So we are publishing those comments here and taken them off the other one. That should keep things cleaner.

From Mary 11 – I signed up for the yearly unlimited Walmart Delivery service. I order once or twice per week. I paid $98 but you save alot of money in the long run. I haven’t been to a grocery store since January. We don’t do restaurant delivery because of Covid so we do alot of cooking at home….

October 15, 2020 — Social Security recipients will see a small Cost-of-Living Adjustment (COLA) next year. Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2019 through the third quarter of 2020, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.3 percent COLA for 2021. The monthly average retirement benefit will be $1,543 in 2021, an increase of $20.

Employee and employer will each continue to pay 7.65% for Social Security and Medicare. Individuals making more than $200,000 in unearned income also pay an additional 0.9% in Medicare taxes. Maximum income for Social Security taxes will increase from $137,700 to $142,800 in 2021. There is no maximum on the Medicare portion.

Maximum earnings exemption increases. People receiving benefits who have not yet reached full retirement age and continue to work will see a modest increase in their earnings cap exemption, from $18,240/yr. to $18,960/yr. One dollar in benefits will be withheld for every $2 in earnings above that level. The exempt limit for those who work in the year they attain full retirement age goes from $48,600/yr to $50,520/yr in 2021 (($1 is withheld for every $3 over that limit). Beginning the month they hit full retirement age nothing is withheld.

For further reading:
Take our new 2020 Social Security IQ Test

Answers to our 2018 Social Security IQ Test

Oct. 12, 2020 — Many Topretirements Members are still working, wondering if and when they might retire. Enter the pandemic, and many new calculations enter into the mix.

So many corporations and small businesses have been affected in serious ways by the coronavirus. Airlines, restaurants, and hotels have been particularly devastated by people not traveling and going out to eat. States and municipalities, hit by extra expenses and declining revenues, are looking for ways to cut their budgets. Organizations like these are wondering how they are going to survive. One of their most obvious options is to layoff workers or encourage others to take early retirement.

You might be one of those people approached with a retirement package. Or you might have decided that the pandemic has made it too difficult to keep working. For example, if you are having to teach via Zoom and don’t find it rewarding. Or, maybe you found working from home so liberating that you don’t ever want to go back to the office. Worse yet, you might have been laid off and facing an early retirement you weren’t expecting. Whatever your situation, now is a good time to re-evaluate your retirement premises.

July 4, 2020 — Our friend Robert Powell at TheStreet.com just wrote a very helpful article for people who worked for governments or non profits and did not pay into Social Security for much of their work lives. They are usually concerned that they won’t get Social Security retirement payments. In “Did You Work for a Government and Not Pay Social Security“, Powell writes to straighten out some misconceptions.

The Windfall Elimination Provision (WEP) reduces your Eligibility Year (ELY) benefit amount before it is reduced or increased by early retirement, delayed retirement credits, cost of living adjustments (COLA), or other factors. If applied, your Social Security retirement payments will be lowered.

July 1, 2020 – Bummed out that for once in your life you were early, and took out your 2020 Required Minimum Distribution (RMD) earlier this year? Well, relief is in site. The IRS announced On June 23 that all investors who already took RMDs in 2020 have an extension to be able to roll back those distributions. The new deadline for RMD rollbacks is August 31, 2020. That replaces the previous requirement of rolling them back within 60 days of the distribution, or by July 15 for certain distributions.

The CARES Act also allows another benefit to those affected by COVID. If you, your spouse, or a dependent is diagnosed with the disease you may be able to distribute up to $100,000 from an IRA or employer-sponsored plan in 2020. The distributions are not subject to the normal 10% early withdrawal penalty, and normal taxation of those proceeds can be spread over three years, or even reinvested.

For more information:
What the CARES Act Means for You (Vanguard)

This article also discusses the advantages of a ROTH conversion this year.