Last Call for Social Security Benefits File-And-Suspend – April 29 2016

Last fall, the Bipartisan Budget Act of 2015 changed the rules to eliminate two popular Social Security claiming strategies for married couples: File-and-Suspend, and Restricted Application.

Who should be considering this?

Anyone who has at least met the full retirement age of 66, and is not yet age 70, should be considering whether to submit a file-and-suspend request by April 29.  If you or someone you know is within this age range, please share this article and be aware that you/they have a very short window to meet the deadline. Anyone who wants to be “grandfathered” under the old (current, and more favorable) rules has only one week left to complete their Social Security application and suspension request by the April 29 deadline!

What is File-and-Suspend?

On the surface, it seems too good to be true.  Let’s say you have a married couple, where (let’s say) the husband has earned higher yearly income than his wife.  That means he has contributed more to Social Security over his working life.  The husband files for Social Security benefits at full retirement age (currently age 66) and then immediately files to suspend those benefits.

As a result of this simple maneuver, the wife is now entitled to immediately receive Social Security spousal benefits equal to half of the husband’s full retirement benefits that were just suspended.  She would do this if 50% of the husband’s benefit is higher than she would have received if she had simply claimed her own Social Security payments.

Because he suspended his benefits, the husband can continue working, and wait until age 70 to start receiving Social Security checks in his own name.  Why would he do that?  Because each year of deferral allows him to accumulate more credits—effectively raising his monthly benefits 8% a year, which is considerably higher than the inflation rate.  At that time, the wife would stop claiming the husband’s benefits and start receiving her own Social Security checks.  If she was working at the time, she might have raised the amount she could claim under her own name.

Presto!  More money now, more money later.

The original rationale behind the file and suspend strategy was to encourage more seniors to continue working.  The rationale behind ending it is that it was becoming a drain on the Social Security system.  Moreover, Congress was looking for money to offset a huge increase in Medicare Part B premiums for individuals not yet receiving Social Security payments.

Notably, the tactic is a moot point for anyone who has already claimed benefits, or who doesn’t plan to delay benefits going forward. Nor is file-and-suspend relevant for widows (who don’t need file-and-suspend to coordinate between retirement and survivor benefits), nor for divorcees (who rely on the Restricted Application strategy instead, which remains available after April 29 for anyone who was born in 1953 or prior).

Nonetheless, for married couples (and some parents with children) who are in the age 66-70 window and have not yet claimed their benefits, but where one person could activate a spousal or dependent child benefit for someone else while delaying their own benefit, only a small time window remains to submit a File-and-Suspend request before the rules are changed forever! And arguably, anyone who is single and doesn’t care about spousal benefits, but simply wants to preserve the right to “undo” and reinstate their delay decision in the next few years, may want to consider submitting a request to File-and-Suspend by April 29 as well!

If you or someone you know wishes to inquire or apply for this benefit, you should visit www.ssa.gov or call your local social security office.

If you would like to discuss your social security benefits situation or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Sources:
http://www.csmonitor.com/Business/Saving-Money/2015/1102/Social-Security-This-strategy-to-maximize-benefits-may-soon-disappear

http://www.dailylocal.com/business/20151102/colliton-budget-plan-ends-social-security-file-and-suspend

The MoneyGeek thanks guest writers Michael Kitces and Bob Veres for their contributions to this post.

An Estate Plan for your Digital Assets

In recent years, a new category of assets has appeared on the scene, which can be more complicated to pass on at someone’s death than stocks, bonds and cash.  The list includes such valuable property as digital domain names, social media accounts, websites and blogs that you manage, and pretty much anything stored in the digital "cloud."  In addition, if you were to die tomorrow, would your heirs know the pass-codes to access your iPad or smartphone?  Or, for that matter, your e-mail account or the Amazon.com or iTunes shopping accounts you’ve set up?  Would they know how to shut down your Facebook account, or would it live on after your death?

A service called Everplans has created a listing of these and other digital assets that you might consider in your estate plan, and recommends that you share your logins and passwords with a digital executor or heirs.  If the account or asset has value (airline miles or hotel rewards programs, domain names) these should be transferred to specific heirs—and you can include these bequests in your will.  Other assets should probably be shut down or discontinued, which means your digital executor should probably be a detail-oriented person with some technical familiarity.

The site also provides a guide to how to shut down accounts; click on “F,” select “Facebook,” and you’re taken to a site (https://www.everplans.com/articles/how-to-close-a-facebook-account-when-someone-dies) which tells you how to deactivate or delete the account.  Note that each option requires the digital executor to be able to log into the site first; otherwise that person would have to submit your birth and death certificates and proof of authority under local law that he/she is your lawful representative.  (The executor can also “memorialize” your account, which means freezing it from outside participation.)

