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Uunderpublicized 2012 Tax Changes & Reminders

Posted on Monday, 26th March 2012 by

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Little details worth paying attention to as April approaches.

Presented by Paul H. Risser

Every year, the IRS institutes big and little changes – and some don’t get as much notice as they should. This year is no exception. Here is a rundown of some of alterations and asterisks affecting taxpayers this year.

Don’t forget Form 8949. If you are reporting capital gains or losses for 2011, you must file this new form along with your return. Speaking of new paperwork, if you own foreign financial assets whose total value exceeds the applicable reporting threshold, you will need the new Form 8938.1

Be sure to report Roth rollovers. Back in 2010, did you convert or roll over a traditional IRA to a Roth IRA or other Roth account? If you didn’t report the amount of the rollover on your 2010 federal return, you can report half the amount on your 2011 return 2011 and the remaining half in 2012.1

A select few can still take the first-time homebuyer credit. By 2011, the credit had disappeared for just about everybody … but select military personnel and intelligence agents are still able to claim the credit for 2011.1

If you’re deducting mileage, rates changed in the middle of 2011. The IRS is giving taxpayers a better break given the recent hikes in gas prices. So, if you’re deducting mileage driven while operating an automobile for business, the rate for the first six months of 2011 is $0.51 per mile, and the rate for the last six months of 2011 is $0.555 per mile. The standard deduction rate for medical or moving mileage was also raised: $0.19 a mile from January 1-June 30, $0.235 a mile from July 1-December 31. The mileage deduction rate for providing services for charitable organizations got no boost – for all of 2011, it is $0.14 per mile.2

Fewer cars qualified for the alternative motor vehicle credit last year. Only new fuel cell motor vehicles qualified for the tax break in 2011.1

Three healthcare changes to note. If you qualify for the health coverage tax credit (HCTC), that credit might be larger for 2011 thanks to recent law changes. Did you receive the 65% tax credit in any of the last 10 months of 2011? If so, you get to claim an additional 7.5% retroactive credit on your 2011 federal return – the HCTC was bumped up to 72.5% from 65%.3

The range of qualified medical expenses was reduced for HSAs & MSAs last year. In 2011, only prescription drugs and insulin counted as qualified medical expenses for these accounts. Another asterisk worth noting: if you took a distribution from an HSA or MSA in 2011 that wasn’t used for a qualified medical expense, the tax penalty for that increased to 20% last year.1

Lastly, take the self-employed health insurance deduction on your Form 1040 for 2011. If you are looking at Schedule SE and wondering where it went, it has migrated over to line 29 of Form 1040.1

The AMT exemption amount got another COLA. Thanks to this adjustment, you are subject to the AMT for tax year 2011 only if you earned more than $48,450 as a single filer, $37,225 if married filing separately, or $74,450 if filing jointly.1

Don’t send your return to an obsolete filing address. Some of the filing locations for federal tax returns have recently changed. Visit www.irs.gov to see where you should send your return this year – it is probably the same address as always, but check and see as it may be different.1

Finally, you get two extra days. Procrastinators, take heart: once again, the federal filing deadline this year falls on Tuesday, April 17. That’s because April 15 is a Sunday and April 16 is a holiday within the District of Columbia (Emancipation Day).1

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA. (DBA Name) and TFA are not affiliated.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Neither Transamerica Financial Advisors, Inc. (TFA)  nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.

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Citations.

1 – www.advisorone.com/2012/03/05/irs-top-12-tax-law-changes-for-2012 [3/5/12]

2 – www.irs.gov/newsroom/article/0,,id=240903,00.html [6/23/11]

3 – www.irs.gov/individuals/article/0,,id=109960,00.html [2/24/12]

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Is This Coming Your Way? and the National Debt Crisis

Posted on Saturday, 17th March 2012 by

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Starting in 2013 newly hired FERS employee’s retirement contributions will increase from .8 percent to 3.1 percent of salary. Originally this was intended to apply to all FERS employees. There is another vote pending in the house that proposes increasing all employees’ contributions by 1.5 percent that will be phased in over a three year period starting in 2013. This same bill eliminates the FERS annuity supplement for the majority of those who retire before age 62. Recently the White House proposed a 1.2 percent contribution increase for all employees twice while the House proposed a 1.5 percent increase.  Numerous proposals from the White House and Congress could potentially impact retirement benefits and employee contributions.

The upcoming budget resolution process may further impact federal employees and annuitants. Last year proposals ranged from extending the pay freeze, raising employee retirement contributions even higher, to reducing the federal work force through severe hiring restrictions. With the national debt at 100 percent of our annual Gross Domestic Product (GDP) we may all find uncomfortable times ahead.

Social Security Statements (These may not come your way if the SSA has an incorrect address)

Fran, a SSA employee, replied to my article titled Social Security – When Should I Apply and Replacing a Lost Card to clarify the issue concerning when you can expect to receive your Social Security Statement.  The latest change to the Social Security Administrations (SSA) statement program limited mailings to those age 60 and above. These statements are mailed to the address the IRS has on record. If you don’t get one, consider doing what Fran did. She obtained a copy of the IRS’s 8822 Change of Address (COA) form, completed, and returned it to the specific address listed in the form instructions for your area.

