Important Changes to your Social Security Benefit

In October, President Obama and the US Congress passed the Bipartisan Budget Act of 2015.  Included in that act was a clause that eliminated two popular Social Security claiming strategies: File-and-Suspend and Restricted Application.

File-and-Suspend:  A strategy where a person, who is at least full retirement age, files for social security benefits, but then immediately requests to suspend those benefits. This allows his/her spouse to take a spousal benefit on the filer’s record, while the filer’s benefits are delayed and continue to grow.

Restricted Application:  A strategy where a person, who is at least full retirement age, files for spousal social security benefits and delays his/her own benefit so it continues to grow. This allows the filer to receive some benefit now (the spousal benefit), and a larger benefit later.

Delaying your benefit pays off big. When you delay your benefit you earn delayed retirement credits, which equate to an annual 8% increase in benefits.

Those born before April 30, 1950 were grandfathered in to the old rules and may continue to use File and Suspend and Restricted Application strategies while delaying their credits. Please note, if you were born before April 30, 1950 and you wish to implement the File and Suspend Strategy, you must submit your application before April 29, 2016.

Those born after April 30, 1950 or on or before January 1, 1954 (age 62 in 2015) may only use the Restricted Application strategy.   If your spouse is receiving benefits and you have reached full retirement age, you may apply for a spousal benefit, while allowing your own benefit to accrue Delayed Retirement Credits.

For those born after January 1, 1954, neither strategy is available.  However, you may still choose to delay taking your benefits until age 70.  By doing so, you stand to increase your future benefits by 32%.

Please note that if you are already drawing Social Security, or if you have already set up File and Suspend, the new laws do not affect you.

Summary of Available Strategies

Age Can Participate Cannot Participate
66  by 04/30/2016 File & Suspend /Restricted Application
62 by January 1, 2016 Restricted Application File & Suspend
62 by January 2, 2016 File & Suspend /Restricted Application

There are many factors to consider when determining when to start taking Social Security.  We recommend that you meet with your financial advisor for guidance to help you with that decision.  And if you were born before April 30, 1950, please remember the April 29, 2016 deadline.

Tracy Allen, CFP®
Financial Advisor
Tracy Allen
Tracy Allen
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Social Security: The Spousal Benefit

If you are nearing the age of Social Security benefits, you are probably thinking about how you can maximize your benefit. If you are married, it becomes more complicated because one person’s benefit may affect his or her spouse’s benefit. File and suspend is an optional method that may help you maximize your spousal benefit.

File and suspend is a benefit allowed to those who qualify for Social Security who are full retirement age (FRA). FRA is a technical term determined by the year you were born. For example, if you were born between 1943 and 1954, your FRA is age 66.

Taking Social Security Based on Your Spouse’s Record

If you are married you have the option to take your Social Security benefit, or half of your spouse’s benefit, whichever is higher (there are some technicalities here that we won’t get into for the sake of brevity). If your Social Security benefit is less than what your spousal benefit would be, it would be more advantageous to apply for a spousal benefit. In order to take your spousal benefit, your spouse has to have filed for Social Security. If your spouse is not ready to take Social Security, the file and suspend strategy is the only way to accomplish this. Only one member of a couple can file and suspend so that the spouse can collect spousal benefits.

Why Your Spouse May Not Want to Take Social Security Right Away

If a person chooses not to take Social Security once he or she reaches FRA, those benefits will continue to increase by 8% per year until age 70 (for those born after 1943). This is called delaying retirement credits. Many people choose to delay retirement credits so they will have a larger Social Security payment later, or because they are still working and don’t have a need for the current cash flow.

Your Spouse Must File and Suspend in Order for You to Take a Spousal Benefit

The file and suspend benefit allows your spouse to delay his or her retirement credits, so that his/her Social Security benefit can continue to grow, but at the same time allows you to collect a spousal benefit on your spouse’s record. You cannot take a spousal benefit until your spouse has filed for Social Security (or filed and suspended).

Alternative Options

There are several ways to maximize your spousal benefit. If your spouse is not FRA but you would like to begin receiving benefits, you can take Social Security on your own record. Later when your spouse files for Social Security at his/her FRA, you can switch to take a spousal benefit if it is higher.

Another option is to delay your own credits while you take a spousal benefit. If you have reached FRA, you may take a spousal benefit while you allow your own retirement credits to be delayed so that they continue to grow. At age 70 you may then switch to take benefits based on your own record if they are higher.

A note regarding Medicare: Medicare is not subject to these various timing schemes. Medicare benefits begin at age 65, regardless of your FRA. You should apply three months before reaching age 65.

Consult a Professional

We recommend that you discuss your personal situation with your financial advisor to determine the best option for you. Also, the Social Security Administration is available to help you determine how you may maximize your family’s benefit. There are many details to consider when planning for Social Security benefits and they are certainly not all presented here – so be sure to consult a professional when making decisions.

