fsykes

Tax Issues for U.S. Citizens Living Abroad

Posted on July 5, 2023 by fsykes - International & Expat Benefits

Introduction

No matter where you live, if you’re a U.S. citizen, you’ll need to file a U.S. income tax return, whether you’re liable for U.S. taxes or not. The tax laws for U.S. citizens living abroad are fairly complicated. Depending on whether the country where you are living has a tax treaty with the United States, you may or may not have to pay Social Security taxes or U.S. income taxes. You may be eligible for a foreign tax exclusion or for a foreign tax credit, but those depend on the amount of money you’re earning and how much income tax you’re paying in your host country. You may also have to pay income taxes in your home state.

How tax treaties affect your income tax obligations when you’re living abroad

The United States maintains tax treaties with many nations that determine or define the tax obligations of U.S. citizens and residents otherwise subject to tax in those countries. Most of the Western nations are parties to these treaties. Find out more about your tax obligations by reading IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Filing a U.S. income tax return

U.S. citizens and residents living abroad generally have to file an income tax return with the IRS even if they don’t owe any income tax under the same guidelines as citizens living in the United States. Although your return is due on the regular due date (generally April 15 if you are a calendar-year filer), you are allowed an automatic two-month extension (until June 15) if you are living and your main post of work or duty is outside of the United States or Puerto Rico or if you are in military service on duty outside of the United States or Puerto Rico. However, you will owe interest on any tax due if you pay the tax after the regular due date. When you file your income tax return, attach a statement to your return explaining what situation qualifies you for the extension.

The foreign earned income exclusion

In general, U.S. citizens and residents are subject to federal income tax on their worldwide income. However, if you work overseas, you may qualify for the foreign earned income exclusion. In general, you will qualify for the exclusion if your tax home is in a foreign country and you meet either the bona fide residence test or the physical presence test. To meet the bona fide residence test, you must be a resident of the foreign country for an uninterrupted period that includes an entire tax year. To meet the physical presence test, you must be physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Your tax home is the general area of your main place of business, employment or post of duty, regardless of where you maintain your family home. If your tax home is a foreign country and you meet the requirements of one of these tests with respect to that country, you may elect to exclude up to $120,000 (in 2023) of foreign earned income from your taxable income. Foreign earned income includes salaries, wages, allowances for housing and expenses, and the value of fringe benefits you receive. It does not include such income as gambling winnings, pensions or annuities, dividends, interest, capital gains, or alimony.

You can’t claim the foreign earned income exclusion with respect to wages received from the U.S. government or any of its agencies (including the military) because wages paid by the U.S. government are not considered foreign earned income. However, if your spouse or family member works for a foreign company, he or she may be able to exclude his or her earned income.

Foreign housing exclusion or deduction

In addition to the foreign earned income exclusion, you may be able to claim an exclusion or a deduction from gross income for your housing expenses (after subtracting a base amount) in a foreign country if your tax home is in that foreign country and you qualify either under the bona fide residence test or the physical presence test with respect to that country. You may claim the exclusion for amounts considered paid for with employer-provided amounts, and you may claim the housing deduction for amounts paid for with self-employment proceeds.

For more on the foreign earned income exclusion and the housing exclusion and deduction, read IRS Publication 54.

Excluded income may still be subject to Social Security taxes.

The foreign tax credit

If you have paid or accrued foreign taxes to a foreign country on foreign source income and you owe U.S. income tax on the same income, you may be able to take a tax credit for the foreign taxes you paid. Taking a tax credit will reduce your U.S. income tax liability. Although it is usually less advantageous to do so, you can also choose to take the amount you paid in foreign taxes as an itemized deduction. For more information on this subject, see IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

You can’t elect to take both the tax credit and claim the taxes you paid as an itemized deduction. However, you can change your choice from one year to another.

Social Security taxes

In general, you’ll have to pay Social Security taxes on your wages if your employment contract was entered into within the United States or if you work for an American employer. In cases where you work for a foreign employer, paying Social Security taxes to the United States depends upon whether the United States has a totalization agreement (a binational Social Security agreement) with that country. If your host country has a totalization agreement with the United States to coordinate Social Security taxes and coverage, you’ll pay social security taxes (or the local equivalent) to the host country but not the United States. Currently, Canada and most Western European countries have such agreements with the United States. If you come back to the United States to retire, the taxes you paid into the foreign country’s equivalent of the Social Security system will count toward the quarters of coverage you need in order to be eligible for Social Security benefits.

State income taxes

If you maintain a residence in your hometown while you are living abroad, you may still have to pay a state income tax. Some states will not tax you if you’re out of the country for a specified length of time, but others will. Check your state’s tax laws.

Federal estate and gift taxes

If you are a U.S. citizen living abroad and you own property, your property may be subject to the federal estate tax no matter where you live or where the property is located. Any property you transfer may be subject to the federal gift tax under the rules that apply to property owned by U.S. citizens who live in the United States.

Exit tax

A U.S. citizen who relinquishes that citizenship is subject to a one-time tax imposed on their assets at the time of expatriation–a so-called exit tax. The tax applies to those who:

Have a net worth of $2 million on the date residency is terminated
Have an average annual net income tax liability for the five years preceding the date of termination that exceeds $190,000 (in 2023), or
Fail to certify that he or she has complied with all U.S. Federal tax obligations for the five years preceding the citizenship termination date.

However, exceptions may apply to individuals who are born with dual citizenship, or who relinquish U.S. citizenship before the age of 18½.

The tax is calculated on the net unrealized gain in property on a “marked to market” basis, as if the property had been sold for its fair market value on the day before the expatriation or residency termination. Gain from the deemed sale is taken into account at that time without regard to other Internal Revenue Code (IRC) provisions. Any loss from the deemed sale generally is taken into account to the extent otherwise provided in the IRC, except that the wash sale rules of IRC Section 1091 do not apply.

A net gain over $821,000 (in 2023) is recognized. Any gains or losses subsequently realized are adjusted for gains and losses taken into account under the deemed sale rules, without regard to the exemption. Deferred compensation items, interest in nongrantor trusts, and specified tax deferred accounts are excepted from the mark-to-market provision but are subject to special rules.

Also, a transfer tax is imposed on certain transfers to U.S. persons from U.S. citizens who relinquish that citizenship and meet the above qualifications, or from their estates.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Delayed Retirement Considerations

Posted on June 5, 2023 by fsykes - Retirement Planning

What is delayed retirement?

In general

If you cannot afford to retire or if you still enjoy working, you might want to consider delaying retirement. This could mean that you continue to work full-time or that you work part-time, for either the same or a different employer, to supplement your retirement income. It could also mean that you start up your own business venture. In any case, a delayed retirement involves continuing to generate at least some employment earnings as an alternative to full-time retirement leisure mode.

Why work during retirement?

Obviously, if you delay retirement, or work part-time during retirement, you’ll be earning money and relying less on your retirement savings — leaving more to grow for the future and making your savings last longer.

If you continue to work, you may also have access to affordable health care, as more and more employers begin offering this important benefit to part-time employees.

But there are also non-economic reasons for working during retirement. Many retirees work for personal fulfillment — to stay mentally and physically active, to enjoy the social benefits of working, and to try their hand at something new — the reasons are as varied as the number of retirees.

Social Security benefits

You can delay receiving Social Security benefits past your full retirement age. If you do so, your Social Security benefits may increase for two reasons. First, each additional year that you work adds another year of earnings to your Social Security record, potentially resulting in higher retirement benefits. Second, you’ll receive delayed retirement credits that will increase your benefit by a certain percentage for each month you delay retirement (up to age 70). The percentage increase varies, depending upon the year you were born. For those born in 1943 or later, the yearly rate of increase is 8%.

Hal works at the local nuclear power plant. He wants to work past the normal retirement age and delay his Social Security retirement benefits. Since Hal was born in 1944, he is eligible for a delayed retirement credit of 8% for each year that he works past the normal retirement age, up to age 70.

Although you can delay your Social Security retirement benefits, you still have to sign up for Medicare once you reach age 65.

If you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check. Your monthly benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration calculates your primary insurance amount (PIA), upon which your retirement benefit will be based. Your PIA is recalculated annually if you have any new earnings that might increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may increase your PIA and thus your future Social Security retirement benefit.

But working may also cause a reduction in your current benefit. If you’ve reached full retirement age (65 to 67, depending on when you were born), you don’t need to worry about this — you can earn as much as you want without affecting your Social Security retirement benefit.

But if you haven’t yet reached full retirement age, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit. A special rule applies in your first year of Social Security retirement — you’ll get your full benefit for any month you earn less than one-twelfth of the annual earnings limit, regardless of how much you earn during the entire year. A higher earnings limit applies in the year you reach full retirement age. If you earn more than this higher limit, $1 in benefits will be withheld for every $3 you earn over that amount, until the month you reach full retirement age — then you’ll get your full benefit no matter how much you earn. Visit the Social Security web site (ssa.gov) to review the earnings limits for the current year. (If your current benefit is reduced because of excess earnings, you may be entitled to an upward adjustment in your benefit once you reach full retirement age.)

Not all income reduces your Social Security benefit. In general, Social Security only takes into account wages you’ve earned as an employee, net earnings from self-employment and other types of work-related income, such as bonuses, commissions, and fees. Pensions, annuities, IRA distributions, and investment income won’t reduce your benefit.

Also, keep in mind that working may enable you to put off receiving your Social Security benefit until a later date. In general, the later you begin receiving benefit payments, the greater your benefit will be. Whether delaying the start of Social Security benefits is the right decision for you, however, depends on your personal circumstances.

One last important point to consider: In general, your Social Security benefit won’t be subject to federal income tax if that’s the only income you receive during the year. But if you work during retirement (or receive any other taxable income or tax-exempt interest), a portion of your benefit may become taxable. IRS Publication 915 has a worksheet that can help you determine whether any part of your Social Security benefit will be subject to federal income tax.

IRAs

The longer you delay retirement, the longer you can contribute to your IRAs. If you have a traditional IRA, you have to start taking required minimum distributions once you reach age 72. If you fail to take the minimum distribution, the IRS will assess a 50% penalty on the amount that should have been distributed. If you have money in your current employer’s retirement plan, as long as you are not a more than 5% owner, the required minimum distribution rules do not apply until you reach age 72 or retire, whichever occurs later. If you have a Roth IRA, you don’t have to take withdrawals at any age.

Employer-sponsored pension plans

If you continue to work past your normal retirement date for the same employer (or if you retire and then return to work for that employer), and you participate in a traditional (defined benefit) pension plan, you need to understand how your pension benefit will be impacted by your delayed retirement.

If you retire, and go to work for a new employer, your pension benefit won’t be impacted at all — you can work, receive a salary from your new employer, and also receive your pension benefit from your original employer.

In general, you’ll continue to accrue benefits during your delayed retirement. However, some plans have a limit on the number of years that count towards your pension. If you’ve reached that limit, continuing to work generally won’t increase your pension benefit unless your plan calculates benefits using your final average pay, and your pay continues to increase.

If your pension plan calculates benefits using final average pay, be sure to discuss with your plan administrator how your particular benefit might be affected if you decide to continue to work on a part-time basis. In some cases, reducing your hours at the end of your career could reduce your final average pay, resulting in a smaller benefit than you might otherwise have received. Also, note that some plans require that you work at least 1,000 hours in order to get credit for a year of service.

Some plans will allow you to start receiving your pension benefit once you reach the plan’s normal retirement age, even if you continue to work. Other plans will suspend your pension benefit if you work beyond your normal retirement date, but will actuarially increase your payment when benefits resume to account for the period of time benefits were suspended. Still other plans will suspend your benefit for any month you work more than 40 hours, and will not provide any actuarial increase — in effect, you’ll forfeit your benefit for any month you work more than 40 hours.

Some plans provide yet another option — “phased retirement.” This type of program allows you to continue to work on a part-time basis while accessing all or part of your pension benefit. Federal law encourages these phased retirement programs by allowing pension plans to start paying benefits once you reach age 62, even if you’re still working and haven’t yet reached the plan’s normal retirement age.

401(k) and other employer-sponsored retirement plans

If you participate in a 401(k), profit-sharing, ESOP, 403(b), 457(b) or similar plan sponsored by your employer, you’ll be able to continue to contribute to the plan, and receive any applicable employer contribution, if you continue to work beyond your plan’s normal retirement age.