Fran went on to say that the IRS, like SSA, had a data base conversion years ago, which caused statements to go to old addresses. Similarly, but exclusively causing the SSA’s social security number history to be reversed in some cases. Your latest SSA social security number history may have your older information which is known to cause mismatches in the databases. When the IRS, Motor Vehicle Administration, and Social Security have conflicting Bio information it causes e-filing of taxes to reject and driver license renewal problems.

She strongly encourages the next generation to keep their name exactly the same among employers, Federal and State Agencies, and for the 60 plus folks to review their Social Security Statements for possible Date of Birth (DOB), name, and earnings corrections, etc.  If you’re 60 and not receiving an annual Social Security statement do as Fran suggests and submit the COA form ASAP.

My wife had a similar problem with this when she applied for Social Security in January. She listed her complete middle name on the application and the Social Security office only had her middle initial on record. They corrected it over the phone and her application was approved.

The Debt Crisis

I received a number of comments about my “Retirees Under Attack” article. Many are concerned, and rightfully so, about today’s high unemployment, housing, and education costs. Several suggested that I need to have more compassion for all who are struggling.

My frustration is with those who choose to be irresponsible including our government, not those who acted responsible and got caught in the cross fire. All of our investments, our children’s futures, retirement, Medicare, and Social Security are at risk if government doesn’t get its act together and soon. Our national debt is now 100% of our GDP, not far behind Greece’s debt level of 130% of GDP. The government is borrowing 40 cents of every dollar they spend and we can’t continue on this path. The United States is now the largest debtor nation in world history and the debt just keeps mounting each and every day.

The following chart was sent in an email recently and it puts the budget crisis into perspective better than any words I could put down on paper. It shows the scope of the problem and unfortunately the dire straights we find ourselves in today.  This chart compares the United States’ financial position to an average American family in plain simple English. The first table lists actual government budget statistics.

  • $2,170,000,000,000 – United States Tax Revenue
  • $3,820,000,000,000 – Federal Budget
  • $1,650,000,000,000 – New Debt (Federal Budget minus Tax Revenue)
  • $15,514,000,000,000 – National Debt
  • $38,500,000,000 – Recent Budget Cut

Now, remove eight (8) zeros and imagine it’s a household budget as noted below. The title for each entry was changed to a related household category:

  • $21,700 – Annual Family Income
  • $38,200 – Money the Family Spent
  • $16,500 – New credit card debts
  • $155,140 – Outstanding Credit Card Balance
  • $385 – Total Budget Cuts for Year

This really hit home for me and my wife. How long could a family continue doing this without going bankrupt and insane to boot. Having unmanageable debt would drive me CRAZY. The government knows this is a problem but continues to try and spend its way out of debt.

Imagine having a $100,000 loan and to pay it off you decide it’s best to borrow more each year without substantial payments on the outstanding debt. Have you ever heard of anyone spending their way out of debt?  Then, adding insult to injury, the government brags about the huge cuts they made a few months ago! Just how huge do you think the budget cuts were when compared to a typical family financial statement?  A drop in the proverbial bucket!

We are truly in a debt crisis. Our government must pass a balanced budget amendment to restore our financial health and ensure future Congressional bodies won’t break the bank.  You frequently hear about 10 year budget reduction plans that are passed such as the recent one a few months ago. What they don’t tell you is that after the next election the new congress is not obligated to continue with those plans and often ignores them completely. Only a balanced budget amendment will hold our representatives feet to the fire.

In my opinion we don’t have a revenue problem:  we have a chronic spending problem! We need a flat tax where undue influence from lobbyists will become a thing of the past since they won’t be able to seek and obtain preferential tax treatment. There are hundreds of billions in wasteful spending across the board and we must eliminate the fraud, waste, and abuse in all programs. Tort reform is an essential part of the equation as well along with cutting foreign aid dramatically and term limits for our Congressmen and Senators that get too powerful and indignant. It isn’t going to be easy but it is necessary to avoid a collapse like we see in Greece and around the world today.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

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TSP Basics

Posted on Sunday, 11th March 2012 by

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Over the years I’ve talked to many federal employees about their Thrift Savings Plan (TSP). Unfortunately most don’t have an understanding of what their options are at retirement.

First, let’s discuss your current TSP allocation. Does your current allocation still meet your needs and goals? What I have found is most folks seldom reallocate investment options during their working years. The issue is that when you finally sit down to prepare for retirement you may find most or all of the money in your TSP invested in more growth oriented funds C, I, and S; which may have added more risk than you were aware of. It’s a good thing to look at your account at least yearly to see if your allocation meets your specific needs and adjust your allocation to align with your personal situation.

Secondly, should you consider taking advantage of the new Roth TSP option that will be available in May. Dennis Damp wrote an article titled Roth TSP Contributions – Are They Right For You That you will find informative.

Thirdly, let’s look at the TSP options you have when you retire.