Harli L. Palme, CFA, CFP®

Partner

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A Real World Retirement Story

My father was ready for retirement. We had several discussions about picking the right time. Choosing when to retire is always a big decision. Conventional wisdom suggests the longer you wait, the better. You have more time to save and eliminate debt. Your Social Security benefit could be higher. On the other hand, how many people do you know who died before they could retire? There is something to be said for “getting out of the game” and enjoying your life.

We discussed a myriad of items. In the interest of brevity, let’s talk about two of them: finding the right insurance coverage and managing your time.

Health care is a big ticket item. No matter how well we take care of ourselves, our bodies will need more attention as we get older. Finding the right coverage is vital. Individuals over age 65 have Medicare Part A. Most people obtain supplemental insurance coverage since Part A does not pay for everything. Some plans are very expensive. Some plans provide minimal coverage at a reduced cost. Penalties can be incurred if one does not sign up for Medicare when required. And, if someone retires before age 65, coverage must be found to bridge the gap between the retirement date and Medicare eligibility.

I was overwhelmed. I arranged for my parents to meet with an insurance agent who specializes in Medicare plans.

Thanks to the draft, my dad spent a few years in the Army. His service gave him a permanent distaste for peeling potatoes. More importantly, it provided him with access to health care benefits. His previous employer’s insurance plan was awful, so he used the VA coverage as a supplement for years. He said the prescription drug discounts are good.

The agent found appropriate policies for both of my parents. My father’s supplemental policy needs were reduced by the VA coverage, whereas my mother needed increased coverage. It helped to have someone with Medicare knowledge guide them through the process. I highly recommend seeking help instead of trying to research it on your own.

She could not help us with the other problem: occupying my dad’s time. He is not a “lounge around the house” kind of guy. He must stay busy. He made a plan for the first year of retirement. He wanted to remodel the kitchen – build cabinets, replace the countertop himself, install new flooring, et cetera. He planned to tackle some home improvement projects at my house (yeah!). He wanted to get a dog which would give him a buddy and an excuse to get outdoors. Then, in about a year, he hoped to get a part-time job at a nearby home improvement store. He would be perfect for the job, and the store employs a lot of older workers.

He knew he could not be happy unless he was busy doing something. When considering retirement, it is very important to think about how one will occupy time previously spent working. We all have fantasies about what we would do. When faced with the reality of filling those hours, though, it can be a daunting task.

In the end, my father did retire. I saw an immediate “lightness.” He smiles and laughs easily. Plagued with ulcers and wicked reflux most of his life, his gastro issues have greatly improved. Retirement definitely agrees with him.

Someday, you may have the same conversations with your parents. My advice is to get help from people who know more than you – financial advisors, insurance experts, estate planning attorneys – whenever you encounter unfamiliar issues.

The same advice applies if you are considering retirement. There is more to the issue than whether or not you will have enough money. My parents and I spent almost a year talking about it. Just as you took time to find the right career or the right house, care should be taken with retirement planning too.

Of course, Parsec is here to guide you. Retirement matters are too complex to tackle alone.

Cristy Freeman, AAMS®
Senior Operations Associate

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Ikaria or Bust

Last fall I read a fascinating article in the New York Times Sunday Magazine entitled “The Island Where People Forget to Die.”  The article is about the nonagenarians and centenarians of Ikaria, a rugged and remote Greek island in the Northern Aegean.  It explores the possible factors that allow these people to lead longer, healthier lives.   

Dan Buettner, the article’s author, opens with the story of Stamatis Moraitis, a Greek war veteran who had settled in Port Jefferson, NY after the war.  Moraitis claimed that in 1976, he was diagnosed with lung cancer.  He considered going through chemotherapy, but elected instead to return to his homeland and spend his last days in the village of his childhood.  At first, he spent his days in bed being tended to by his elderly mother and his wife.  When childhood friends heard he was back, they paid daily visits, often bringing a bottle of wine to share.  Soon, he was working in the garden and making the walk up the hill to church.  He woke when he wanted, worked in the vineyard, had lunch, took a long nap.  Evenings were spent with family and friends.   Today, he is over 97 years old.  Is this all true?  I don’t know, but Moraitis is 97 and healthy and loving life!

Buettner spent five years studying the lives and habits of the people of Ikaria.  Working with his partner, a demographer from Belgium, they verified that Ikariotes reach the age of 90 at two and a half times the rate of Americans and they are often healthier.  More impressive is the fact that Ikariotes live 8 to 10 years longer than Americans before succumbing to cancer, heart disease, dementia and Alzheimer’s disease.

So, what did Buettner uncover in his study on the centenarians of Ikaria?  In addition to the Mediterranean diet focusing fresh vegetables and fruit, yogurt, olive oil and red wine, Ikariotes are very communal and they spend many hours a day socializing with their fellow villagers.     They don’t drive, so walking is their form of exercise.  They nap every day and attend church every Sunday.  And reportedly, a healthy sex life is enjoyed by more than 80% of Ikairote men over 65.