Whether you’ll be able to access your funds while you’re employed depends on the terms of the plan. Some plans allow you to take distributions once you turn age 59½, or once you reach normal retirement age, or if you experience a hardship. Other plans require that you terminate employment before you’re eligible to receive a distribution. Check with your plan administrator to find out your plan’s distribution options if you think you may need to access your funds while you’re still employed. Your distribution options will also be spelled out in your plan’s summary plan description (SPD).

If you continue working past age 72, you won’t need to begin taking required minimum distributions (RMDs) from your plan until April 1 of the calendar year following the calendar year in which you retire (if the retirement plan allows this and you own 5% or less of the company).

Health benefits

Many individuals work during retirement to keep their medical coverage. If working during retirement for you means moving from full-time to part-time, it’s important that you fully understand how that decision will impact your medical benefits.

Some employers, especially those with phased retirement programs, offer medical coverage to part-time employees. But other employers don’t, or require that you work a minimum number of hours to be eligible for benefits. If your employer doesn’t offer medical benefits to part-time employees, you’ll need to look for coverage elsewhere. If you’re married, the obvious option is coverage under your spouse’s health plan, if your spouse works and has coverage available. If not, you may be eligible for COBRA coverage.

COBRA is a federal law that allows you to continue receiving medical benefits under your employer’s plan for some period of time, usually 18 months, after a qualifying event (including loss of coverage due to a reduction in hours). But it’s expensive — you typically have to pay the full premium yourself, plus a 2% administrative fee. (COBRA doesn’t apply to employers who have fewer than 20 employees.) Another option is private health insurance, but that will likely be very expensive. You also may shop for and purchase an individual health insurance policy through either a state-based or federal health insurance Exchange Marketplace.

Of course, once you turn 65, you’ll be eligible for Medicare. You’ll want to contact the Social Security Administration approximately three months before your 65th birthday to discuss your options. If you have private or employer-sponsored health insurance, talk to your benefits administrator or insurance representative before enrolling in Medicare to find out how your current health insurance fits in with Medicare.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Source

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Survivor’s Benefits and the Lump-Sum Death Benefit

Posted on May 18, 2023 by fsykes - Family Benefits, Widow Benefits

What is it?

When planning your estate, consider how much your survivors might receive from Social Security. Social Security survivor’s benefits can provide much-needed income to your family and ensure that their financial life after your death is easier.

Who will be eligible to receive survivor’s benefits after your death?

Knowing your insured status is essential to determining who will be eligible to receive Social Security survivor’s benefits based on your earnings record. If you were fully insured, meaning that you have 40 Social Security credits (quarters of coverage) at the time of your death, more of your survivors may be eligible for benefits than if you were currently insured (having 6 credits during the last 13 quarters prior to your death).

If you are fully insured

If you are fully insured, survivor’s benefits can protect those family members who are most dependent on you for financial support. If you are fully insured at the time of your death, benefits may be paid to the following family members:

Your spouse
Your divorced spouse
Your dependent child or children
Your dependent parents

If you are currently insured

If you are currently insured at the time of your death, benefits may be paid to these family members only:

Your spouse (only if caring for a dependent child)
Your divorced spouse (only if caring for a dependent child)
Your dependent child or children

The following table illustrates who may be eligible to receive survivor’s benefits and under what conditions:

What benefits will your survivors receive after you die?

Your eligible surviving family member will receive a monthly benefit based on your primary insurance amount (PIA) unless the survivor is eligible for a greater benefit based on his or her own PIA. Survivor’s benefits are expressed as a percentage of your PIA:

Survivor’s benefits may be reduced for one or more of the following reasons:

Beneficiary is younger than normal retirement age when he or she elects to receive benefits

This factor affects the surviving spouse or the surviving divorced spouse of the worker. If the surviving spouse is at least normal retirement age, the benefit payable is 100 percent of the deceased worker’s PIA. However, if the surviving spouse elects to receive benefits early (as early as age 60 or age 50 if disabled), the benefit payable will be reduced by 0.475 percent for each month between the month benefits begin and the month in which the spouse will reach normal retirement age. So, a surviving spouse with a normal retirement age of 66 who is age 61 will receive 71.5 percent of the deceased spouse’s PIA instead of 100 percent (60 months x 0.475 = 28.5 percent reduction). If the surviving spouse is disabled, the benefit will never drop below 71.5 percent of the deceased spouse’s PIA, even if the disabled spouse elects benefits at age 50.

Example(s): After Peter died at age 60, his wife, Patty, applied for survivor’s benefits. She was 62. Because she elected to receive benefits 48 months before her normal retirement age, she was entitled to receive 77.2 percent of her deceased husband’s PIA (48 months x 0.475 = 22.8 percent reduction).

Benefit is subject to the family maximum

Survivor’s benefits may also be reduced if they exceed the family maximum benefit. This commonly happens when benefits to children are payable along with a benefit to a surviving spouse. Because the family maximum benefit generally ranges from 150 to 180 percent of the worker’s PIA, a spouse’s benefit combined with the benefits for two children could easily exceed the family maximum. In this case, the benefit for each family member will be reduced accordingly.

The survivor’s earnings are more than the annual exempt amount

Benefits may be reduced when a surviving spouse’s earned income exceeds the annual earnings exempt amount.

Benefits to eligible family members end when:

A surviving spouse entitled to parent’s benefits remarries (unless the new spouse is another benefit-eligible individual).
A surviving spouse entitled to parent’s benefits loses eligibility because the child attains age 16 or loses disability status.
A surviving divorced spouse remarries prior to age 60 (or age 50 if disabled). If the subsequent marriage ends, however, the spouse will again be eligible for benefits based on the deceased ex-spouse’s earnings.
A dependent child turns 18 and is no longer enrolled in school. (If the child is enrolled full-time in secondary school, benefits may be payable to age 19.)
A dependent child marries (unless the child is over 18 and disabled and marries another benefit-eligible individual).
A dependent parent marries (unless parent marries another benefit-eligible individual).
The beneficiary dies.

Who is eligible to receive the Social Security lump-sum death benefit?

Upon your death, your surviving spouse living in the same household with you at the time of your death will receive a $255 lump-sum death benefit. If there is no surviving spouse, the death benefit will be split among your children who are eligible for benefits based on your PIA. In the event you have no surviving spouse or children, the benefit will not be paid.

Planning tips for Social Security survivor’s benefits

When you have dependent children

If you have dependent children, check your Social Security record to make sure you are at least currently insured. If you die currently insured, your family might receive some income from survivor’s benefits. If you are not currently insured, consider working to obtain the required credits.

When you have no dependent children but are married

If you have no dependent children and are nearing retirement, check your Social Security record to make sure you are fully insured. If you die fully insured, your spouse may receive some income from survivor’s benefits when he or she turns age 60 (or age 50, if disabled).

When you have any family members who may be eligible for benefits on your Social Security record

Make sure your family members know your Social Security number and what benefits they may be entitled to when you die. To apply for benefits, your spouse may also need proof of marriage or divorce and copies of children’s birth certificates.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Introduction to Retirement Planning

Posted on May 15, 2023 by fsykes - Retirement Planning

What is retirement planning?

Retirement planning involves an analysis of the various choices you can make today to help provide for your financial future. To make appropriate choices, you need to predict — as well as you can — your future economic circumstances. You’ll also need to establish your post-retirement goals. When you’ve determined how much of an income stream you’ll probably require in the future, you’ll be in a position to make wise choices now about income, saving, investments, and employer-sponsored or other retirement plans.

Of course, you need to tailor your retirement planning to your own unique circumstances — planning methods may be different for employees and executives than for business owners. And no matter who you are, you’ll probably want to gain some familiarity with the Social Security system, with post-retirement health care insurance coverage, including Medicare and long-term care (LTC) insurance. For some people, retirement may be an eagerly anticipated event, an opportunity to enjoy so many things that working may have precluded — travel, hobbies, and more family time. For other people, even the word “retirement” may conjure up feelings of fear or dread, particularly for those employees who work without the benefit of pension or other retirement plans. And newspaper stories questioning the future of the Social Security system can certainly compound anxiety. Whether you are financially comfortable or are of limited means, however, retirement planning is possible and can help you take control of your own future.

How can you determine your retirement income needs?

To determine your retirement income needs, you’ll want to evaluate your present circumstances — your income, your expenses, your assets, and your debts. Next, you’ll need to think about your future circumstances. There are four main sources for your retirement income: Social Security, pensions or other retirement vehicles, your investment portfolio, and savings. If you predict that your current income will not provide you with your desired retirement lifestyle, there are certain steps you can take now to help change your circumstances.

You’ll want to think about your future sources of income, but also about where you’ll live. Will you continue to live in your current home, for instance, or will you move to a condominium or retirement community? And if your employer typically provides early retirement packages to its employees, you’ll need to know how to evaluate such packages from a number of perspectives.

How do you save for retirement?

Learning how to save for retirement is imperative. There are a number of retirement vehicles available, including traditional and Roth IRAs, employer-sponsored retirement plans, nonqualified deferred compensation plans, stock plans, and commercial annuities. Proper retirement planning requires an understanding of the workings of these tools.

In addition, your personal investment planning can help you on the road toward your retirement goals. The sooner you start, the longer you’ll have to accumulate funds for retirement.

You’ll want to understand the taxation of your retirement and investment vehicles. For example, you’ll want to compare the pros and cons of investing within a tax-deferred retirement savings plan versus a taxable brokerage account, and perhaps a Roth IRA versus a traditional IRA.

Finally, you may want to learn strategies for handling the competing demands of educating your children and retiring.

What should you know about distributions from IRAs and other retirement plans?

Effective retirement planning involves not only an awareness of the types of savings vehicles available, but also an understanding of taking distributions from these vehicles. In particular, you should be familiar with the income tax ramifications of distributions (including a possible 10% premature distribution penalty tax for distributions made prior to age 59 ½). You may be interested in knowing whether you can borrow money from your retirement plan, whether it is better to receive your retirement money in one lump sum or in monthly checks, and whether you can roll your retirement plan balance into an IRA.

In addition, you may be concerned about naming one or more beneficiaries for your IRA or employer-sponsored retirement plan. What are the tax implications? What about required minimum distributions from the plan after you reach age 72 (or 70½ if you reached that age prior to January 1, 2020)?

What if you are an executive or business owner?

A number of additional retirement planning tools are often available for executives, such as nonqualified deferred compensation plans offered by employers to their key employees. If you’re an executive, you should realize that nonqualified plans and stock plans can be valuable tools for retirement planning. You should understand the mechanics of the special benefits afforded by your employer, including the tax implications for you.

If you are a business owner, on the other hand, you have some special retirement planning concerns of your own. In particular, you may want to plan for the succession of your business to family members or to others. You may also want to know which retirement plans are best suited to your form of business.

How do Social Security and other government benefits programs impact retirement planning?

If you’re planning for retirement, you should also consider the Social Security income (if any) you’ll be receiving in the future. In fact, it is possible for you to estimate your Social Security benefits ahead of time. You may want to check your Social Security record periodically to ensure that you have met the eligibility requirements and that your information is accurate and complete.

You’ll also want to become familiar with ways to optimize your Social Security benefits and minimize their taxation. The timing of your receipt of benefits can be important, as can the impact of post-retirement employment. Other governmental programs should also be considered when planning for retirement.

In particular, you should review the topics of Medicare and Medicaid. You should know what Medicare does and does not cover and what other health care options are available to you. How expensive are these governmental and supplemental health programs? What are the eligibility requirements? Medicaid planning can be particularly important for people of modest means. You should know the Medicaid eligibility requirements, the penalties for transferring assets inappropriately, and the various strategies available for protecting assets. In addition, you should become familiar with the specific methods of protecting your personal residence and the extent to which your state can impose liens on your property and pursue recovery remedies after your death. If you are planning for your post-retirement years, you should also gain some familiarity with long-term care insurance, nursing homes, retirement communities, assisted living, and other housing options for elders.

Do government employees have special retirement concerns?

If you work for the federal government, a state government, a railroad, or if you are in the military, your retirement benefits may be subject to special rules. You should know how your retirement plan works, what distribution rules apply, how your survivors can benefit, how your plan may be integrated with Social Security, and what tax rules apply.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security Retirement Benefits

Posted on May 15, 2023 by fsykes - Social Security Benefits

Introduction

Providing retirement benefits was a key provision of the Social Security Act of 1935. Older Americans were especially financially vulnerable during the Great Depression, and Social Security was enacted partly to provide them with some continuing income after retirement. Today, although the scope of the program has been widened through amendments to include survivor, disability, and medical insurance benefits, Social Security remains synonymous with retirement benefits.