  • In-Service Withdrawal: If you’re over 59 ½ and still working you may do a one time in-service withdraw. You may withdraw the funds in cash or roll it over into a personal IRA.
  • Partial Withdrawal: After retirement you are allowed one partial withdraw. In short, if you would like to withdraw a lump sum to pay bills, go on a trip, buy a vehicle, roll to an IRA, or whatever you choose, you are allowed to do one partial withdrawal.
  • Monthly Income: You are allowed to take monthly payments. Each year you will be able to set a withdrawal amount for the year; which can be recalculated to the prior December.
  • Annuity Options: Moving your TSP to an annuity is an option. There are a number of annuity options to consider. I’ve been asked a number of times to compare and evaluate annuities available to the general public versus TSP annuity options. To be honest, annuities available to the general public typically have a higher payout. For example: let’s take a husband, age 64 and his spouse, age 60. They were looking at an annuity with joint life income with installment. The regular annuity available to the general public allowed for an approximate $100 monthly increase in income. You may ask why? In short, annuity calculations are determined based on current age, length of income period, and a current interest rate. It does make sense to evaluate your income options if you are considering the annuity option.
  • IRA Rollover: You may roll your entire TSP account into an IRA and have a few different options. One of the most common misconceptions is that you will be taxed on the entire amount should you take this option. That is not true. If you roll your entire amount directly to your new IRA using a direct or trustee-to-trustee transfer, you will not pay tax until you start taking income. You may also create multiple IRAs and transfer the funds directly to accommodate various beneficiary designations. Your IRA can be funded using various investment vehicles. Let’s explore some of our options.

IRA Funding Options:

  • Fixed Annuity: The first option would be a fixed product; which may be a fixed annuity or an income annuity. As mentioned prior, I have performed a number of analyses comparing the benefits of the annuity offered by the Thrift Saving Plan and what is available in the private market. If you’re leaning toward this option, I would evaluate what is available before making a decision.
  • Variable annuity: Variable annuities provide some living benefits that vary by insurance company and various state regulations. Variable annuities can offer a death benefit guarantee and/or a lifetime income guarantee. Most variable annuities offer a number of different choices with regard to income and growth options called riders that can be added at an additional cost to the annuity to meet your specific needs.
  • Mutual Funds: A mutual fund is a professionally managed type of collective investment account that pools money from investors to buy stocks, bonds, short-term money market instruments, and/or other securities. Your current TSP is invested in mutual funds. There are many different mutual funds offering a wide range asset class, objectives, and risk tolerance.
  • Managed accounts: Managed accounts employ third party money managers who invest in a variety of different assets including stocks, bonds, mutual funds, exchange traded funds (ETFs), etc. One of the advantages of a managed account is that fee’s are assessed on an annual basis so that there is typically no front end or back-end charge. A managed account allows you to have multiple investments, fund companies, and possibly multiple investment vehicles in one account. Since there are no sales charges assessed, you have greater flexibility to utilize different investments and different investment companies without concerns about meeting break point levels which allows you to make changes as the need arises.

Withdrawals of a tax-deferred accumulation are subject to the ordinary income tax, and possibly a 10% federal tax penalty for withdraws prior to 59 ½. Guarantees are backed by the claims –paying abilities of the issuing insurance company and do not apply to the investment return or principal value of a sub-account.

Before investing, consider the mutual funds and/or variable annuity’s investment objectives, risks, charges, and expenses. Contact Paul Risser for a prospectus containing this information. Read it carefully.

In short, your options are quite varied when looking at your specific financial situation. Take the time to asses what’s best for you. Seek professional help to determine answers to your retirement questions such as:

  • How would you like to take your income in retirement?
  • Do you want the flexibility to pick and choose and make changes as the need arise?
  • Do you want to take lump sum withdrawals or change your monthly income amount anytime you wish?
  • Do you prefer to be in a more static position where you’re allowed one partial withdrawal and a fixed income?

There’s no right or wrong answer, but you should be informed so you can make a decision that best fits your financial situation. I’m fully licensed to be able to assist you with your personal financial questions and would be happy to help.

Paul H Risser, host of this site’s Financial Planning Forum, is an Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA. TFA and Risser Financial Services are not affiliated.

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

LD42986-2/12

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Roth TSP Contributions…Are They Right For You?

Posted on Friday, 2nd March 2012 by

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This May the Thrift Savings Plan is launching a new investment option that provides more flexibility for TSP participants. Federal employees and military members will be able to allocate their contributions between a Roth and the traditional plan shortly. The flexibility is in the tax treatment of the employee’s contributions and it may be beneficial to look closely at this option.  A Roth is one of the very few investments that all capital gains, dividends and interest are 100% tax free if held in your account for 5 years.  I converted one of my retirement accounts to a private sector Roth a year ago to take advantage of the long term tax advantages and my Roth IRA has gained 23%; all of the gains, if withdrawn after 5 years, will be tax free.

The down side is that your Roth contributions are taxed as regular income unlike the tax deferred traditional TSP contributions.  Fortunately you don’t have to opt for one or the other. You can allocate your contributions in whatever percentage you desire to either option.

