Planning can help avoid mistakes with Social Security

29 Jun 2015 | Author: | No comments yet »

Gay marriage’s big benefit is Social Security.

People who delay taking Social Security benefits will be rewarded with higher monthly payments, yet hardly anyone waits until 70, the age at which benefits are maximized. Heterosexual married couples have long been able to use Social Security claiming strategies — such as file and suspend, and restricted claim — to maximize their household’s benefits.

The much-anticipated Supreme Court ruling on same-sex marriage has been decided, with the majority of judges declaring it a constitutionally protected right. Many lock in reduced benefits by not waiting even until their full retirement age, which is between 66 and 67 for most people currently in the workforce. While 37 states previously recognized same-sex marriages, today’s ruling means that no state can ban same-sex marriage, or refuse to recognize a marriage performed legally in another state. For boomers and older generations, the condition of your skin, especially your facial appearance, is a barometer of your overall health and perhaps your life expectancy, scientists say.

And as the population ages—by 2020 one in seven people worldwide will be 60 or above—dollars are pouring into research that may eventually link your skin health to your retirement finances. In fact, the ruling could add anywhere from $20,000 to more than $250,000 in lifetime benefits to same-sex couples, says Christopher Jones, chief investment officer at Financial Engines.

That should come as no surprise because the system is complex. “The Social Security system has 2,728 core rules and thousands upon thousands of additional codicils” designed to clarify those rules, write the authors of Get What’s Yours, a new book on the topic. From a Social Security-claiming perspective, “these unions … will be no different than traditional marriages,” says Stephen Stellhorn, president and CEO of MSM Capital Management in Tampa. “The rules of Social Security and the benefits it provides will apply to both spouses as well as any children they may have. Today’s decision extends that ruling to the rest of the country and affects a host of other financial issues, including Social Security, estate taxes, and retirement planning. Recognition of same-sex marriage in all 50 states will guarantee access to Social Security’s spousal and survivor benefits, which are the most valuable features of the program.

Answer: In order for minor children to qualify for benefits on a grandparent’s record, they must either be adopted, or both of their natural parents must be deceased or disabled. Those already living in states where gay marriage is legal know that this can be a mixed blessing, because in some cases filing jointly could trigger a higher tax bill. If this is the case, I believe your two grandchildren qualify to collect child benefits until they are 18 or 19, or if they are still in primary or secondary school, and if your wife qualifies to collect child-in-care spousal benefits until the youngest child reaches age 16. That is why many married couples take advantage of rules that permit a spouse to receive up to half of a living spouse’s benefit if it is larger than his or her own.

Typically, the more disparate a couple’s incomes, the more likely spouses are to benefit from filing jointly, says financial planner Stuart Armstrong II, who married his partner in Massachusetts in 2005. And if Henry and Logan optimize when they claim Social Security they would get more than $1.1 million, some $202,176 more than if they claimed at ages 64 and 62. Skin health is also a growing focus for consumer and health care companies, which have come to realize that half of all people over 65 suffer from some kind of skin ailment. But the problem is that life expectancies are ever increasing — to nearly 80, according to the last report from the Centers for Disease Control and Prevention. Nestle, which sees skin care as likely to grow much faster than its core packaged foods business, is spending $350 million this year on dermatology research.

They recognize that they would need to live a long time — often into their mid-80s — before receiving more money from the higher payments that come from delaying. The consumer products giant also recently announced it would open 10 skin care research centers around the world, starting with one in New York later this year. Social Security has the following statement on its website: It is important to note that any benefits withheld while you continue to work are not “lost”. Estate taxes: Before the DOMA case, same-sex spouses could not transfer property to each other without potentially owing federal gift tax, nor could they inherit assets without paying federal estate tax (if the estate was large enough to trigger the tax).

Once you reach [Full Retirement Age] FRA, your monthly benefit will be increased permanently to account for the months in which benefits were withheld. A crowd funded start-up venture just unveiled Way, a portable and compact wafer-like device that scans your skin using UV index and humidity sensors to detect oils and moisture and analyze overall skin health.

But even at companies that offered partner benefits, the value of those benefits was treated as taxable income in the policyholder’s paycheck, which will no longer be the case. The second nasty gotcha arises from Social Security’s family benefit maximum, which will limit the total benefits that your grandchildren and wife can receive to somewhere between 50 percent and 87 percent of your full retirement benefit. For example, if one partner dies fairly soon after opting to claim early benefits, at a reduced dollar level, it can diminish the spouse’s survivor benefits. This saves 1.41 percent a year in fees while putting your money in a fund that has generally been in the top 30 percent of comparable funds over time periods out to 15 years.

By asking a dozen or so questions—including how much you smoke, how briskly you walk and how many cars you own—the website purports to tell you if you will die within the next five years. In that case, when the first spouse dies, the survivor would be able to collect a higher Social Security benefit. “Having one earner put off benefits until age 70 ensures that the surviving spouse collects the highest benefits possible,” he said. Willie Schuette, a financial planner for the JL Smith Group in Cleveland, says the primary reason people take benefits early is because they need the money. “People need that income the day they retire from their current job,” he says. “They are in the best shape of their lives,” he says. “There are so many things they can do in their 60s and enjoy that money. Married same-sex partners can now also fund a spousal IRA for a nonworking spouse, and no longer need to worry about losing out on 401(k) benefits even if they weren’t specifically designated as the beneficiary. Kurt Czarnowski of Czarnowski Consulting in Norfolk, Mass., says he would give any married couple the same advice: “Recognize that Social Security provides a base of financial protection that was never intended to be someone’s sole source of income in retirement.” Use the planning tools that are available to help understand what Social Security will provide, and then take steps to supplement what the program will provide.

Default decision making: Same-sex partners who wanted to be sure that they could make health care or financial decisions on the other’s behalf used have to complete legal paperwork granting power of attorney. NCPSSM has been holding Social Security education meetings for same-sex couples around the country. (A list of upcoming events can be found here: bit.ly/1GOHKyF)

The company behind the site, Lapetus Solutions, hopes to market its software to firms that rely heavily on life-expectancy algorithms, such as life insurers and other financial institutions. Most times, the recommendation to wait till 70 is made because the financial planner industry is trying to maximize client dollars in retirement, he says, but that may not necessarily be the client’s goal. “People always underestimate how long they will live,” she says. “How long did my parents live? An option would be to suspend the receipt of further benefits so that you could start earning credits that would make you eligible for higher payments later. If you can cover most of your food, shelter, clothing, transportation and medical expenses with your pension, very little of your standard of living is at risk when stocks go up and down. While a personalized, scientific mortality forecast might offer a troublesome dose of reality, it would at least help navigate one of the most difficult financial challenges we face: knowing how much money we need to retire.

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