Meeting the eligibility criteria for retirement benefits

Test your knowledge. Pick the two people you believe may be eligible for Social Security retirement benefits:

A 64-year-old married secretary
A 62-year-old male neurosurgeon
A 65-year-old divorced violinist
A 70-year-old unemployed machinist

If you picked 1 and 4, you were right. On the other hand, if you picked 2 and 3, you were also right. All of these individuals could be eligible for Social Security retirement benefits. No matter what your occupation, gender, or income level, you are eligible for Social Security retirement benefits if you are:

Age 62 or older and a fully insured worker (you have earned 40 Social Security credits) or
A qualified family member of a fully insured worker:
1. A spouse of a retired worker (spouse must be age 62 or older unless caring for the worker’s dependent child) or
2. The divorced spouse of a fully insured worker who is eligible for retirement (spouse must be retirement age unless caring for dependent child) or
3. A dependent or disabled child of the retired worker

Worker’s retirement benefit

Your Social Security retirement benefit is a main source of retirement income. When you begin receiving benefits will affect how much you receive every month.

When can you start receiving retirement benefits?

Deciding when to retire and begin receiving Social Security retirement benefits is a personal decision. It can be an easy one (“I’m tired of being a sales manager; I’d rather join the Senior PGA Tour.”) or a difficult one (“My kids are in college; I want to retire, but Harvard is expensive!”). When making this decision, consider the following age requirements that will affect the amount of your Social Security benefit check:

Full retirement–If you retire at full retirement age, you will be eligible for full Social Security benefits based on 100 percent of your primary insurance amount (PIA), provided that you are fully insured. Your full retirement age depends upon the year in which you were born:

Birth date	Full retirement age will be
1943-1954	66 years
1955	66 years, 2 months
1956	66 years, 4 months
1957	66 years, 6 months
1958	66 years, 8 months
1959	66 years, 10 months
1960 and later	67 years

Note: If you were born on January 1st of any year, the full retirement age for the previous year applies.

Early retirement–The minimum age at which you can retire and receive Social Security retirement benefits is currently 62. If you retire at age 62, you will be eligible for reduced retirement benefits based on a percentage of your primary insurance amount (PIA) entitlement, provided that you are fully insured. Your retirement benefit will be reduced by 5/9ths of 1 percent (or.55556 percent) for every month between your retirement date and full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. This reduction is permanent; when you reach full retirement age, you will not be eligible for a benefit increase.

Delayed retirement– You will increase your retirement benefit for each month that you delay receiving Social Security retirement benefits past full retirement age. Your benefit will increase by a predetermined percentage for each month you delay retirement up to the maximum age of 70. For anyone born in 1943 or later, the monthly percentage is 2/3 of 1%, and the annual percentage is 8%.

The delayed retirement credit does not affect your PIA. Even if you elect to delay receiving Social Security retirement benefits, you can still receive Medicare benefits at age 65. Remember to file an application for Medicare, even if you don’t file one for Social Security retirement benefits until later.

Retirement benefits for qualified family members

Certain family members of a fully insured worker may be eligible for retirement benefits based on the worker’s record. Retirement benefits are generally paid to family members who relied upon the worker’s income for support. Benefits paid to family members are based upon the retired worker’s PIA and paid in addition to the benefit paid to the worker. The following table outlines who these family members are, what benefits they are entitled to receive, and the basic conditions they must meet in order to be eligible for those benefits:

Beneficiary	Minimum Age	Insured status	Conditions	Amount of Benefit
Spouse of retired worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Worker must be fully insured. Spouse does not have to be insured	Worker must have filed for retirement benefits before spouse is eligible	50% of the worker’s PIA, subject to early retirement reduction, if applicable
Divorced spouse of worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Marriage must have lasted at least 10 years before final divorce date. Remarriage may affect benefit	Worker does not have to be receiving retirement benefits but must be age 62 or older	Usually 50% of the worker’s PIA, subject to early retirement reduction, if applicable
Child of retired worker	No minimum age, but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22	Worker must be fully insured	Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried	Each child receives 50% of worker’s PIA. Family maximum, however, may limit this benefit

Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor benefits.

Spouse’s benefits

Spouse’s benefits are payable to the spouse of a retired worker. To be eligible, the spouse must meet one of the following conditions:

The spouse must have been married to the worker for at least one year before applying for benefits, or
The spouse must be the natural parent of the worker’s child, or
The spouse must have been entitled or potentially entitled in the month before marriage to benefits from a previous spouse, surviving spouse, or parent

In addition, the spouse must be:

Age 62 or older and eligible for a greater retirement benefit based on the spouse’s PIA than on his or her own PIA, or
Caring for a child who is under age 16 or disabled

Once your spouse begins receiving retirement benefits, you may be eligible for a spousal retirement benefit provided that you are of minimum retirement age (currently 62). To be eligible for spouse’s benefits, you do not have to be insured for Social Security benefits based on your own earnings record. Even if you have never worked outside your home or in a job covered by Social Security, you may be eligible for spousal benefits. However, if you have worked and are eligible for benefits based on your own PIA, then you can’t elect to receive the spouse’s benefit unless it would be greater than the benefit provided by your own PIA. The amount of your spousal retirement benefit will be determined by your spouse’s PIA and your age at retirement (not your spouse’s age at retirement). If you are of full retirement age you will receive full spousal benefits. This benefit amount is 50 percent of your spouse’s PIA. If you are less than full retirement age, you will receive a reduced spouse’s benefit amount. Your benefit will be reduced by 25/36 of 1 percent (.69 percent) for each month that you are under full retirement age.

Josephine retires at full retirement age from her job as a plumber. Her husband, Mike, decides to retire early. Mike is not fully insured for retirement benefits, so he decides to apply for a spouse’s retirement benefit based on Josephine’s PIA. Since Mike is 36 months away from his full retirement age, his spouse’s benefit will be 25 percent less than his benefit would have been had he waited until full retirement age to receive spouse’s benefits (36 x.69). Thus, his retirement benefit will be 37.5 percent of Josephine’s PIA.

You may be eligible for the spouse’s retirement benefit if you are less than age 62 if you are caring for the natural child of your retired spouse and the child is under the age of 16 or disabled. Your benefit will equal 50 percent of the worker’s PIA. However, if the child’s status changes (the child becomes older than 16 or is no longer disabled), then you will no longer be eligible to receive the retirement benefit until you reach age 62.

Divorced spouse’s benefit

If you are a divorced spouse of a fully insured worker, you are eligible to receive the same spousal retirement benefit as a married spouse provided that you were:

Married to the worker for at least 10 years before the divorce became final (unless you were already age 62 when the divorce became final), or
Divorced for at least two years if the worker is not yet receiving retirement benefits

You must meet the same age and eligibility requirements as a married spouse with one exception: Your ex-spouse does not have to be retired in order for you to receive benefits as long as you are of minimum retirement age and you have been divorced for at least two years. However, your ex-spouse must be eligible to receive benefits even if he or she has not yet elected to begin receiving them. Benefits for a divorced spouse are calculated independently from those of a current spouse. This means that if your ex-spouse has remarried, your benefits won’t be affected. However, if you remarry, then your benefits may be affected. Like a current spouse’s benefits, your benefit will be reduced if you retire at less than full retirement age.

Child’s benefit

Children of a retired worker are entitled to Social Security retirement benefits if:

The parent is receiving Social Security retirement benefits.
The child is dependent upon the parent for support.
The child is enrolled full-time in elementary or high school and is under age 18 or between the ages of 18 and 19. A child who is disabled is eligible past age 18 if the disability began before age 22.
The child is unmarried.

The amount of child’s benefit payable to each eligible child is 50 percent of his or her retired parent’s PIA. However, a child’s benefit will often be subject to the family maximum. If the total amount of benefits paid to eligible family members based on an individual’s PIA exceeds the family maximum benefit, each child’s benefit will be reduced accordingly.

Questions & Answers

When should you file an application to receive Social Security retirement benefits?

The Social Security Administration suggests that you apply three months before the date you want your benefits to start.

Can Social Security retirement benefits be paid retroactively?

Benefits can be paid up to six months retroactively, beginning with the first month in the retroactive period in which you met entitlement requirements (other than filing an application).

When will Social Security retirement benefits end?

Your retirement benefits will end when you die. However, your spouse, children, or dependent parents may be eligible for survivor benefits based on your earnings record.

Thank you for taking the time to read this article. We hope it has given you some insight into Social Security. If you have any questions or would like more information, please feel free to contact us. We would love to hear from you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Reducing Compensation In Excess of the Maximum Earnings Base to Minimize Social Security Taxes

Posted on May 11, 2023 by fsykes - Business Owners, Social Security Benefits

What is it?

Reducing or eliminating compensation in excess of the maximum earnings base is a strategy that may help you minimize Social Security payroll taxes or self-employment taxes. You can reduce or eliminate compensation you receive in two ways: (1) by working less or not at all once you have reached the maximum earnings limit in any one year, or once you have earned the maximum you can in each of the 35 highest earnings years used to calculate your Social Security retirement benefit, or (2) by converting your compensation to a nontaxable form.

Who can use this strategy?

You probably don’t work just to earn a future Social Security benefit. You work because you have to, because you like to, or because you’re not yet ready to retire. However, some workers (i.e., business owners) have more flexibility than others in determining how much they earn or how they’re compensated for working.

Anyone whose annual earnings have equaled or exceeded the maximum earnings base in at least 35 years of employment

Your Social Security retirement benefit is based on your average indexed monthly earnings (AIME). Your AIME is calculated by averaging your 35 highest years of indexed and nonindexed earnings and applying a benefit formula to that average. If, in each of those 35 years, you earned an amount equal to the maximum earnings base for that year, you will receive the maximum Social Security retirement benefit when you become entitled. If you continue to work once you have 35 years of maximum earnings recorded on your Social Security record, you won’t receive any additional retirement benefit, and the payroll taxes you pay will, in effect, be wasted. The maximum earnings base changes from year to year; in 2023, it’s $160,200.

Anyone who expects to have earnings in excess of the maximum earnings base during any one year

If your annual earnings exceed the maximum earnings base during any one year, you won’t pay FICA taxes on those excess earnings, but you’ll pay Medicare taxes on those earnings. When you reduce or eliminate the compensation you receive over the maximum earnings base, you’ll save payroll taxes on the excess amount. If you’re an employee, you will save 1.45 percent of that amount; if you’re self-employed, you’ll save 2.9 percent of that amount.

How does it work?

You estimate your lifetime or annual earnings

To estimate your lifetime earnings, you can go to the Social Security Administration’s website (ssa.gov) and sign up for a my Social Security account so that you can view your Social Security Statement. This statement includes a detailed record of your lifetime earnings. To estimate your current annual earnings, use your paycheck stubs or, if you’re self-employed, your self-employment earnings estimate.

Determine how much you might save in payroll or self-employment tax if you reduce or eliminate compensation

Determining how much you should save will depend on whether you’re the employer or the employee and how much your excess earnings are.

As a self-employed person, Cornelia earned $11,600 in excess of the maximum earnings base for that year. If she reduced her compensation to the maximum earnings base for that year, she would save $336.40 (2.9 percent of $11,600) in Social Security taxes.

Decide whether you can stop working or try to convert compensation to a nontaxable form

Once you determine how much in self-employment taxes or payroll taxes you can save, decide how you want to reduce or eliminate your compensation in excess of the maximum base amount. You might choose to stop working if, for example, you’re already past minimum retirement age (currently 62).

You might choose to convert compensation to a nontaxable form if you own a business or are employed by a business. Nontaxable forms of compensation (for Social Security purposes) include some fringe benefits and investment income.

Strengths

Can save payroll taxes that otherwise would have been wasted

The strategy is particularly effective if used by a business owner who can receive nontaxable benefits in lieu of salary. Or by a person who works after retirement and already receives a benefit close to the maximum due to the impact of excess earnings on a retirement benefit.

Tradeoffs

Your tax savings might be minimal if you use this strategy to reduce your payroll taxes in only one tax year

Note that in the example above, Cornelia only saved $336.40 by reducing her income by $11,600. If she had been an employee instead of being self-employed, she would have saved only half that amount. However, if she received nontaxable compensation or limited her earnings in several years, she might save enough to make using this strategy worthwhile.

If you are interested in our Social Security planning options, learn more here! We understand that retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

How Secure Is Social Security?

Posted on May 8, 2023 by fsykes - Social Security Benefits

If you’re paying attention to the news, you’ve probably come across story after story on the health of Social Security. And depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of some adjustments to one in crisis requiring immediate, drastic reform.