There is much to consider before deciding on whether or not a Roth is right for you.  You will either pay taxes now for Roth accounts or defer them until retirement with a traditional TSP account. Other Roth advantages are that you don’t have to take a minimum distribution at 70 1/2 like your must take with the traditional TSP account, and your heirs inherit the account tax free if the account was open for at least 5 years.

If you believe you will be in a lower tax bracket when you retire the traditional plan may be your best option. The problem is that we don’t know what future tax rates will be and an incorrect assumption now could cost you big time down the road.  Remember the old adage: don’t keep all of your eggs in one basket.  I subscribe to that philosophy.  If they would have had a Roth available when I was still working in government I would, even at my age, placed a portion of my contributions in a Roth.

Situations are different for everyone. Whether you would be better off making traditional or Roth contributions depends on your income tax rate now and in the future and other factors.  For example, you might benefit from making Roth TSP contributions if:

  • You are in a low tax bracket now, but think your tax rate may be higher in retirement. With Roth, your contributions are taxed at your current lower rate, and you avoid paying taxes at the expected higher rate in the future.
  • You are not in a low tax bracket now, but anticipate that your marginal Federal tax rate will increase in the coming years.
  • You want tax diversification and see an advantage in making after-tax contributions so that you can have tax-free withdrawals in retirement.

Many savvy investors prefer Roth IRAs. Active managers strive to achieve substantial tax free retirement income by making prudent and timely investment decisions.

For more information on Roth TSP options click on the following links:

Updates

  • Did you know that you can request a presidential letter for retiring employees from former presidents? I didn’t until Roger, one of our site visitors, asked this question recently. Retirees may appreciate a letter from a former president rather than a sitting president for whatever reason. We added contact information for all living former president’s staff on our site.
  • Retirement Savings – My daughter is going on vacation this summer and was having a difficult time finding reasonable car rentals. The best deal she could find was $350 for a weekly rental fee until she bid $220 for a car rental and won the bid for a savings of just under 40% on the Priceline site!  I added a link to the Priceline online bid service to our list of other ways to save in retirement.
  • Retiree Job Postings – We continue to post new job listings on our Jobs Board from employers nationwide that are looking for retired federal employees. Many retirees supplement their retirement income with full or part time work. Visit our Jobs Board to review the listings.

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Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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RMD PRECAUTIONS & OPTIONS

Posted on Sunday, 26th February 2012 by

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Meeting your obligations & finding some opportunities.

Presented by Paul H. Risser

After you turn 70½, the IRS requires you to withdraw some of the money in your retirement savings accounts each year. These withdrawals are officially called Required Minimum Distributions (RMDs).1

While you never have to make withdrawals from a Roth IRA, you must take annual RMDs from traditional, SEP and SIMPLE IRAs, pension and profit-sharing plans and 401(k), 403(b), TSP, and 457 retirement plans annually past a certain age. If you don’t, severe financial penalties await.1

If you are still working as an employee at age 70½, you don’t have to take RMDs from a profit-sharing plan, a pension plan, or a 401(k), 403(b),  457 plan, or TSP . Your initial RMDs from these accounts will only be required after you retire. However, you must take RMDs from these types of accounts if you own 5% or more of a business sponsoring such a retirement plan.2

You must take RMDs from IRAs after you turn 70½ regardless of whether you are still working or not.2

The annual deadline is December 31, right? Yes, with one notable exception. The IRS gives you 15 months instead of 12 to take your first RMD. Your first one must be taken in the calendar year after you turn 70½. So if you turned 70½ in 2011, you can take your initial RMD any time before April 1, 2012. However, if you put off your first RMD until next year you will still need to take your second RMD by December 31, 2012.1

Calculating RMDs can be complicated. You probably have more than one retirement savings account. You may have several. So this gets rather intricate.

  • Multiple IRAs. Should you have more than one traditional, SEP or SIMPLE IRA, the annual RMDs for these accounts must be calculated separately. However … the IRS gives you some leeway about how to withdraw the money. You can withdraw 100% of your total yearly RMD amounts from just one IRA, or you can withdraw equal or unequal portions from each of the IRAs you own.
  • 401(k)s and other qualified retirement plans. A separate RMD must be calculated for each qualified retirement plan to which you have contributed. These RMD amounts must be paid out separately from the RMD(s) for your IRA(s).
  • Inherited IRAs. The same applies – a separate RMD must be calculated for each inherited IRA you have, and these RMD amounts must be paid out separately from RMD(s) for your other IRA(s).1

This is why you should talk to your financial or tax advisor about your RMDs. It is really important to have your advisor review all of your retirement accounts to make sure you fulfill your RMD obligation. If you skip an RMD or withdraw less than what you should have, the IRS will find out and hit you with a stiff penalty – you will have to pay 50% of the amount not withdrawn.2

Are RMDs taxable? Yes, the withdrawn amounts are characterized as taxable income under the Internal Revenue Code. Should you be wondering, RMD amounts can’t be rolled over into other tax-deferred accounts and excess RMD amounts can’t be forwarded to apply toward next year’s RMDs. 2

What if you don’t need the money? If you are wealthy, you may come to see RMDs as an annual financial nuisance – but the withdrawal amounts may be redirected toward opportunities. While putting the money into a savings account or a CD is the usual route, there are other options with potentially better yields or objectives. That RMD amount could be used to…

  • Start a grandchild’s education fund.
  • Fund a long term care insurance policy.
  • Leverage your estate using life insurance.
  • Diversify your portfolio through investment into stock market alternatives.