I just returned from a Retirement Income Summit where the overriding theme was how to prepare our clients for the cost of health care in their retirement.  In my last post http://parsecfinancial.wordpress.com/2013/04/10/remember-wear-sunscreen/, I touched on this topic.

What has become abundantly clear is that it is imperative that we focus as much attention on leading healthy, active and productive lives as we spend on saving for a comfortable retirement.

While I don’t expect I will pack up everything and move to Greece, I think I could certainly find a way to incorporate many of the Ikariote habits into my daily life…now, I just need to find a way to sneak in that nap!

Tracy Allen, CFP®
Financial Advisor

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Gross National Happiness

One of the most commonly used measures by which we gauge the health of our economy is GDP growth. GDP, or gross domestic product, is defined by Investopedia as, “the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.” Economists look at GDP growth over time (quarter over quarter, year over year, etc.) to determine a country’s economic health and productivity. If you look at the definition, you can see that the implication is that more money = good. Nothing unusual there – most people tend to agree that more money = good, right? Take the recent winner of the $338 million Powerball jackpot. We all assume that whoever bought that ticket is about to be the happiest person on the planet. I can’t tell you how many times I catch myself daydreaming about what I would do if I won the lottery (note to my employers: I NEVER do this on work time, and it never involves me running out of my office without a backward glance). In talking with others about it we tend to agree that, while money can’t exactly buy happiness, a certain amount can provide the freedom to pursue what makes us happy, unfettered by the drudgery required to pay bills and feed our families. At least, that’s what we think.

I recently watched a documentary entitled, “Happy” which touches on the lives of various people around the globe, and seeks to discover what makes them happy. Surprisingly, some of the happiest people were also the poorest, financially speaking. A common theme among these self-described happy people was a supportive community of family and friends, as well as a sense of purpose in life. Researchers have found that money does affect happiness, up to a point – the point where basic needs are met. Beyond this, levels of happiness do not vary significantly between those making $50,000 a year and those making $5,000,000 a year (note to my employers: this does not get you off the hook for raises). Some of this is determined at a genetic level, almost as if we are all born with a “set point” for happiness, and no amount of good fortune or tragedy will cause a person to deviate from their set point for long.

Getting back to GDP – my favorite part of the documentary was about Bhutan, a country that has chosen to measure growth not by the monetary value of goods and services, but by the happiness of its citizens. Instead of a GDP index they have a GNH index, which stands for gross national happiness. According to the “short” (over 100 page) guide to the index I found online, “the GNH Index is meant to orient the people and the nation towards happiness, primarily by improving the conditions of not-yet-happy people. In the GNH Index, unlike certain concepts of happiness in current western literature, happiness is itself multidimensional – not measured only by subjective well-being, and not focused narrowly on happiness that begins and ends with oneself and is concerned for and with oneself. The pursuit of happiness is collective, though it can be experienced deeply personally. Different people can be happy in spite of their disparate circumstances and the options for diversity must be wide.”

One of my coworkers wrote a piece for our second quarter newsletter about the positive physical and emotional benefits we can reap by volunteering and giving back to our communities. The researchers interviewed for the documentary agreed that the happiest people tend to be the ones with strong ties to friends, family, and community, and who feel they have a sense of purpose in the world. As folks transition into retirement, I think it is especially important to remain active in the community and regularly get together with friends and family. Humans are social animals; we have evolved to thrive in groups and to enjoy helping others. That kind of happiness is free and available to everyone. But I’m still going to buy an occasional lottery ticket.

Sarah DerGarabedian, CFA
Director of Research

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George, I Can Lie About My Age!!

This year, I celebrate a milestone birthday. Let’s just say I am now officially too old to be George Clooney’s girlfriend.

As often happens with milestone birthdays, you reflect about how you imagined your life would be at this stage. Perhaps you had envisioned retiring at an early age. Maybe you wanted to start your own business. Or save tons of money, quit your job, and travel around the world for a couple of years. (Hey, you can dream.)

Then, life happened. You devoted yourself to a career. You bought a home. You got married and started a family. The years go by. You wake up one day and realize you’re that age.

When you first began your journey with Parsec, your goals were just rough ideas of where you thought you wanted to be in 10, 15, 20 years. Now that time has passed, are those goals still the same? Have you been affected by any of these events:

• Started a family
• Sent a child to college
• Lost your job
• Dealt with aging parents

We would also be remiss if we overlooked the extraordinary market volatility of the last two years.  All of the above events can significantly alter your financial plan.

Do you still have the same goals now that you did before these events occurred? Has your “deadline” for achieving those goals shifted? It is very easy in the day-to-day rush to not think about these things. However, it is important to evaluate your financial situation and goals periodically so you can stay on track.

Your financial advisor is here to help you. Together, he or she can review your financial plan and work to keep it in line with your changing life. Just call him or her anytime.

Cristy Freeman, AAMS
Senior Operations Associate

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