Obviously, the underlying assumptions used can affect one’s perception of the solvency of Social Security, but it’s clear some action needs to be taken. However, even experts disagree on the best remedy. So let’s take a look at what we do know.

Just the facts

According to the Social Security Administration (SSA), approximately 70 million Americans currently collect some sort of Social Security retirement, disability, or survivor benefit. Social Security is largely a pay-as-you-go system, with today’s workers (and employers) paying the benefits for today’s retirees.¹

How much do today’s workers pay? Well, the first $160,200 (in 2023) of an individual’s annual wages is subject to a Social Security payroll tax, with half paid by the employee and half by the employer (self-employed individuals pay all of it). Payroll taxes collected are put into the Social Security trust funds and invested in securities guaranteed by the federal government. The funds are then used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your age at the time you start receiving benefits also affects your benefit amount. You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits. Specifically, your retirement benefit will be reduced by 5/9ths of 1% for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1% thereafter.

For example, if your full retirement age is 67, you’ll receive about 30% less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age.

What Is Your Full Retirement Age?
Birth Year	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

Demographic trends

Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating Social Security’s problems — namely, the number of retirees is increasing and the birth rate is decreasing. This means that, over time, fewer workers will have to support more retirees.

According to the SSA, Social Security is already paying out more money than it takes in. However, by drawing on the Social Security trust fund (OASI), the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034.

Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits. So at that time, if no changes are made, beneficiaries may receive a benefit that is about 23% less than expected.²

Possible fixes

While no one can say for sure what will happen (and the political process is sure to be contentious), here are some solutions that have been proposed to help keep Social Security solvent for many years to come:

Allow individuals to invest some of their current Social Security taxes in “personal retirement accounts”
Raise the current payroll tax
Raise the current ceiling on wages currently subject to the payroll tax
Raise the retirement age beyond age 67
Reduce future benefits
Change the benefit formula that is used to calculate benefits
Change how the annual cost-of-living adjustment for benefits is calculated

Uncertain outcome

Progress on addressing Social Security’s financial challenges has been slow. However, the SSA continues to urge all parties to address the issue sooner rather than later, to allow for a gradual phasing in of any necessary changes.

Although debate will continue on this polarizing topic, there are no easy answers, and the final outcome for this decades-old program is still uncertain.

In the meantime, what can you do?

The financial outlook for Social Security depends on a number of demographic and economic assumptions that can change over time, so any action that might be taken and who might be affected are still unclear.

But no matter what the future holds for Social Security, your financial future is still in your hands. Focus on saving as much for retirement as possible, and consider various income scenarios when planning for retirement.

It’s also important to understand your benefits and what you can expect to receive from Social Security based on current law. You can find this information on your Social Security Statement, which you can access online at the Social Security website, ssa.gov, by signing up for a my Social Security account.

Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

1) Fast Facts & Figures About Social Security, 2022

2) 2022 OASDI Trustees Report

Social Security: What Should You Do at Age 62?

Posted on May 4, 2023 by fsykes - Retirement Benefits, Social Security Benefits

Is 62 your lucky number? If you’re eligible, that’s the earliest age you can start receiving Social Security retirement benefits.

Although collecting early retirement benefits makes sense for some people, there’s a major drawback to consider: If you start collecting benefits early, your monthly retirement benefit will be permanently reduced. So before you put down the tools of your trade, there are some factors you’ll need to weigh before deciding whether to start collecting benefits early.

How much will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years (if you left the workforce to raise a family, for instance), it may be advantageous to work as long as possible, because you’ll have the opportunity to replace a year of lower earnings with a higher one, potentially resulting in a higher retirement benefit.

If you begin collecting retirement benefits at age 62, each monthly benefit check will be 25% to 30% less than it would be at full retirement age. The exact amount of the reduction will depend on the year you were born. (Conversely, you can get a higher payout by delaying retirement past your full retirement age — the government increases your payout every month that you delay retirement, up to age 70.)

However, even though your monthly benefit will be 25% to 30% less if you begin collecting retirement benefits at age 62, your total lifetime Social Security benefits might be the same or higher than if you had waited until full retirement age to start collecting benefits. That’s because the longer you wait to claim Social Security, the shorter the time period over which you will receive benefit payments.

The following chart shows how much an estimated $1,000 monthly benefit at full retirement age would be worth if you started taking a reduced benefit at age 62.

Birth Year	Full Retirement Age	Benefit

1956	66 years, 4 months	$733
1957	66 years, 6 months	$725
1958	66 years, 8 months	$716
1959	66 years, 10 months	$708
1960 or later	67 years	$700

Source: Social Security Administration

If you want to estimate the amount of Social Security benefits you will be eligible to receive in the future under current law (based on your earnings record) you can use the Social Security Administration (SSA) Retirement Estimator. It’s available at the SSA website at ssa.gov. You can also sign up for a my Social Security account to view your online Social Security Statement at the SSA website. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Have you thought about your longevity?

Is it better to take reduced benefits at age 62 or full benefits later? The answer depends, in part, on how long you live and how long you will need your money to last. Of course, no one can predict exactly how long they’ll live. But by taking into account your current health, diet, exercise level, access to quality medical care, and family health history, you might be able to make a reasonable assumption.

How much income will you need?

Another important piece of the puzzle is to look at how much retirement income you’ll need, based partly on an estimate of your retirement expenses. If there is a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting Social Security benefits may improve your financial outlook.

If you continue to work and wait until your full retirement age to start collecting benefits, your Social Security monthly benefit will be larger. What’s more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security annual cost-of-living increases are calculated using your initial year’s benefits as a base — the higher the base, the greater your annual increase.

Will your spouse be affected?

When to begin receiving Social Security is more complicated when you’re married. The age at which you begin receiving benefits may significantly affect the amount of lifetime income you and your spouse receive, as well as the benefit the surviving spouse would be entitled to, so you’ll need to consider how your decision will affect your joint retirement planning.

Do you plan on working after age 62?

Another key factor in your decision is whether or not you plan to continue working after you start collecting early Social Security benefits. That’s because income you earn before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($21,240 in 2023).

In the year you reach full retirement age, different rules apply; $1 in benefits will be withheld for every $3 you earn over the annual earnings limit ($56,520 in 2023).

If your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age and omits the months in which your benefit was reduced.

Other considerations

In addition to the factors discussed here, other financial considerations may influence whether you start collecting Social Security benefits at age 62. How do other sources of retirement income factor in? Have you considered how your income taxes will be affected?

What about personal considerations? Do you plan on traveling, volunteering, going back to school, starting your own business, pursuing hobbies, or moving to a new location? Do you have grandchildren or elderly parents whom you want to help take care of? Every person’s situation is different.

For more information

Social Security rules can be complex. If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Even if you start collecting Social Security benefits at age 62, remember that you still won’t be eligible for Medicare until you reach age 65. So unless you’re eligible for retiree health benefits through your former employer or your spouse’s health plan at work, you may need to pay for a private health policy until Medicare kicks in.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Creating Exempt Family Employment to Minimize Social Security Payroll Taxes

Posted on May 1, 2023 by fsykes - Business Owners

What is creating exempt family employment?

If you own a family business, you can create exempt family employment to reduce the Social Security payroll taxes that your business incurs. You create exempt family employment by hiring your child who is under age 18, because the earnings of a child under 18 who is employed by a parent who owns a sole proprietorship are not subject to Social Security payroll taxes.

How does it work?

A child who is employed by a parent doesn’t have to pay Social Security payroll taxes under two conditions

The child must be under 18
The parent’s business must be organized as a sole proprietorship or a partnership

Tip: If the business is organized as a partnership, the parents must be the only partners.

Both the parent and the child save money

The child’s earnings are exempt from Social Security payroll taxes, so the child saves 7.65 percent of his or her salary. The parent also saves the employer’s share of Social Security taxes (7.65 percent of the salary) that he or she would have normally paid.

Strengths

Simple way to save payroll taxes

Hiring a child under 18 is no harder than hiring any other employee. However, if you do want to hire your child, you should check your state’s child labor laws.

Tradeoffs

The child’s employment status might be considered invalid by the Internal Revenue Service (IRS) or the Social Security Administration (SSA)

If you hire a child under 18 to work in your business, you must pay the child a wage that is appropriate for the actual work done by the child in an age-appropriate job. Otherwise, the SSA or the IRS may argue that the child isn’t really your employee.

Tax considerations

The cost of labor is a valid business expense deduction that can reduce your tax liability. For more information see IRS Publication 535, Business Expenses.
A child may have to pay income tax on his or her earnings over a certain amount. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security Overview

Posted on April 26, 2023 by fsykes - Social Security Benefits

What is it?

Social Security is a federal system of programs designed to protect individuals and families against economic hardship. Most Americans work in occupations covered by the Social Security system, and they will at some point in their lives receive Social Security benefits. The system is administered by the Social Security Administration and financed mainly by Social Security tax (FICA) withholding on wages and by taxes on self-employment income.

How does it work?

Social Security is a compulsory system

Social Security is a compulsory system. Employers, employees, and self-employed individuals are required to participate and pay taxes that finance Social Security benefits. As an employee, you pay a Social Security tax of 6.2 percent of your pay (matched by your employer) each pay period and you pay a Medicare tax of 1.45 percent of your pay (matched by your employer). If you are self-employed, you pay a 12.4 percent self-employment tax on your earnings to finance Social Security programs and you pay a 2.9 percent tax to finance Medicare.

The Social Security tax on your earnings applies only to earnings under the maximum earnings limit ($160,200 in 2023). No limit applies, however, to the Medicare tax on your earnings.

Your earnings are tracked by the Social Security Administration

Your employer reports your annual Social Security earnings to the Social Security Administration. If you are self-employed, the IRS reports your earnings. They are compiled on a record known as a Social Security earnings record, which is identified by your nine-digit Social Security number. This earnings record is eventually used to calculate the amount of your Social Security benefit.

You receive benefits after meeting certain eligibility criteria

To be eligible to receive Social Security benefits, you must be insured under the system. To become insured, you have to work for a certain amount of time in an occupation covered under Social Security or be the spouse, ex-spouse, widow or widower, or parent of someone who has. You also have to meet the eligibility requirements specific to the benefit.

Social Security benefits

Retirement benefits

When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.”

Normal (full) retirement age is the age at which you can retire and receive full (unreduced) Social Security benefits. However, many people choose to receive Social Security retirement benefits early at age 62 (early retirement age). You can also retire and begin receiving benefits after full retirement age. If so, you are considered to be electing delayed retirement benefits. Electing early retirement benefits means that you will receive a reduced benefit, while electing delayed retirement benefits means that you will receive a delayed retirement credit and thus a higher benefit.

Disability benefits

Most people don’t expect to become disabled and are unprepared when they are unable to work due to illness or injury. The fact is that you are much more likely to become disabled than to die during your earning years. Because eligibility standards are strict, Social Security disability benefits may not offer the comprehensive protection you need. However, these benefits can help protect you and your family from financial devastation when you can’t work for a year or more. In general, to receive Social Security disability benefits, you must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to last for at least 12 months or result in your death.

Benefits for family members

Some of your family members may be eligible for benefits based on your earnings record if you are receiving Social Security retirement or disability benefits. Benefits are generally paid to family members who relied upon your income for support. Benefits paid to family members are based upon your primary insurance amount (PIA) and are paid in addition to the benefit you receive. The following chart outlines who these family members might be, what benefits they may be entitled to receive, and the basic conditions they must meet to be eligible for those benefits:

Beneficiary	Minimum Age	Insured Status	Conditions	Amount of Benefit
Spouse of retired worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Worker must be fully insured. Spouse does not have to be insured	Worker must be receiving retirement benefits before spouse is eligible	50% of the worker’s PIA, subject to early retirement reduction, if applicable
Divorced spouse of worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Marriage must have lasted at least ten years before final divorce date. Remarriage may affect benefit	Worker does not have to be receiving retirement benefits but must be 62 or older	Usually 50% of the worker’s PIA, subject to early retirement reduction, if applicable
Child of retired worker	No minimum age but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22	Worker must be fully insured	Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried	Each child receives 50% of worker’s PIA. Family maximum, however, may limit this benefit

Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor benefits.

Survivor benefits

If you die and you were currently or fully insured under Social Security, your surviving spouse, ex-spouse, children, or dependent parents may be eligible to receive Social Security benefits based on your earnings record. The following chart outlines those who may be eligible for benefits and under what conditions.

