“Real World” Personal Strategy Blog
Some Signs of Life in this Economy
March 9, 2009 by Birmingham Tax Professional, Martha Echols, CPA
“Do not anticipate trouble or worry about what may never happen. Keep in the sunlight.”
- Benjamin Franklin
Last week, I gave six basic steps for being prepared for whatever this economy might throw in your direction. It seems that we’re all starved for some good news–and practical advice for finding “streams in the desert”!
So, may I point out a few more glimmers of hope?
Nationally, consumer incomes–after tax and adjusted for inflation–have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices.
Housing affordability is at a record high around the country. Purchasing-manager surveys are now bottoming out. Fear-based credit spreads continue to decline. The money supply is expanding rapidly. The treasury yield curve is indicating we’re moving away from the worst. And commodity prices are bottoming.
[Some of that is professional money stuff...but the point is that we CAN see some good indicators out there!]
With all of the government stimulus and aid beginning to fly around, we’ll (hopefully) begin to see even more good news. The government is spending trillions of dollars. Hopefully that will be a good thing! [and, for some perspective on that figure, check this out: http://www.pagetutor.com/trillion/index.html ]
So…speaking of government aid, I thought I would take this week’s note to speak to those on the verge of retirement and have a frank conversation about Social Security benefits. If you’re not yet close to filing for Social Security, send the address to this page to somebody who is…they’ll thank you!
Read on…and post your feedback!
“Real World” Personal Strategy
Social Security Decisions Can Make or Break Your Retirement
Social Security benefits can represent a big stack of cash. A typical monthly benefit of $2,200 has a present value of well over $500,000.00! So, despite the fact that it seems like an easy decision, you need to consider all your Social Security options carefully to avoid making a costly mistake.
Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health 2) income before retirement and 3) income during retirement and 4) taxes.
Retirees cannot rely on conventional wisdom! Simplistic “rules” such as “Always file for early benefits” or “You need to stop working to receive benefits” are NOT always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.
At least four methods are used when electing how to take Social Security. And if you’re married, the two of you can mix and match these in more than 16 different ways (!). Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.
So these methods differ significantly… they depend on your historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more. Filing options include “early filing,” “standard filing,” “delayed filing,” “file and suspend,” and many combinations of these options for married couples. It is DEFINITELY worth careful study and analysis of each option… yet a majority of Americans make their choice impulsively and emotionally.
The decision is even more crucial for women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.
So couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime. Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully.
Unfortunately, many people file after considering only one or two options in isolation. Even worse–the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.
Before filing, then, you obviously should be informed about all the options. To begin, you need to know your personal Social Security earnings and the projected benefits for both you and your spouse. You can request an estimate at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of “Retirement Benefits” (Publication No. 05-10035) at the SSA’s site.
Social Security planning is crucial for everyone. People with significant assets should carefully consider both the lifetime benefits and tax consequences of Social Security in light of their overall portfolio strategy. For the less well-off, Social Security benefits will dictate their retirement lifestyle. Proper planning could well determine what they can afford to eat.
There’s obviously a lot to consider here. I recommend you sit down with somebody you trust that can walk you through your different options. It could make a BIG difference in your lifestyle!
To more of your money in your wallet!
A few years ago, I wrote a newspaper column in which I compared the philosophy of Benjamin Frankin to that of Horton (the Who-hearing elephant). While I can’t remember the quote from Ben, I do remember the words of Horton which echoed the same resolve: “I meant what I said, and I said what I meant. An elephant’s faithful one hundred percent.” It is imperative that all of us put these words into practice, in whatever we do. We should mean what we say. Our words and advice should not be empty or self-serving. We should say what we mean. We shouldn’t speak to impress. Our words should be a direct reflection of our intentions. And we should be faithful and follow through, for our sake and our client’s sake, one hundred percent. If you say you will call, call. If you say you will write, write. If you don’t intend to do something, don’t tell someone to expect it to happen. “Talk to you later” is a committment, not a sign-off. “How are you?” is an invitation, not an empty salutation. In one of Shakespeare’s plays, there is a call to kill all the lawyers. Unfortunately, that sentiment resounds to this day. (And I know; I am one.) Lawyers talk too much. This probably has to do with the ancient practice of paying lawyers by the word. The more words, the more money. Now, lawyers just like to talk to hear themselves speak (as do many people) and believe that more and complicated words make them appear smarter that your average bear. But the problem is not so much in the excessive number of words. The problem is in the excessive number of unnecessary words. There will always be complaints that there are too many lawyers, too many accountants, too many (insert profession here). But, again, the problem is not with the profession itself. The problem lies with the volume of professionals a person has to sift through in order to find one who says what she means, means what she says, and follows through as promised. There will always be room for those professionals. And there will always be a need for everyone to put Ben’s and Horton’s words into practice. Imagine a world where people actually meant what they said, said what they meant, and were faithful to each other, themselves, and God 100%.