Same-sex couples to get big Social Security bonus

27 Jun 2015 | Author: | No comments yet »

Same-sex couples to get big Social Security bonus.

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 Supreme Court ruled on Friday that it’s unconstitutional for states to ban same-sex marriage, a historic ruling that is a legal and emotional victory for the LGBT community.

The much-anticipated Supreme Court ruling on same-sex marriage has been decided, with the majority of judges declaring it a constitutionally protected right. 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. What they spent on health care, for instance, can “now go to saving and investing for couples’ lives or their children,” says Lule Demmissie, managing director of retirement at TD Ameritrade. “As someone who has experienced these challenges first hand, I think it’s important for families to understand the implications for their financial plans and how they can best prepare for the future.” If you’re in a same-sex partnership, here are some of the key ways the Supreme Court’s legalization of gay and lesbian marriage can positively affect your finances. “I would say of all the financial circumstances that will be impacted by having same-sex marriages recognized by federal and state government is Social Security, since it’s the foundation of most people’s retirement assets,” says Christopher Jones, chief investment officer of Financial Engines, an independent advisor company. “It’s the foundation of most people’s retirement assets.” Same-sex couples can now file for benefits as a married couple rather than individually, which translates to significant spousal benefits, Jones says.

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. His company’s research indicates that, depending on a couple’s situation, this new right to marry could be worth between $20,000 and more than $250,000 in additional lifetime Social Security benefits.

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.

Social Security is complicated, and there are many strategies to maximize it, he says. “If you’re close to retirement age and a same-sex couple, you really need to think about this decision carefully and educate yourself, because there’s a lot of money at stake.” Same-sex couples for the first time have the option to file their federal tax returns either using “married filing separately” or “married filing jointly.” Having these options is valuable, Demissie says, and means spousal tax benefits and breaks for same-sex couples. 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. 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. That matters because if you give money to someone you are not married to, you have to pay gift tax if it’s over a certain amount ($14,000 per individual for 2015). 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. Answer: Your divorced spousal and divorced widow benefits (once your ex dies) will be reduced by two-thirds of your non-covered pension, which may mean you end up losing all of these benefits.

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. Up until now, unmarried same-sex couples had to pay estate tax on money left by a partner if the amount exceeded the legal limit ($5,430,000 in 2015). 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). If you wait till you are 70, you can get an additional 32 percent boost in monthly benefits (or roughly 8 percent for each year you wait). “Generally speaking, if it’s at all possible, it’s best to delay taking Social Security at least until you reach full retirement age,” says author Lynnette Khalfani-Cox, chief executive of TheMoneyCoach.net. “Of course, that’s easier said than done because most Americans who haven’t saved enough for retirement probably feel like they don’t have any other good option.” “Social Security is not always a black-and-white answer,” says Jennifer Landon, founder and president of Journey Financial Services in Idaho Falls, Idaho. “We have software that helps us compare different strategies.” “I always say it depends on circumstances,” Landon says. “It depends on how much they have saved up.” For instance, if it looks like the client will be forced to withdraw too much from their savings early in retirement, she will recommend that they take Social Security early. 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.

It reduces your own retirement benefit by using a less generous formula to calculate the full retirement benefit, or Primary Insurance Amount, for folks with non-covered pensions. You do need to figure this out, and there is very careful and inexpensive software on the market that can help you figure out what strategy will maximize your lifetime benefits. Employee benefits: In the past, partners of people employed by small companies were unlikely to have access to their mate’s health insurance or other benefits, a situation likely to change with federal recognition of same-sex marriage. 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.

For example, “in the case of an IRA, if one spouse were to pass before the other, the IRA becomes a spousal IRA [instead of a] beneficiary IRA, which has less strings attached to it,” Demmissie says. “A spouse who is named as the sole beneficiary of an IRA has some withdrawal options that are not available to any other beneficiary.” There are also contribution benefits only for married couples, and with some retirement accounts, contribution limits are larger for married couples than that of two individuals combined. 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. Although some employers provided health care to employees’ domestic partners, many same-sex couples weren’t able to be on their partners’ health insurance plans. 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. For example, if you and your partner have children heading to college soon, consider how getting married would affect their access to financial aid. “If the couple’s union were recognized, then both incomes would be listed on the financial aid application, impacting the amount of money available to the student,” Demmissie says.

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. 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. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers’ own, as is responsibility for the content of their blogs.

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? 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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