Beneficiary	Age	Insured Status of Worker	Conditions
Spouse of worker (no dependent child)	60 or over (or if disabled, 50 or over)	Fully insured	Must have been married to the worker for nine months before worker died (unless death was accidental or military-related) or be parent of worker’s natural or adopted child
Spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(er)’s benefits
Divorced spouse of worker (no dependent child)	Age 60 or over (if disabled, age 50-59)	Fully insured	Must have been married to the worker for at least ten years
Divorced spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(ER)’s benefits as a divorced spouse
Dependent child of worker	Age 18 or under, or 19 if full-time elementary or secondary school student. If child is disabled, can be over 18 if disability began before age 22	Fully or currently insured	Must be unmarried
Dependent parent(s) of worker	Age 62 or above	Fully insured	50% or more of the parent’s support must have been furnished by worker

How much will you receive from Social Security?

The amount of Social Security benefit you receive is based on your Social Security earnings record. Your earnings are averaged according to a formula and then indexed. The resulting figure is called your primary insurance amount (PIA). Once your PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
Your widow or widower is full retirement age
You are disabled

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you retire early, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Mr. Jones retired at his full retirement age after working for many years. His PIA is determined to be $1,176. He will receive the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check will be $1,176. His wife also plans on retiring when she reaches her full retirement age. Since her own PIA is less, when she retires she will be entitled to 50 percent of his PIA, so her monthly benefit check will be $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Benefit	Requirements	Amount
Retirement	Full retirement age	100% of PIA
Retirement	62 or above, but less than full retirement age	PIA reduced by 5/9 of 1% for each month under full retirement age, and by 5/12 of 1% thereafter
Disability	None	100% of PIA
Spouse’s Benefit	Caring for dependent child	50% of PIA
	Full retirement age	50% of PIA
	Age 62 or above, but less than full retirement age	50% of PIA further reduced by 25/36 of 1% for each of the first 36 months under full retirement age, and by 5/12 of 1% thereafter
Child’s Benefit	Child of retired or disabled worker	50% of PIA
Child’s Benefit	Child of deceased worker	75% of PIA
Mother’s or Father’s Benefit	Child must be under 16 or disabled	75% of PIA
Widow(er)’s Benefit	Full retirement age	100% of PIA
Widow(er)’s Benefit	Age 60 or above, but less than full retirement age	Reduced; 71½% of PIA or more
Disabled Widow(er)’s Benefit	Starting at age 50-60	71½% of PIA
Parent’s Benefit	One dependent parent; two dependent parents	82½% of PIA; 75% of PIA (each)

Getting the most from the Social Security system

To get the most out of Social Security, you have to make some decisions. Deciding when to retire and begin receiving benefits is important because the age at which you elect to begin receiving benefits can greatly affect your monthly benefit and your overall lifetime benefit. You’ll also need to decide whether you want to work after you begin receiving benefits, and if so, determine how your wages will affect your benefit. Finally, if you are a business owner or a self-employed individual, you need to consider how you can minimize your Social Security payroll taxes.

Several benefit calculators are available on the Social Security website (ssa.gov) that can help you estimate your future retirement, disability, and survivor benefits. You can also visit the website to sign up for a my Social Security account that gives you access to your Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You may also call the Social Security Administration at (800) 772-1213 if you have questions.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Minimizing Your Social Security Payroll Tax/Self-Employment Tax

Posted on April 24, 2023 by fsykes - Business Owners, Social Security Benefits

What is it?

If you work in a job covered by Social Security, you pay Social Security payroll taxes on your earnings (your tax is matched by your employer). If you are self-employed, you pay a self-employment tax. These taxes finance Social Security benefits, including retirement, survivor’s, disability, and Medicare. Like many people, you might get more back in benefits than you pay in Social Security taxes, but not necessarily. For example, you may never need to use all of the benefits you’re entitled to, or you may be entitled to a greater benefit based on someone else’s earnings record. If you think that you will contribute much more in payroll taxes than you will receive in benefits, you can try to minimize the Social Security taxes you pay.

Understanding how Social Security payroll taxes and self-employment taxes finance your benefits

If you work in covered employment, Social Security payroll taxes are paid by both you and your employer

When you work for an employer, you pay a tax to finance Social Security benefit programs. This tax is called FICA (Federal Insurance Contributions Act), and your employer deducts the tax directly from your paycheck. For each contribution you make, your employer contributes an equal amount.

If you’re self-employed, you pay a self-employment tax on your earnings

If you’re self-employed, you’re both the employer and the employee of your business, so you’re required to pay a self-employment tax equal to the combined amount of payroll taxes employers and employees pay. You pay this tax when you file your annual tax return with the IRS or in estimated tax payments throughout the year.

The Social Security Administration (SSA) distributes your taxes to three funds

The taxes you pay are distributed to the three trust funds that pay benefits: the Old-Age and Survivors Insurance Trust Fund (OAS), the Federal Disability Insurance Trust Fund (DI), and the Federal Hospital Insurance Trust Fund (HI). Even though you contribute to three funds, the OAS and the DI are combined for taxation purposes. The resulting OASDI tax pays retirement (old-age), survivor’s, and disability benefits, while the HI pays Medicare benefits.

How much tax do you pay?

When you work for an employer–If you’re an employee who works in a job covered by Social Security, you pay a total tax of 7.65 percent to Social Security. Of this tax, 6.20 percent goes to the OASDI fund that pays retirement, survivor’s, and disability benefits, and 1.45 percent goes to the HI (Medicare) fund. However, not all of your earnings are subject to Social Security taxes; any income you earn over the maximum earnings limit (in 2023, $160,200) is exempt from the OASDI tax. This means that in 2023, the maximum OASDI tax you will pay (no matter what your income) is $9,932.40 (assuming a tax rate of 6.20 percent). The amount of HI tax you might pay is unlimited, because no portion of your income is excluded from this tax.

If you work for more than one employer during the year and earn more than the maximum earnings limit for the year, it’s possible that more than the maximum OASDI tax will be paid, because each employer is responsible for withholding the employee’s tax and paying the employer’s tax up to the maximum earnings base. If so, you’re entitled to a refund of your overpayment.

When you’re self-employed–If you’re self-employed, you pay a 15.3 percent self-employment tax on your self-employment income. Since 1990, 92.35 percent of all net earnings from self-employment has been taxable, unless the profession is not covered by the Social Security Act or unless the net income from self-employment is less than $400. Like wages from an employer, any income you earn over the maximum earnings limit is exempt, and no portion of your net earnings from self-employment is exempt from HI tax.
When you’re the employer–If you’re an employer who pays the wages of individuals covered by Social Security, you must contribute an amount equal to 6.20 percent of your employee’s salary to the OASDI fund (up to the maximum limit) and an amount equal to 1.45 percent of your employee’s salary to the HI fund.

You may also owe an additional Medicare payroll tax of 0.9% if your earnings (together with your spouse’s earnings if you file jointly) and/or net self-employment income exceed a certain threshold amount for your filing status.

Who may benefit from minimizing Social Security payroll taxes?

Business owners–If you own a business, you may benefit from minimizing payroll taxes for two reasons:

Business owners must pay the employer share of the FICA tax (7.65 percent of the wages of each covered employee).
Business owners often have higher than average earnings (and thus may fall into the category of people who do not collect as much in benefits as they pay in Social Security taxes).

A person eligible to receive simultaneous Social Security retirement benefits

You may be eligible for both a worker’s retirement benefit based on your own earnings (a benefit equal to 100 percent of your primary insurance amount, PIA) and a spousal retirement benefit based on your spouse’s earnings (a benefit equal to 50 percent of his or her PIA). When you elect to receive retirement benefits, you must apply for both types of benefits at the same time. You will receive a combination of your own benefit and your spousal benefit that equals the higher of the two. Your own benefit is always paid first.

Mary and Larry want to begin receiving retirement benefits. Mary is eligible to receive a worker’s retirement benefit based on 100 percent of her PIA. Her benefit will be $1,000. Larry is also eligible to receive a worker’s retirement benefit equal to 100 percent of his PIA. His benefit will be $450. However, Larry’s spousal benefit, based on Mary’s PIA (50 percent of her PIA, or $500), is more than the benefit he would receive based on his own PIA. So Larry will receive his own $450 benefit plus $50 of his spousal benefit. All the payroll taxes he’s paid over the years will not affect his own Social Security retirement benefit.

A person who has maximum earnings in each of the earnings years that will be used to calculate his or her Social Security retirement benefit

Usually, your 35 years of highest earnings are used to calculate your Social Security retirement benefit. If you have worked at least 35 years and earned as much as the maximum earnings amount in each of those years, you won’t be able to increase your Social Security benefit by working longer. However, if you do work longer (and you may have to, if you’re not yet eligible to receive retirement benefits), you must still pay Social Security taxes on your earnings.

Who may not benefit from minimizing Social Security payroll taxes?

Not everyone should consider using a strategy to minimize Social Security payroll taxes. In particular, the following people will likely not benefit from minimizing payroll taxes:

Individuals who have low lifetime earnings

The Social Security benefit formula favors individuals with low lifetime earnings, and they’re more likely to receive a large Social Security retirement benefit in proportion to the amount they contributed to the system through payroll taxes. In addition, if they want to increase their benefit, they may need to earn more and pay more taxes in order to increase their average indexed monthly earnings (AIME) on which their benefit is based.

Workers covered by Social Security whose spouses are not

If you’re covered by Social Security and elect to begin receiving benefits, your spouse may receive a spousal retirement benefit equal to 50 percent of your retirement benefit (at normal retirement age), even if he or she has never worked outside the home or in Social Security covered employment. This means that the return on your payroll taxes is increased by 50 percent. It’s likely that you will receive back in benefits what you have contributed through payroll taxes. In addition, even if you did attempt to minimize your payroll taxes, you may affect not only your benefit but your spouse’s benefit as well.

Strategies that may be used to minimize payroll taxes

The following table lists strategies that can be used to minimize payroll taxes and who might be able to use each strategy:

	Who Might Benefit from Using This Strategy
Strategy	Business Owner	Person Eligible to Receive Simultaneous Benefits	Person with 35 Years of Maximum Earnings
Reduce spousal compensation	Yes	Yes	No
Bunch earnings	Yes	No	No
Replace compensation with nontaxable fringe benefits	Yes	No	Yes
Reduce earnings in excess of the maximum earnings base	Yes	No	Yes
Create exempt family employment	Yes	Yes	No
Restructure business entity	Yes	No	Yes

Strengths

The money saved in payroll taxes can be invested elsewhere–If you save money in payroll taxes, you can take that money and invest it in another retirement plan.

Tradeoffs

When you minimize the amount of Social Security taxes that you pay, you may also limit the benefit you receive

Minimizing your Social Security taxes may limit your Social Security benefits or the benefits paid to your family members. For example, when you own a business and limit compensation paid to a spouse, he or she may not be eligible to receive Social Security disability benefits in the future. In addition, if you and your spouse divorce before 10 years of marriage, your spouse won’t be eligible for any benefits based on your earnings record. Any strategy you use to minimize Social Security payroll taxes should take into account your whole financial picture. Because this is complicated, you may want to consult a financial professional before undertaking the strategy.

Business planning strategies may raise the ire of the SSA or the IRS

The SSA and the IRS may closely scrutinize any questionable business reorganization. For example, if you decide you want to create exempt family employment, you must ensure that the family members you pay are doing real work for you and that you’re paying them a reasonable wage. Otherwise, the SSA or the IRS may disallow your business arrangement.

Tax considerations

Self-employment tax is deductible

When you file your federal income tax return, you can deduct one-half of the self-employment tax you paid that tax year. (Note, though, that you won’t be able to deduct any portion of the additional Medicare payroll tax if you’re subject to it.)

Strategies to minimize Social Security payroll taxes may affect your income taxes

Certain strategies you use to minimize your payroll taxes (such as restructuring a business entity) may also affect your income taxes. You should consult a tax professional or financial professional before undertaking any tax strategy.

Questions & Answers

If you hire an independent contractor, do you have to deduct Social Security payroll taxes from his or her wages?

No, but you should be sure he or she is actually working as an independent contractor. Does he or she work for other businesses besides yours? Do you have a contract with him or her? Does he or she set his or her own hours? If you can answer yes to these questions, then he or she may be an independent contractor who has to pay self-employment taxes. If he or she is an independent contractor, you’re not responsible for collecting Social Security taxes from his or her pay or paying the employer’s share of payroll taxes.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Estimating Your Social Security Benefits

Posted on April 19, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is estimating your Social Security benefits?

Estimating your Social Security benefits is particularly important when you are planning for retirement, although you may be interested in estimating survivor benefits or disability benefits as well. When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult, because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.” Estimating your Social Security benefits now will not only help you plan an effective long-term retirement strategy, but it can also help you understand what benefits might protect your family if you were to die or become disabled.