There are all kinds of things you could do with the money. The withdrawn funds could be linked to a new purpose.

So to recap, be vigilant and timely when it comes to calculating and making your RMD. Have a tax or financial professional help you, and have a conversation about the destiny of that money.

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

LD42643-01/12

Citations.

1 – www.hartfordinvestor.com/servlet/Satellite?c=Page&cid=1284290138050&pagename=Investor%2FPage%2FCommon [9/23/11]

2 – www.irs.gov/retirement/article/0,,id=96989,00.html#8 [1/5/12]

Learn more about your benefits,  employment, travel, and financial planning issues on our site and visit our Blog frequently at https://fedretire.net to read all forum articles.

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Posted in ANNUITIES / ELIGIBILITY, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Social Security – When Should I Apply and Replacing a Lost Card

Posted on Monday, 20th February 2012 by

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There is much to consider before applying for Social Security. I’ll be 63 in May and my wife turns 62 this year. Do you need your Social Security card to apply? Many misplace their card and it isn’t uncommon to lose a card that you’ve had around the house for 40 years or more. You don’t need your Social Security Card to apply, however the Social Security Administration recommends replacing lost cards because you may need them when you sign up for other programs down the road.

If you misplaced your card complete the SS-5 form. You must send in original documents or copies certified by the issuing agency to prove your identity. They will return your originals if you include a SASE envelope with your application. You can also take the application and documentation to your local Social Security office and they will copy and return them to you during your visit. Many opt to visit their local office to avoid the risk of losing the original documents. You only need one form of documentation for a replacement card except in certain situations. For example, if you take your spouse’s name in marriage you then must also provide an original or certified copy of your marriage certificate.

That was the easy part; now you have to navigate the many options that will impact you and your family for the rest of your life:

  • Do I take my benefit at 62 or wait?
  • Does my spouse’s income impact my benefits?
  • Can I continue to work after I apply and receive my full benefit?
  • If my benefit is considerably lower than my spouses should I wait and take a spousal benefit when he/she applies or take mine now and apply for an increased spousal benefit later?

Each person’s situation is unique and must be evaluated based on their circumstances. The book titled Social Security, Medicare & Government Pensions can help you evaluate your situation. If you have specific questions that need answered call Social Security at 1-800-772-1213 or visit their web site at www.socialsecurity.gov. Social Security representatives are available to help Monday through Friday 7:00 am to 7:00 pm. If you can’t get answers online or through their comprehensive voice prompts system when you call just enter “0” to exit the voice prompts and be routed to an advisor quickly. Waits can be 5 to 30 minutes or longer during peak periods.

OK, you’re 62 this year, what are you going to do?

There are many things to consider. If your full retirement age is older than 65 (that is, you were born after 1937), you still will be able to take your benefit at age 62, but the reduction in your benefit amount will increase compared to those who were born in 1937 or before. My Full Retirement Age (FRA) is 66 and if I elected to take a benefit at age 62 I would receive 25% less than what I would have received if I waited until full retirement age; a significant decrease. Each year, as you approach full retirement age, the reduction decreases. At age 63 my reduction would be 20% and at 65 just 6.66%. The longer you wait to collect the higher your payment will be clear up to age 70. I’m also in the CSRS system and subject to the Windfall Elimination Provision that will reduce my benefit by a predetermined amount.

What I was thinking about more than anything else was what government will do to stabilize Social Security. My article titled “Retirees Under Attack,” that I wrote earlier this month, shows you where I’m coming from. Numerous articles and studies including internal government audits confirm that the Social Security fund will be broke by 2036 and sooner if they continue to extend the payroll pay tax cuts that fund Social Security. Nothing is for free and this “Tax Holiday” is really another blow to the Social Security Trust Fund and to seniors collecting benefits. The powers to be will have to work this out and I believe that benefits for annuitants and those close to retirement will not be impacted, otherwise reform will never work and many will suffer. The changes will more than likely impact those younger than 55 and be phased in over time. However, only time will tell.

Another concern for couples that both work is whether the other spouse’s income impacts their ability to collect benefits especially when a couple files a joint return and the joint income exceeds the $14,640 earnings limit. The good news is that each person individually applies for benefits and only that person’s earned income is used to determine eligibility. For example; Joe and Ann are married, Ann is age 62 working part time for a non-profit earning $12,000 a year and Joe is 63 with an annual salary of $82,000 a year. Ann wants to collect benefits now. Joe’s wages exceed the earnings limit so he doesn’t foresee collecting Social Security until age 66, his FRA. At age 66 Joe can start collecting his benefits, if desired, and there are no limits on the amount he can earn. Ann will continue working at the non-profit and because her wages are less than the $14,640 annual earnings limit she can collect her full salary and Social Security benefits now instead of waiting to collect at a later date. If Ann’s earnings were in excess of $14,640 she could continue to work however Uncle Sam would withhold $1 in benefits for every $2 of earnings in excess of the exempt amount.

