Social Security Optimization to become less optimal

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If the current budget legislation is passed into law later this week, big changes will occur in the world of Social Security optimization. The impact of this legislation: No more restricted applications and no more file-and-suspend strategies. (Survivor benefits can still be optimized and voluntary suspensions will still be available).
In English: If you are 62 or older as of the end of 2015, these changes will not apply to you. If you are younger than 62 and have considered optimization strategies, they will likely not be applicable. Why “likely”? Because the legislation has not yet passed and because there may be a 6 month grace period for the file-and-suspend strategy.
What this means for Clarus clients: We will reevaluate your claiming strategy at our next review and we are adjusting our Social Security assumptions to take into account these upcoming changes.

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2015 Social Security Increase – Another Reason to Delay Benefits?

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Monthly Social Security and Supplemental Security Income (SSI) benefits will increase 1.7 percent in 2015, the Social Security Administration announced last week. This historically small adjustment for the third straight year translates to about an extra $20 per month for the average recipient.

If you’re thinking of delaying benefits, you’ll like these statistics:  Social Security benefits begun at age 70 are 76% greater than benefits taken at age 62.  Spousal benefits at 66 are 43% larger than those taken at age 62.

Gifts for Grads

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A great gift for college or high school graduates is William Bernstein’s new book:  If You Can:  How Millennials Can Get Rich Slowly.  This short (27 page) e-book is packed with essential information for those (of any age) just starting to save.   The price, 99 cents at Amazon, leaves room for another great gift:  Shares of Vanguard’s Total Stock Market ETF (VTI), which would make a great foundation for any portfolio.

2013 Retirement Contribution Limits and Tax Changes

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With so much drama regarding the “fiscal cliff,” I thought many of my clients would appreciate some “cliff notes” on the changes they’ll see in 2013.  But first, a quick look at some of the new retirement plan contribution limits for 2013:

401k, 403b employee contributions:  $17,500  (up $500 from last year)
401k, 403b age 50+ catch-up contributions:  $5,500 (no change from 2012)

IRA, Roth IRA contributions:  $5,500 (up $500 from last year)
IRA, Roth IRA age 50+ catch-up:  $1,000 (no change from 2012)
Roth IRA Income phase-out range for joint filers: $178,000 – $188,000

TAX CHANGE HIGHLIGHTS (Here are a few major changes.  If anyone would like the 7-page summary of tax changes, please email & I’ll forward it to you):

1.  Payroll taxes will increase 2% for all wage-earners.

2.  Tax rates will stay the same unless your annual earnings are above $450,000 (joint filers) or $400,000 (single filers) who will now fall into the 39.6% tax bracket.

3.  Capital Gains and Dividends will be taxed based on your tax bracket:
– Tax rate BELOW 25%:  0% tax
– Tax rate of 25% or greater (but earnings less than $450,000 joint):  15% tax
– Earnings of $450,000 joint:  20% tax rate plus 3.8% healthcare surtax rate.

4.  Permanent AMT relief:  The AMT exemption amount for joint filers rises from $45,000 to $78,750, and will now be indexed for inflation.

5.  Personal Exemption Phaseout and Limitations on Itemized Deductions (previously suspended) are reinstated for households making $300,000 ($250,000 for single filers) or more.

6.  Tax-free distributions from IRAs for charitable purposes, which expired at the end of 2011, is now revived for 2012 and continued through 2013. Because 2012 has already passed, a special rule permits distributions taken in 2012 to be transferred to charities for a limited period in 2013. Another special rule permits certain distributions made in 2013 as being deemed made on Dec. 31, 2012.

Caring for the Caregiver Conference on Saturday, September 24th

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This one day conference will provide insights and sources of information to help caregivers navigate difficult decisions regarding those they care for, especially aging family members.  Three sessions cover the following topics:  1) Legal & Financial Issues & Family Conflict, 2) Care Receiver Living Options, and 3) Self Care Options for the Caregiver.  During breaks and lunch, more than 30 local service providers will be available to answer questions and provide informative materials related to their organizations.

This free conference  is held at Hosanna! Lutheran Church in St. Charles (36W925 Red Gate Road) from 8:15am to 3pm on Saturday, September 24th, 2011.  Contact Clarus for a brochure, or look for Liane at the conference (I’ll be a panelist at the 9am session on Legal & Financial Issues).