Obtaining a benefits estimate

You can estimate your retirement benefit online based on your actual earnings record using the Retirement Estimator calculator on the Social Security website, ssa.gov. You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Other benefit calculators are also available that can help you estimate disability and survivor benefits. You can also sign up to view your Social Security Statement that contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Understanding how your benefit amount is calculated

Your Social Security benefits will be based on your average lifetime earnings, expressed as your primary insurance amount (PIA). Calculating your PIA is complicated because some factors used in the benefit formula change annually. Instead of calculating it yourself, it’s easiest to obtain a benefit estimate directly from the SSA (see preceding section).

However, knowing how your PIA is calculated may be useful in benefit planning. Currently, the two PIA calculation methods most frequently used are:

The simplified old-start benefit method–This method is used if age 62, disability, or death occurred prior to 1979. It averages actual (not indexed) earnings and uses a table to calculate the PIA.
The wage indexing method–This method has been used since 1979. Indexing earnings is a way of adjusting them to reflect changes in wage levels throughout years of employment. This ensures that your benefits reflect increases in the standard of living. In general, the wage indexing method calculates your PIA by indexing your lifetime earnings up to and including the year you turn 59. Then, your highest earnings for a specific number of years (usually 35) are averaged and a benefit formula is applied to this figure to calculate the PIA.

Two other benefit computation methods are less frequently used:

“Special minimum” benefit tables are used sometimes to compute benefits payable to some individuals who have long periods of low earnings and who have at least 11 years of coverage.
Flat-rate benefits are provided to workers (and to their spouses or surviving spouses) who became age 72 before 1969 and who were not insured under the usual requirements.

How to calculate your PIA using the wage-indexing method

The wage indexing method can be used to calculate retirement, survivor’s, and disability benefits. However, the method used to calculate disability benefits is slightly different. The following discussion applies only to calculating your PIA for retirement and death benefits.

Follow these steps to calculate your PIA:

Count the number of years elapsed between 1951 (or the year you turned 22, if later) and the year you turned 61. If you were born in 1929 or later, this number will be 40.

Example(s): Peter retired from his job in 1992. He was 62. He turned 22 in 1952, so count the number of years between 1952 and 1991 (the year he turned 61). Forty years have elapsed.

Use the number of elapsed years to determine the number of benefit computation years. To do this, subtract five from the number of computation elapsed years. This figure will be used to calculate your average indexed monthly earnings (AIME). If you were born in 1929 or later, this number will be 35.

Example(s): Peter’s computation elapsed year figure is 40. 40-5=35. So, Peter’s benefit computation year figure is 35.

Use your earnings record to calculate your indexed earnings. To do this, use the appropriate table to determine what the indexing average wage was or will be in the year you turn 60. Then, look to see what the indexing average wage was in the year you are indexing. These figures become part of an indexing ratio applied to each year of earnings starting with 1951 and ending with the year you turn 59. (Earnings before 1951 are generally disregarded. Earnings in the year you turn 60 (your indexing year) and earnings in all later years are considered in calculating your PIA, but they are not indexed.) The indexing ratio can be expressed as the actual earnings in the year being indexed multiplied by the indexing average wage in the year you turned 60 divided by the indexing average wage in the year being indexed. The result will equal your indexed earnings for the year being indexed.

Example(s): Peter started working in 1951 and retired in 1992. For each year starting with 1951 and ending with 1989 (the year he turned 59), calculate his indexed earnings. His indexing year is 1990 (the year he turned 60). For example, Peter’s earnings in 1965 were $2,000. In 1965, the indexing average wage was $4,658.72. In 1990, the indexing average wage was $21,027.98. Calculate his 1965 indexed earnings:

$2,000 multiplied by $21,027.98 divided by $ 4,658.72 = $9,027.36

Tip: Actual earnings are earnings credited to an individual’s Social Security record. However, each year’s actual earnings are subject to a maximum earnings limit. If your earnings for the year you are indexing exceed the maximum limit, then you must substitute the maximum earnings limit amount for your actual earnings amount in the ratio.

Example(s): In 1965, the maximum earnings limit was $4,800. Had Peter’s actual earnings exceeded that amount, he would have replaced his actual earnings figure in the ratio with $4,800 to calculate his indexed earnings for 1965.

Once you have indexed your earnings for each year you have worked before age 60, you will be able to use those figures to calculate your average indexed monthly earnings (AIME).

Calculate your AIME by selecting your highest earnings for the benefit computation years (including any earnings not subject to indexing). Add these up and divide by the total number of months elapsed during these years.

Example(s): Peter had 39 years of indexed earnings and two years of earnings (1990 and 1991) not indexed but included in the calculation. Select his 35 highest earning years. The earnings for these years total $950,000. Divide this figure by 420 months (35 x 12). His AIME is $2261.90.

Calculate the PIA for the year you attain age 62 by applying percentages to certain dollar amounts of the AIME. The percentages are fixed, but the dollar amounts (called bend points) are adjusted each year for inflation.

Example(s): Peter attained age 62 in 1992. His PIA would be calculated using 1992 bend points–90 percent of the first $387 of his AIME, and adding 32 percent of the AIME in excess of $387 through $2,333, and adding 15 percent of the AIME in excess of $2,333. So, Peter’s PIA is calculated to be the sum of $348.30 (90 percent of $387) plus $599.65 (32 percent of $1,873.90) or $947.95, rounded to the next lower multiple of 10 cents, $947.90.

Bend points make calculating your future PIA difficult because the bend points for each year are only published on or before November 1 of the preceding year. For 2021, the bend points are $996 and $6,002.

Adjust your PIA to account for changes in the cost-of-living allowance (COLA) yearly.

Example(s): If Peter’s PIA was $947.90 when he retired in October 1992, then his PIA was adjusted for COLA in December 1992, and his January 1993 benefit check reflected the change.

Using your PIA to determine your benefit amount

Once the PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
You are a widow or widower who is at least full retirement age
You are a disabled worker

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you elect to receive early retirement benefits, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Example(s): Mr. Jones retired at age 66 (his full retirement age) after working for many years. His PIA was determined to be $1,176. He receives the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check is $1,176. His wife retired at age 66 as well (her full retirement age). Since her own PIA was less, she decided to base her retirement income on her husband’s PIA. She is entitled to 50 percent of his PIA, so she receives a monthly benefit check of $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Factors that can increase or decrease your benefit

Early retirement

If you elect to receive retirement benefits early (before full retirement age), your benefit will be reduced proportionately. You can elect to receive retirement benefits as early as age 62. For each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would at age 66.

Delayed retirement

If you delay receiving retirement benefits past full retirement age, you will receive a higher benefit when you retire. Late retirement may increase your average earnings (which may, in turn, increase your benefit). You will also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is paid in addition to your regular benefit amount. It does not affect your PIA upon which your benefit is based.

This credit varies depending on the year in which you were born and how many months or years after full retirement age you retire (up to the maximum age of 70). For example, if your full retirement age is 67, you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 24 percent greater than it would have been if you began receiving retirement benefits at age 67.

Earnings during retirement

Any income you earn after you retire must be reported to the Social Security Administration and may temporarily reduce your retirement benefit if you have not yet reached full retirement age. However, some of your annual earnings are exempt and won’t affect your benefit.

Simultaneous benefits

Occasionally, you may be entitled to receive benefits based not only on your earnings record, but on someone else’s as well. This often happens when a married couple retires.

Example(s): Mr. Jones is not planning on retiring and receiving Social Security retirement benefits until he is 68. His PIA is $1,176. His wife, who is 63, wants to retire now, but she can’t begin receiving a spouse’s retirement benefit until her husband begins receiving his retirement benefits. However, since she is already over the age of 62, she can receive retirement benefits based on her own PIA. Her benefit, adjusted for early retirement, will be $400. Later, when her husband retires, she can receive her own retirement benefit and a spouse’s benefit of $188, the difference between her own worker’s benefit ($400) and the spouse’s benefit she would have received based on 50 percent of her husband’s PIA ($588).

A family maximum benefit applies

Your family may receive benefits based on your earnings record. There is, however, a limit to the amount of monthly benefit that can be based on an individual’s Social Security record. The limit varies but generally ranges from 150 to 180 percent of your PIA. Benefits to family members may be reduced if they exceed the family maximum. The formula used to compute the family maximum is similar to that used to compute the PIA.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Bunch Earnings to Save Social Security Taxes

Posted on April 17, 2023 by fsykes - Business Owners

What is it?

As a business owner, you may save Social Security taxes (self-employment taxes) by postponing or accelerating income so that your earnings are bunched in alternate years. This strategy works if you are self-employed and your annual earnings are at or near the maximum earnings base because your earnings count for Social Security purposes in the year they’re received, not in the year they’re earned. Since earnings over the maximum earnings base are taxed at a lower rate than earnings at or under the maximum earnings base, you can save payroll taxes if you bunch your earnings so that they exceed the maximum earnings base in alternate years.

How does it work?

Understanding self-employment taxes

If you’re self-employed, you pay a self-employment tax equal to 15.3 percent of your earnings to finance Social Security. Of this tax, 12.4 percent goes to OASDI (Old-Age and Survivor’s Insurance Trust Fund and Federal Disability Trust Fund) to finance your retirement, survivor’s, and disability benefits, while 2.9 percent of this tax goes to HI (Federal Hospital Insurance Trust Fund) to finance your Medicare benefits.

Understanding the maximum earnings base

The maximum earnings base is the maximum amount of earnings that are subject to the OASDI tax. This amount is also the maximum amount of earnings credited to your Social Security record. The maximum earnings base (in 2023, $160,200) is determined annually.

How the maximum earnings base affects your self-employment tax

You don’t have to pay the OASDI tax on any earnings you have in excess of the maximum earnings base. However, you do have to pay the HI tax on earnings in excess of the maximum earnings base.

Caution: You may also owe an additional Medicare payroll tax of 0.9% if you have high earnings. If you’re self-employed, this additional tax applies to net self-employment income that exceeds a certain threshold amount for your filing status.

How to do it

Estimate your earnings

Estimate your earnings for the current tax year. If you are able, project your earnings for the next tax year as well. Is it likely that your earnings will approach or exceed the maximum earnings base in either tax year? If the answer is no, bunching your earnings isn’t likely to benefit you in terms of Social Security taxes. If it appears that your earnings may reach or exceed the maximum earnings base in one year but not the other, however, it may make sense to try to shift earnings into the tax year in which you’ll exceed the maximum earnings base.

Accelerate your earnings

Your earnings from self-employment count for Social Security purposes in the year they’re received rather than in the year they’re actually earned. If you believe that your earnings will exceed the maximum earnings base in the current tax year but not the following tax year, you may want to consider accelerating earnings into the current year. Why? Any self-employment earnings you have that exceed the maximum earnings base in the current year will be subject to the HI portion of the self-employment tax, but not the OASDI portion. Since your earnings in the following tax year will likely not exceed the maximum earnings base, and thus will be subject to both the HI portion and the OASDI portion of the self-employment tax, you can benefit from accelerating your earnings into the current year.

Postpone your earnings

If you believe that your earnings will reach or exceed the maximum earnings base in the following tax year but not the current tax year, you may want to consider postponing earnings into the following year. Again, by doing so you could avoid the OASDI portion of the self-employment tax on the earnings deferred.

Consider your overall tax situation

Bunching your earnings from self-employment may help you save Social Security taxes, but you should consider the overall tax implications. For example, if your earnings in one year are high enough, you may be subject to the additional Medicare payroll tax and the Medicare investment income surtax, or even be pushed into a higher income tax bracket, among other things. Consult a tax professional for help with your individual tax situation.

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Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Determining Your Retirement Income Needs

Posted on April 12, 2023 by fsykes - Retirement Benefits

What is it?

Determining your retirement income needs is a process that helps you identify your retirement planning needs based on your desired standard of living and the resources you’ll have available. Today, you can typically no longer rely on Social Security benefits and a company pension check to fulfill all your retirement income needs. Social Security benefits will probably satisfy only a fraction of your overall retirement income needs, and generous company pensions have largely been replaced in many cases with employer-sponsored retirement plans that are funded largely with employee dollars. A successful and rewarding retirement requires you to plan ahead in order to help ensure that you have sufficient retirement income to last you for your entire retirement. Determining your retirement income needs requires a discussion of the various stages of retirement planning, including preretirement, the transition into retirement, and retirement.