The earnings limit is only a factor for earned income; income from investments and rental property are not included and will not impact your Social Security payments at any age.

Joe’s Social Security benefits will be much higher than his wife’s. Ann still wants to collect Social Security at age 62 and when Joe starts collecting benefits at age 66 switch to half of Joe’s benefit. Basically, a spouse can collect either half of the spouse’s benefit or theirs, whichever is greatest. The key is that you can only elect half of your spouse’s benefit when they elect to take their benefit and not before.  Since Ann took her benefits early at age 62 the amount she can collect 3 years later at age 65 is 46% of the spouses benefit not the full 50%. If she waits to switch when she is at her FRA, age 66, she would receive 50% of his benefit.

Another consideration is death benefits. What happens if Joe unfortunately dies before reaching his FRA? Ann would receive between 71.5 to 99% of his basic amount under the death benefit rules depending on her age. If she was 65 when Joe died, Ann would receive 97% of his benefit and would give up her lower benefit. If she is 66 or older when Joe passes on she would get 100% of his benefit even though Ann took her benefit early at age 62. She would qualify for his survivor benefit that was not reduced because he didn’t collect until at or after he reached age 66.

Receiving Benefits While You Work – The PLUS Side

When you reach your full retirement age, you can work and earn as much as you want and still receive your full benefits as described above. If you are younger than full retirement age and if your earnings exceed $14,640/yr., some of your benefit payments during the year will be withheld.

This does not mean you must try to limit your earnings. If Social Security withholds some of your benefits because you continue to work, they will pay you a higher monthly benefit amount when you reach your full retirement age.

If you continue to work and earn more than the exempt amount, you should know that it will not, on average, reduce the total value of lifetime benefits you receive from Social Security and may actually increase them.

Here is how it works: after reaching full retirement age, Social Security will recalculate your benefit amount to give you credit for any months in which you did not receive some benefit because of your earnings. In addition, as long as you continue to work, they will check your record every year to see whether the additional earnings will increase your monthly benefit. For more information on this subject download publication # 05-10069 titled “How Work Affects Your Benefits.”

Signing Up For Benefits

Social Security offers an online retirement application that you can complete in as little as 15 minutes. You can apply from the comfort of your home or office 24/7. There’s no need to drive to a local Social Security office or wait for an appointment with a Social Security representative. In most cases, once your application is submitted electronically, you’re done. There are no forms to sign and usually no documentation is required. Social Security will process your application and contact you if any further information is needed.

If you cannot apply online you can call 1-800-772-1213 to make an appointment to avoid any loss of benefits.

Social Security has suspended issuing Social Security Statements due to budget concerns. Use their online Social Security Estimator listed below to determine your benefit. My wife and I used the online calculator to determine our benefits. They use your actual work history file and the reports took less than 5 minutes to generate for each of us. The annual Social Security statements that we all received in the past and the online benefit calculator don’t include the WEP reduction for CSRS employees. To determine the impact WEP will have on your benefit use their online WEP Calculator. The maximum WEP benefit reduction for 2012 is around $370.

Other Helpful Resources

Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Request a Retirement Benefits Summary & Analysis from a local adviser. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, SOCIAL SECURITY / MEDICARE

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Retirees Under Attack for Doing the Right Thing – AGAIN!

Posted on Friday, 10th February 2012 by

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A recent Pew Research Center report titled The Rising Age Gap in Economic Well-being contends that the old prosper relative to the young and they provide abundant statistics to prove their assumption. I’m tired of the constant subtle attacks on anyone that did the right things throughout their lives; saved, worked hard, spent responsibly, paid off their mortgages AND DID WITHOUT TO GET AHEAD.

Reports like this are referenced in studies and used by the media to support claims of inequality to foment discontent and resentment for those who have acted responsibly.  Just look at the 99 Percent and the Down with Wall Street movements. Facts can be interpreted in many ways and when you don’t fully evaluate the root causes and underlying precepts you often come to partial truths or misinterpretations.

This report infers that retirees, and those over 65 still working, that paid off their mortgages, saved for a rainy day, and have an average net worth of $170,000 — this figure includes the value of their homes —  have so much more than those under age 35 and the disparity is growing.  They also mention that those over age 65 receive cost of living adjusted Social Security which puts the younger group at a disadvantage!  Surely they know that the younger generation pays Social Security and FICA taxes so they too someday will have these same benefits assuming the President and Congress stop the excessive spending and balance the budget.

According to the Pew Report, “In 2009, households headed by adults ages 65 and older possessed 42% more median net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984. During this same period, the wealth of households headed by younger adults moved in the opposite direction. In 2009, households headed by adults younger than 35 had 68% less wealth than households of their same-aged counterparts had in 1984.”