The point here is that even if you know who would get your house and retirement assets if you were hit by a bus tomorrow, you could still be leaving a mess to your heirs unless you clean up your digital assets as well.

Sources:

https://www.everplans.com/articles/a-helpful-overview-of-all-your-digital-property-and-digital-assets

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

Recovery—For How Long?

On Tuesday of this week, the U.S. stock markets (S&P 500 index) went up 2.39%, the highest one-day return in a month. Analysts attributed the rise to a variety of economic news that suggested that the American economy is not, after all, plunging into recession. The buoyant mood among investors may not last, but for many, it’s a welcome sign that things may not be as gloomy as they seemed just a month ago.

In fact, the S&P 500 only dropped about 12%, from 2078.36 at the end of December 2015 to the bottom of 1829.08 on February 11—despite widespread predictions of a 20% bear market. Since then, it has risen on shaky legs back to more than 1999, just 79 points from breaking even on the year. One more day like Tuesday would erase nearly all of the damage in 2016.

The good economic news involved construction spending, which reached its highest level since 2007. Oil prices were also gaining ground, although it’s hard to see why the average American would find reason to cheer about that. In addition, new orders and inventories stabilized in the manufacturing sector, after experiencing downturns in the last quarter of 2015.  On Friday, The February jobs report showed that the economy created 242,000 jobs and unemployment remains at a low 4.9%.  Other factors include the possibility that U.S. stock investors may finally have decided that declines in the Chinese markets are not going to directly affect the value of American-based businesses.

None of this means that we know what will happen next. Neither we nor any of the pundits you see on the financial news have any idea whether that long-awaited 20% decline will materialize, or the markets will continue to recover and we’ll all look back on February 11 prices as a great time to buy. But it’s worth reflecting on how unexpected this latest rally has been at a time when it seemed that all the news pointed to more pain and decline. Anybody who believed the pundits and fully retreated to the sidelines after the January selloff is now sitting on losses and wondering whether to jump in now and hope the gains continue, or wait and hope for another downturn, and risk losing even more ground if this turns out to be a long-term rally. This is not to say that hedging or taking some bull market profits off the table is still not a good idea. All-or-nothing investing is almost never a good idea.

We can never see the next turn in the market roller coaster, but long-term, the markets seem to operate under the opposite of the pull of gravity. You and I know with some degree of certainty in which direction the next 100% market move will be, even if we can’t pinpoint when or where.

Sources:

http://www.businessinsider.com/the-stock-market-is-over-china-2016-2

http://www.bloomberg.com/news/articles/2016-02-29/japan-futures-down-on-strong-yen-as-china-stimulus-buoys-aussie

http://finance.yahoo.com/news/wall-st-open-higher-oil-143344528.html

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

Focus on the Forest, Not the Trees, of Investing

It's a message worth repeating. Investing is a matter of focus. Despite recent disappointments in stock market performance, investors who are willing to assess the whole universe of investment choices may find that the market continues to offer new possibilities. And those who keep their sights set on long-term investment goals may find that a "forest, not trees" approach to investing offers the greatest potential for success.

Focus is especially important for retirement savers -- those who are still in the accumulation stage -- as well as for retirees who need to keep the potential for growth alive in their portfolios.

Are You a Micromanager?

As a retirement saver, your employer-sponsored retirement plan gives you the freedom to make your own investment decisions. And because you can easily change plan investments, you may find yourself becoming a micromanager. That's an investor who changes investments frequently because of daily market movements instead of focusing on the big picture: a long-term investment strategy. But "chasing returns" by moving your money into whatever investment type or stock market sector happens to be doing well at the time rarely pays off in the long run.

The Unknowable Future

The problem with chasing returns is that it's virtually impossible to predict how long a particular investment or market sector will continue to be a top performer. Eventually, another investment or sector will probably take over the lead, and there will be little or no advance warning. That can leave you in the lurch if you changed the investment mix of your retirement plan account based strictly on recent performance.

The Solution: Keep a Long-term Perspective

You may be much better off by the time you retire if you use a "forest, not trees" perspective when you invest. Concentrate on your goal, and choose an investment mix with the potential to help you reach that goal over time.

Your retirement plan offers several investment options, allowing you to choose a well-diversified investment mix for your account. The idea behind long-term investing is to choose a mix that offers you a realistic opportunity to achieve gains while reducing the overall risk to a level you are comfortable with.

After you've chosen your investments, you shouldn't ignore market and economic developments. But you'll generally want to stay with your plan unless you decide that changes in your personal situation or risk tolerance make an adjustment necessary.

If you're a "forest, not trees" investor, you can be much less concerned with what the markets do on a day-to-day basis. You'll be free to switch your investments, but you won't feel compelled to make a move every time the markets zig or zag.