Preretirement

Your retirement is sometime in the future–maybe 10 years, maybe 30 years down the road. If so, you’ve got a little breathing room. The single biggest mistake that you can make right now is to put off thinking about your retirement. The more time you have, the more you can hope to accomplish, so the sooner you start, the better off you should be. You’ve got a lot to think about. There are many factors to consider, including your expected sources of retirement income, your retirement income needs, and how you can use those sources of retirement income to fulfill your retirement income needs.

The transition into retirement

If retirement is right around the corner, you’ve got some important decisions to make. If you haven’t done so, spend some time forming a good picture of your retirement financial position. To the best of your ability, estimate your retirement income and expenses as discussed in preretirement. As retirement approaches, though, you have to consider the impact of when you retire. Early retirement and delayed retirement, through choice or necessity, can raise certain issues you’ll want to understand.

Retirement

When you retire, there are still some retirement issues that you may need to consider. These include the effect of working during your retirement and the impact of other sources of income on your Social Security benefits. Also, required minimum distributions from your IRA or employer-sponsored retirement plan may be an issue.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Use of Government Benefits

Posted on April 10, 2023 by fsykes - Family Benefits, Social Security Benefits, Widow Benefits

What is it?

Introduction

If you’re like most people, you feel you should take steps to make sure that your spouse and other survivors will have sufficient resources if you die. If you are young and healthy, however, you may not put too much energy into worrying about what will happen to your loved ones if you die prematurely. But you may also realize that anything can happen to anyone, that you’re not immune from unexpected tragedy, and that you should be prepared for the worst. To minimize the risk of loss associated with premature death and to plan for the future of their survivors, most people purchase some form of life insurance. Others self-insure by saving or earmarking existing assets, while still others use some combination of life insurance and self-insurance. Another way to provide adequate resources for your survivors is through government benefits.

Social Security survivor benefits

For many people, the major source of government benefits for your survivors will be Social Security. In addition to regular Social Security benefits that are payable to most retirees, the federal government also provides survivor benefits payable under certain conditions to specified survivors of a retired or nonretired employee who dies. Generally, the survivors who may be entitled to receive these benefits at your death include your spouse, your former spouse, your dependent children, and your dependent parents. Usually payable in regular monthly installments, these survivor benefits will vary, based on your average lifetime earnings, the recipient(s) of the benefits, and other factors. Whatever the size of the benefits, Social Security survivor benefits provide a valuable means of financial support for the people you care about if you meet with an untimely end.

As with Social Security retirement benefits, your survivors’ eligibility for survivor benefits will depend on whether you are even part of the Social Security system. That is, you need to have contributed at least some of your earnings through payroll tax deductions to the federal government’s Social Security fund. As you contribute to the fund, you accumulate units of credit, and generally, you have to earn a certain number before your survivors can be eligible for benefits. Social Security survivor benefits are, in effect, a kind of pension or entitlement program that you become part of by paying into a fund. In this sense, the survivor benefit system differs fundamentally from regular life insurance that you buy, even though both are designed to provide funds that your survivors can draw on if you die prematurely.

Lump-sum death benefit

If you die fully or currently insured, a one-time lump-sum death benefit of a maximum of $255 is payable at your death if you are survived by a spouse who was living in the same household as you at the time of your death or by a spouse or dependent children eligible to receive Social Security benefits for the month of your death based on your earnings record. In addition, the death benefit may be payable under other circumstances as well.

While Social Security survivor benefits and the lump-sum death benefit can provide supplemental resources for your survivors, they will not be sufficient by themselves in most cases. You will probably need to take additional steps to ensure that your survivors have enough money to carry on and meet their various expenses if you die prematurely. Among others, these may include personal life insurance and earmarking existing assets as a kind of personal death benefit fund.

You should consult your financial planner and other resources to determine the particular strategy or set of strategies most appropriate for your circumstances.

What other types of government benefits are there?

Benefits for federal government employees

If you are a federal government employee who qualifies in terms of length of service, your death may trigger benefits to certain of your survivors under either of two retirement systems for federal employees: the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS). The benefits, which may be subject to restrictions based on whether you are also eligible for Social Security, are generally payable either in a lump sum or in regular installments (known as a survivor annuity). They are also payable regardless of whether you die before or after retirement.

Benefits for military personnel

If you are in the military, your survivors may be eligible for survivor benefits under the Survivor Benefit Plan in the event of your death. This plan provides survivor benefits for eligible widows, widowers, and dependent children of retired military personnel. You may be eligible for the Survivor Benefit Plan if you are married or have a dependent child when you become entitled to retired pay (although you may elect not to participate). The plan may provide for a reduction in benefits if some of your surviving beneficiaries are also eligible for Social Security benefits.

Your survivors may also be eligible for dependency and indemnity compensation, a death pension, and other benefits.

Railroad survivor benefits

If you are a railroad employee or a retired railroad employee, your survivors may be eligible for one or more railroad survivor benefits if you die. Specifically, the Railroad Retirement Act may provide survivor annuities for certain of your survivors. You must have completed 10 years of railroad service and have had a current connection with the railroad industry at the time of your death. Your widow(er), surviving divorced spouse, or remarried widow(er) may receive an annuity based on such factors as age, disability, and whether he or she is caring for a child of yours. Subject to certain restrictions, other railroad survivor annuities may be payable to your dependent children, grandchildren, and parents.

Workers’ compensation

If you die as a result of a job-related injury or illness, your survivors may be entitled to receive workers’ compensation survivor benefits based on your wages (subject to minimums and maximums) and on the number of your surviving dependents. Your survivors may also receive money for your burial expenses. Benefits are usually payable to your surviving spouse as long as he or she does not remarry, and to your dependent children up to a certain age.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Supplemental Security Income (SSI) Benefits

Posted on April 5, 2023 by fsykes - Social Security Benefits

What is Supplemental Security Income (SSI)?

The Supplemental Security Income program (SSI) is a cash assistance program designed to provide minimum income to people who are aged, blind, or disabled. Although your eligibility for Social Security retirement and disability benefits is based on how long you’ve worked and how much you’ve earned during your lifetime, your eligibility for SSI is based on financial need. If your resources and income fall below certain levels, you may be able to receive SSI benefits. Often, people who get SSI also get other government assistance as well, such as food stamps and Medicaid. However, SSI is a program of last resort; before applying for it, you must file for all other benefits for which you may be eligible.

Who is eligible for SSI benefits?

The following individuals who have income and resources less than a certain limit may be eligible for SSI benefits:

An aged person (age 65 or over).
A blind person regardless of age: A blind person is defined as a person whose vision, with use of a corrective lens, is 20/200 or less or who has tunnel vision of 20 degrees or less.
A disabled person regardless of age: A disabled person is defined as a person who has a medically determinable physical or mental problem that keeps him or her from working and that is expected to last for a year or more or end in death. The definition for a disabled child differs slightly, since most children don’t work. A child will be considered disabled if he or she is not working and has an impairment that is as severe as one that would disable an adult. The medical requirements for disability and the process used to determine disability are the same for SSI and the Social Security disability program.

Disabled Social Security and SSI beneficiaries have the chance to participate in vocational rehabilitation, employment, or other support services from approved providers. Most beneficiaries become eligible for the SSA’s Ticket to Work Program when they start receiving Social Security disability benefits or SSI benefits based on disability. This program is free and voluntary, and provides support services that will help you return to work. Other work incentives are also available.

How much money can you make and still get SSI?

Income limit

You can have a certain amount of income and still be eligible for SSI. Under SSI, income includes earned income (earnings from wages and self-employment), unearned income (e.g., retirement benefits, pensions, and interest), in-kind support (e.g., gifts of food, shelter, and clothing), and deemed income (income from a spouse, parent, or sponsor used to compute your benefit). Not all of your income is countable, however. For example, when figuring your eligibility for benefits, some income is excluded, including (but not limited to) the following types of income:

The first $20 of most income received in a month
The first $65 a month earned from working and half the amount over $65 (if there is no unearned income, $85 a month of earned income plus half the amount over $85)
Food stamps
Most food, clothing, and shelter received from private nonprofit organizations
Most home energy assistance
Earned income you use to pay for items or services you need to work if you are disabled
Earned income you use to pay for expenses caused by working if you are blind

If only one member of a couple living together in the same household is eligible for SSI, the ineligible member is considered in the calculation. If an unmarried child under 18 is living at home, some of the parents’ income may be used to determine the child’s eligibility.

Income limits are subject to annual cost-of-living related increases.

For more specific information on SSI income limits and program rules, visit the Social Security Administration’s website, ssa.gov.

Resources limit

You cannot have resources (cash or other liquid assets and real or personal property) in excess of $2,000 if you are an individual with no spouse or in excess of $3,000 if you have a spouse. Everything you own, however, is not considered a resource. For example, these (and other) things are not considered resources:

The home you live in and the land it’s on if you own it as your principal residence
Personal household goods
Your car, when used to provide necessary transportation
Life insurance policies with a combined face value of $1,500 or less
Burial plots for you and members of your immediate family
Up to $1,500 in burial funds for you and up to $1,500 for your spouse
Certain items you use for work or to earn income if you are blind or disabled
Up to $100,000 of funds in an Achieving a Better Life Experience (ABLE) account

For example, these things are considered resources:

Real estate (other than your primary residence)
Cash
Bank accounts
Stocks and bonds

If only one member of a couple is eligible, the couple’s resources are still considered together, and the couple’s limit still applies. If an unmarried child under age 18 is living at home and the parents’ resources exceed $3,000 (for a couple), the excess can be included with the child’s income to determine eligibility.

How much money will you receive from SSI?

How much you receive will depend on where you live

Your basic federal SSI benefit will be the same in Georgia as it would be in Idaho, because your benefit is based on the same criteria everywhere. The maximum federal benefit for 2023 is $914 for an eligible individual and $1,371 for an eligible individual with an eligible spouse. However, you might receive more than this because most states add money to your basic benefit. This supplement will vary because of differences in regional living costs and state-defined eligibility criteria. Your state may send you the supplement separately or combine it with your federal benefit. To find out if your state pays supplementary benefits and how much it pays, call the Social Security Administration at (800) 772-1213. In some cases (for example, if your family has money coming in besides the SSI benefit) you may get less than the basic benefit.

Some months, you may not receive a benefit check

Your eligibility for SSI benefits is determined on a month-by-month basis. Your countable income is figured by adding up all your earned and unearned income that can’t be excluded by law or under the Social Security Act. Then, that amount is compared to the federal benefit rate. If the FBR is less than your countable income, you won’t receive a federal SSI check that month.

Your federal benefit amount is based on your monthly income two months ago

Your monthly payment is usually based on your countable income from the second month before the current month. This countable income is subtracted from the current month’s FBR to determine your SSI payment.

If you are eligible for a state supplement payable with your federal check, the supplement will be calculated by subtracting any excess countable income. In some months, you may be eligible only for the state supplement. States may vary payment amounts based on living arrangements or geographical area and may disregard some income when calculating payments.

Other factors that will affect your SSI benefit

Federal and state maximum benefits: You can’t receive a benefit check in excess of federal and state maximum benefits. Each state has its own maximum benefit.
Your living arrangements: Your basic SSI payment may be reduced by up to one-third if you live in someone else’s household and receive maintenance and support from that person. Maintenance and support is food, clothing, or shelter you receive and for which you do not pay.

While you are receiving SSI, what other benefits can you receive?

Medicaid and Medicare assistance: You can probably get Medicaid to help you pay health care expenses. If you get Medicare because you are age 65 or over, your state may assist you with paying your Medicare premiums if you have low income and few resources.
Social Services: You may be eligible for social services provided by the state, city, or county, such as homemaker services, meals, and transportation.
Interim payments: Some states make interim payments to individuals waiting for a decision on eligibility for federal payments.
Food stamps: You may be eligible for food stamps. If everyone in your household receives SSI, Social Security will help you prepare the application.
Social Security: If you qualify, you may be eligible for Social Security retirement or disability benefits as well as SSI. However, the income you receive from Social Security benefits will be used to determine your eligibility for SSI payments.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Claiming Survivor’s and Death Benefits

Posted on April 3, 2023 by fsykes - Social Security Benefits, Widow Benefits

What is it?

After the death of your spouse, you may be eligible to receive survivor’s benefits and death benefits from government sources, from your spouse’s employer, and from retirement plans.