They go on to  say, “ As a result of these divergent trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the typical household headed by someone in the younger age group–$170,494 versus $3,662 (all figures expressed in 2010 dollars). “

Why should any of this be news? Typically retirees had decades to build their nest egg and what business is it of anyone other than the person or persons who did what they needed to do to prepare for retirement… Today, those who prepared and sacrificed to secure their later years are now looked upon as greedy, selfish, and RICH!!! Instead of being admired for owning up to their responsibilities they are chastised for not sharing the wealth. When has owning property, honor, personal initiative, self sacrifice, hard work, and being responsible for your actions become something to loath? When did it become wrong or selfish to save for a rainy day and actually own property rather than have it mortgaged to the hilt?

Another article in the Wall Street Journal titled Aging and Broke relays an often times more realistic picture of what many face in retirement and it isn’t pleasant. According to this report, “The problem has been building as more Americans age 55 and older have lost jobs or run through life savings.”  The reasons for this are many and we in retirement face them daily. Even those who have retirement resources now because they prepared face the uncertainties of what lies ahead.” Today 20% of adults over 65 now live with relatives, up from 17% in 1990 due to the times.

The recession, housing bubble, student loans, credit card debt, and unemployment contribute to much of this inequity. It is reported that student loan debt has increased dramatically and one of the precepts of the Occupy Movement is to forgive the Trillion dollar student debt loans! I watched TV interviews where the Occupy supporters demanded free college tuition, housing, medical and everything else imaginable. Who will pay for this? You guessed it; anyone that has anything, and who are they saying has the most in this report? SENIORS and it will also be all those working hard in all income groups!

When my wife and I purchased our first home in Topeka Kansas in 1973 the banks refused to include my wife’s income to qualify for the loan.  I was just discharged from the military working for the Department of Defense as an avionics repairmen and my wife was working for the State of Kansas. They advised us it was best to rely on one income for the home loan for obvious reasons. What if my wife would be laid off or stop working to be a stay-at-home mom?  Now doesn’t that sound rational and reasonable? Didn’t many lose their homes just for that reason? They depended on two incomes and then borrowed irresponsibly, often up to 100% of the home’s value with no down payment. Then they obtained adjustable interest rate mortgages with payments that went through the roof when the bubble burst.

This same group took out second mortgages to buy home furniture they really couldn’t afford. Then they used easy credit to purchase cars, vacations, and luxury items that they didn’t really need.  Too many lived well beyond their means simply because they had to have it all now. Yet, the NOW Generation is suffering. Shouldn’t they? If they spent recklessly and continue on this same path it is their problem to deal with not societies as a whole. If you live life irresponsibly you and only you are responsible for the consequences.

Many good hard working people lost their jobs and homes during the recession and I’m not berating them.  It happens all of the time and it’s tragic under any circumstances. However, we seldom hear about the excesses and the many who acted irresponsibly. We too often are fed a diet of the responsible failures without any thought to all of the others who just did the wrong things for the wrong reasons.

This same carelessness extends to student loans. Many leave college with $60,000 or more in debt that won’t be paid off for decades.  Unfortunately we own this debt through Sallie Mae, a government entity, and the debt is fast approaching 1 trillion dollars.  Is it unfortunate or a blessing that they owe this money?  Didn’t’ they get an education and a hand up, not a hand out? They lived on that money and used it for student housing, books, and tuition along with some living expenses for up to 4 years or more! They choose to go to school and in many cases attend additional semesters because they changed their major several times along the way or took too few credits each semester to give them more me time.

Many opt for college instead of community colleges and trade schools because they make it so easy today to get grants and tuition assistance. It’s almost a rite of passage today unlike in my day where the draft was our rite of passage with a staring pay of $98 a month, a two to four year commitment, and a path to Vietnam and other undesirable locations.  We put our education and aspirations on hold for the greater good of our country and in most cases not by choice.

If graduates and students are upset about college expenses why don’t they picket the source of their discontent? It’s the universities; many publicly funded that charge outlandish tuition. There is little incentive to cut costs. Colleges pay professors huge salaries for working only a fraction of the year, offering sabbaticals at full salary, and they can’t be fired because of tenure. Then to add insult to injury they can often retire in their 50s with full salary and health care for life on our dime.

These same institutions charge tuition, take money from the states, federal government, and alumni and still can’t manage to control costs. What is particularly perplexing is the fact that government is always saying we have to improve education and they opt to throw more money into a system that is failing, and by failing I mean failing our children. Most of the additional money they receive goes for salary and benefits most everyone else would give their eye teeth for. Our entire education system must become student centered instead of teacher/administration centered as it is today.

There are many issues to consider when weighing this report and others like it and if you look under the surface and at the substance of these issues you come to a completely different conclusion.