Social Security benefits

Social Security survivor’s benefits

If your spouse (or former spouse) was self-employed or employed in a job where he or she paid Social Security payroll taxes, you may be eligible to receive Social Security survivor’s benefits. The following table illustrates the eligibility requirements for survivor’s benefits:

Beneficiary	Age	Insured Status of Worker	Conditions That Must Be Met
Spouse (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (age 50, if disabled) unless subsequent marriage ended, and must have been married to worker at least nine months just before worker died (unless death was accidental or military-related), or be the parent of the worker’s natural or adopted child
Spouse of worker (with dependent child who is entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried unless subsequent marriage ended, and is not already eligible to receive a larger benefit in another category
Divorced spouse of worker (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (or if disabled, before age 50), unless subsequent marriage ended, and was married to worker for at least 10 years
Divorced spouse of worker (with dependent child entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried (unless subsequent marriage ended) and is not already eligible for larger benefit in another category

How much you receive depends on your spouse’s lifetime earnings, how many other members of your family are receiving benefits, and what beneficiary category you fit into.

The amount of Social Security survivor’s benefit you receive will be reduced (even to zero) if you have earnings over the annual exempt amount, unless you are disabled. If you are under normal retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over the annual exempt amount (in 2012, $14,640).

Social Security death benefit

If you were living in the same household as your spouse at the time of his or her death and your spouse was fully or currently insured for Social Security benefits, you may be entitled to receive a $255 lump-sum death benefit from the Social Security Administration.

Who to contact for more information

Social Security benefits are not automatic; you must apply for them. Although the Social Security Administration (SSA) suggests that you apply for survivor’s benefits in the month of your spouse’s death, benefits may be paid retroactively. To apply for the death benefit, call the Social Security Administration (SSA) at (800) 772-1213 or contact your local SSA office.

Federal employees’ survivor benefits

Federal Employees Retirement System (FERS) benefits

If your spouse or ex-spouse was a civilian federal employee covered by FERS, you may be eligible to receive a survivor’s benefit. Benefits can be paid both to survivors of workers who die before retirement (whether employed by the government at the time of death or separated from government service but entitled to a deferred annuity) and to survivors of retirees (unless the retiree and his spouse elected not to pay for the survivor annuity). Benefits may be paid in the form of a monthly annuity, a lump-sum cash payment, or both, depending on how long the employee worked for the government and whether he or she was currently or formerly employed at the time of his or her death. The following table illustrates the eligibility requirements for FERS survivors’ benefits:

Beneficiary	Age	Conditions
Surviving spouse of worker employed at time of death	Any age	Must have been married to employee for at least nine months or must be the parent of a child of the marriage, or employee’s death must have been accidental
Surviving ex-spouse of worker employed at time of death	Any age	Must have been married to the employee for at least nine months, have not been remarried before age 55, and have a court order or approved settlement agreement providing that survivor annuity will be paid
Surviving spouse of retired worker	Any age	Must have been married to the employee for at least nine months or must be a parent of a child of the marriage, or the death of the retired employee was accidental and employee and spouse did not waive right to a survivor’s annuity
Surviving ex-spouse of retired worker	Any age	Must have been married to worker for at least nine months, have not been remarried before age 55, and have a court order or approved property settlement agreement. These conditions can be waived if worker elected to provide his or her former spouse with an insurable interest annuity at the time he or she retired

Civil Service Retirement System (CSRS) benefits

If your spouse or ex-spouse was covered under CSRS, you may be eligible to receive a survivor’s annuity paid until you die or remarry (unless you remarry after age 55). In general, eligibility requirements are the same as those under FERS, with one notable exception. While a former spouse of a FERS employee separated from government service may be entitled to a survivor’s annuity even if that employee dies before reaching retirement age, the former spouse of a CSRS employee will not be.

Survivor’s benefits for state government employees

Some state employees are covered under retirement programs (similar to CSRS) that serve as alternatives to Social Security. Instead of paying Social Security taxes, they contribute a portion of their paychecks (matched by the government employer) to a money market fund or investment fund that grows until retirement and then is paid out in the form of an annuity. If your spouse was a state or local employee, check with his or her employer for information about survivor’s benefits.

Social Security benefits may affect your FERS or CSRS benefit

Survivors’ benefits you receive under FERS or CSRS may reduce (or be reduced by) benefits you receive from Social Security.

Who to contact

Contact the Office of Personnel Management (OPM), 1900 E Street NW, Washington DC 20415, or call (202) 606-1800 to locate your nearest regional office. You can also access information (including benefit handbooks) via the Internet at the OPM website (www.opm.gov).

Military service members survivor’s and death benefits

Death gratuity payments

Survivors of members of the military who have been killed while on active duty may receive a $100,000 death gratuity payment fully tax free.

Burial-related expenses

Burial allowances are available to the survivors of servicemembers who die on active duty and to the survivors of some other veterans. The government provides free markers and headstones to some veterans, as well as some final honors such as flags, presidential certificates, and an honor guard. Almost all veterans are eligible for burial in a national cemetery.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation (DIC) provides a monthly pension to widows, widowers, dependent children, and low-income parents of some deceased active duty servicemembers and some disabled veterans (if disability was service-related). Beneficiaries receive a fixed monthly benefit that usually increases annually with inflation. If you need nursing home care or are housebound, DIC will also pay you an extra benefit. Receiving money from DIC will decrease the amount that you receive from another benefit plan, the Survivor’s Benefit Plan (SBP), but is not affected by (and does not affect) Social Security.

The Survivor’s Benefit Plan (SBP)

The SBP provides a monthly lifetime annuity payment to qualified widows, widowers, dependent children, and some ex-spouses who are survivors of a retired military servicemember. A retired servicemember automatically is covered by the SBP when he or she retires after 20 years of service, but may elect reduced coverage or no coverage for his or her survivors, if his or her spouse concurs. The annuity you will receive as a survivor depends on the amount your spouse designated when he or she retired.

Death pension

Available to qualified survivors of low-income veterans, the death pension provides a fixed monthly benefit that usually increases annually with inflation. The amount of monthly benefit a survivor receives depends on the survivor’s other income and whether other dependents reside with the survivor.

Educational assistance

Monthly educational assistance payments can be made to spouses and children of disabled veterans who die. These payments can help pay for college or university classes, secondary school programs, remedial education, apprenticeships, and other courses of study.

Home loans

The widow or widower of a service member who died on active duty or as a result of a service-connected illness or injury may qualify for a VA home loan to purchase a primary residence. The loan is issued by a financial institution but guaranteed by the federal government. The primary advantages of VA home loans are that they often require no down payment and because the loan is partially guaranteed by the federal government, no mortgage insurance payments.

Federal job preference

Survivors of servicemembers who died on active duty or as a result of a service-connected disability may receive ten extra points on the results of a competitive examination for a federal job.

Health insurance

The spouse or dependent child of a veteran who died as a result of a service-connected disability or who died on active duty may purchase government-backed health insurance called CHAMPVA. This health insurance costs less than insurance available from private sources because it is government-subsidized.

Who to contact to apply for benefits

For information or to apply for benefits, call the Department of Veterans Affairs (VA) at (800) 827-1000 or contact your nearest VA office.

Qualified benefit plans and IRAs

Qualified benefit plans

When your spouse dies, call his or her employer or plan administrator to ask about what benefits may be payable to you. Your spouse may have contributed to one or more plans designed to provide retirement income, including profit-sharing plans, 401(k) plans, 403(b) plans, stock option plans, Keogh plans, and thrift/savings plans. He or she may also have assets in a traditional defined benefit pension plan that was funded entirely through employer contributions. Different rules surround different plans, but in general, qualified pension plans must provide both pre-retirement survivor annuities and post-retirement survivor annuities. This means that even if your spouse died before retirement and was not yet vested in a qualified pension plan, you may be entitled to receive a survivor annuity (or other payment form) unless you waived that right at some point.

IRAs

If your spouse owned an IRA and named you as the beneficiary, you have several options in taking funds from the IRA. Your options include taking the proceeds of the IRA as a lump-sum distribution or rolling them over to your own IRA. If you elect a lump-sum distribution of your spouse’s IRA, you will not owe the normal 10 percent premature withdrawal penalty tax, even if you are under age 59½. However, if the funds come from a traditional IRA, the amount you receive will generally be included in your taxable income (qualifying distributions from Roth IRAs are tax free). Rolling over the IRA proceeds to your own IRA provides you with a great deal of flexibility and control. You can name your own beneficiary or beneficiaries, and can postpone taking distributions (distributions from traditional IRAs, though, generally must begin after age 70½). You should weigh your options carefully, using your income needs, expected return on investments, and tax consequences as a guide.

Questions & Answers

Does the former spouse of a federal employee who died while employed under FERS have any claim to his or her pension benefits?

Possibly. It depends on the terms of the divorce. A former spouse may have been awarded a court-ordered survivor’s annuity or may have the rights to an insurable interest annuity if his or her former spouse elected to provide one. He or she may also be eligible for Social Security survivor’s benefits based on the Social Security earnings record of his or her former spouse.

What should you do if you receive Social Security checks in your spouse’s name after his or her death?

Don’t cash them. The law requires that these checks be returned. Send them back to the Social Security Administration right away. For information on the procedure to follow, call the SSA at (800) 772-1213.

If you are already receiving Social Security benefits and your spouse dies, how will your spouse’s death affect your benefit?

An individual entitled to Social Security benefits may be eligible to receive a greater benefit as a widow than he or she would as a retiree. If so, then his or her Social Security benefit may be adjusted automatically.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Retirement Earnings and Social Security

Posted on March 29, 2023 by fsykes - Social Security Benefits

What is it?

You have finally reached your long-awaited retirement. If you have saved and planned properly, this will be a time of financial independence for you. There are some other considerations that you should keep in mind when you retire. If you choose to work after retirement, you should be aware of the effect it will have on your Social Security benefits. You should also keep abreast of the required minimum distribution rules and their effect on your retirement investments.

Retirement earnings and Social Security

Reduction of Social Security benefits based on earnings

If you need extra income during retirement or if you find that a retiree’s life is boring, you may want to consider working. However, be aware of the effect that working during retirement has on your Social Security benefits. The Social Security Administration gives you the opportunity to work and receive retirement benefits so long as your earnings do not exceed the annual earnings limit, a limit that applies only if you are under “full retirement age,” which varies between 66 and 67 depending on your year of birth. After you reach your full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. In 2022, you can earn up to $19,560 if you have not yet reached full retirement age. If you earn more, $1 in benefits will be withheld for every $2 you earn over that amount. However, a special limit applies during the year in which you reach normal retirement age (up to, but not including, the month you reach normal retirement age). In 2022, this limit is $51,960. If you earn more, $1 in benefits will be withheld for every $3 you earn over that amount.

Evaluate the pros and cons of exceeding earnings limit

It might seem like a good idea to always keep your earnings below the Social Security Administration’s limits. However, there may be times when you might want to consider taking a job where your earnings exceed those limits. While you are subject to withholding for your higher earnings, your overall income may be greater because of those same higher earnings. Furthermore, because you pay Social Security taxes when you work, Social Security reconfigures your benefits to take into account the extra earnings.

Phillip, age 63, receives $1,000 in monthly Social Security benefits for a total of $12,000 per year. In 2021, Phillip takes a job that pays $30,960 per year, $12,000 over the annual earnings limit of $18,960. Social Security withholds $1 for every $2 that Phillip earns over the limit or $6,000. Phillip still receives $6,000 from Social Security ($12,000 – $6,000 = $6,000). He has a total income of $36,960 ($30,960 in earnings + $6,000 in Social Security). Although he has lower monthly Social Security benefits, Phillip’s overall income is greater than it would be without the job because of his higher earnings.

If you earn other income during the year, then you might have to pay income tax on part of your Social Security benefits if your total income exceeds a certain base amount.

Other facts regarding Social Security

There is a special rule regarding the annual earnings limit during your first year of retirement. If you retire midyear, you may find that you have already earned more than the annual earnings limit. The rule allows you to receive full Social Security benefits for any whole month that you are retired despite the fact that you exceed the annual earnings limit.
You will be subject to penalties if you fail to report retirement earnings.
If you receive Social Security benefits as a family member, your earnings will affect only your own benefits.

Required minimum distributions (the age 72 rule)

If you are retired, you might still be enjoying the tax-deferred status of your investments held in retirement plans. However, if you have a traditional IRA, you are required to begin taking required minimum distributions for the year in which you reach age 72. If you fail to take the minimum distribution, you are subject to a 50% penalty on the amount that should have been distributed. Required minimum distributions generally must be made from employer-sponsored retirement plans after age 72. However, if you retire from your employer after age 72, you may be able to delay taking required minimum distributions from that employer’s plan until after you’ve retired.

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Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.