The Pew report goes into great depth to show just how much wealthier the aged are today and how this wealth gap is growing at an alarming rate. I read the Pew report front to back and the more I read the more alarmed I became of the class warfare that is being waged today across this country. Our President constantly talks about everyone paying their fair share and asks audiences why the rich shouldn’t pay more.  He never mentions that the top 10%, according to the Congressional Budget Office, pays more than half of all federal taxes and 70% of federal income taxes.

Redistribution of wealth doesn’t stop with what many of us consider rich. These contentious attacks ripple across all income groups. When did you ever consider that a retiree with a total net worth of $170,000 — including the value of their homes — to be excessive? The spreading of the wealth mantra, perpetuated through our tax code and under what they call social justice Initiatives, doesn’t stop at your neighbor’s door or in uptown communities.  It eventually spreads to ALL groups and before you know it even what you considered to be sacrosanct; your home and retirement savings are at risk.

Property rights and free enterprise are the cornerstones of our republic and we should ALL be alarmed by those who espouse “Social Justice” and want to spread the wealth — especially when they are talking about YOUR ASSETS and not theirs.

Updates

Senior Discounts – We updated our section on Ways to Save and Econoimize in Retirement adding offers for prescription eye glasses for as little as $39, discount hotel reservations, car rentals, and vacations.

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Retiree Job Postings

We continue to post new job listings on our Jobs Board from employers nationwide that are looking for retired federal employees. Many retirees supplement their retirement income with full or part time work.

Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Request a Retirement Benefits Summary & Analysis from a local adviser. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE

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Pension Survivor Alert – Don’t Let This Happen to You

Posted on Thursday, 9th February 2012 by

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A few months ago, while meeting with a federal employee couple, I came across a story that I think is worth repeating. I’ve changed the names and some of the details, but the overall theme of the story is true.

Mr. Jones was a good man and longtime CSRS government employee with many years of service. His wife was not a federal employee. Mr. and Mrs. Jones had a wonderful life together. One day, many years into Mr. Jones’ retirement, he fell ill and passed away. Mrs. Jones was greatly distraught and the last thing she wanted to do was worry about the bills coming in the mail. You see, up to her husband’s passing, all their benefits were being paid by his monthly pension and there were no worries. Now, however, she continues to get bills and can’t understand why.

Well, the reason why Mrs. Jones was getting bills in the mail was because someone had approached Mr. Jones years earlier and talked to him about Pension Maximization.

At the time, this may have seemed like a wonderful thing to do. However, Mrs. Jones is now in her 80’s and had long forgotten that she would only be receiving a small retirement benefit following the passing of her husband.

So, what is Pension Maximization and how does it work? Pension Maximization is giving your spouse a lesser benefit when the primary annuitant passes away. Under the CSRS system an annuitant may give their spouse between 0% to a 55% benefit. As a FERS employee, an annuitant may give their spouse either a 0%, 25%, or 50% benefit. To continue health benefits in the CSRS system you must give your spouse at least a 1% benefit and a 25% benefit under FERS. You then take the difference and purchase a life insurance policy to make up the difference in income in retirement.

Let’s do an example:

Bob is a FERS employee and is nearing retirement. His full gross annuity will be about $3,000 a month. He can give his spouse a survivor benefit of $0, $750, or $1,500. It costs Bob about $150 a month (5%) to give his spouse a $750 monthly benefit and $300 (10%) a month to give his spouse a $1,500 monthly benefit. The idea of pension maximization is to give Bob’s spouse a $750 benefit and take the $150 and buy a life insurance policy. Bob would then purchase a life insurance policy large enough to provide $750 of monthly income.

What Mr. Jones did in the story above was to give his wife a very small survivor benefit which was enough to keep health benefits at the time, but not enough to pay the premium. So, Mrs. Jones lost her health care coverage because she didn’t know she needed to pay any premiums. Another issue to consider is that Bob’s annuity increased most years due to COLAs and at the time of his death his wife would have received a much higher amount. The insurance coverage did not increase annually to keep up with the CPI and his annual COLA adjustments. Typically, due to COLA adjustments, an annuitants’ annual payment increases dramatically over a 20 year period. One retiree recently reported in one of the articles on this blog that his annuity increased 19% since he retired in 2005 not counting any compounding! Look under Updates in the referenced article under 2012 COLA.

I’m not saying I’m totally against Pension Maximization, but it’s not the first time I’ve heard a story like the one above. If a federal employee is planning to give a spouse anything other than the maximum benefit I would strongly encourage you to inform other family members. It’s important for family members to understand that when either Mom or Dad passes away bills might need to be paid.

In my experience I have found that it’s pretty difficult to purchase a permanent life insurance policy with the difference of premium saved through Pension Maximization. The one thing federal employees may not understand; according to OPM if your spouse predeceases you, there is paperwork to fill out and you “may” get your annuity reinstated in full.

Paul H Risser is an Investment Advisor Representative with and securities and investment and investment advisory services offered through Transamerica Financial Advisors, Inc. Member FINRA, SIPC, and Registered Investment Advisor.

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Learn more about your benefits,  employment, travel, and financial planning issues on our site and visit our Blog frequently at https://fedretire.net to read all forum articles.

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Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS

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