Monday, October 28, 2013

Social Security - Survivor Benefits

Social Security remains a hot topic - both with the national media as well as within our practice.  As we continue to discuss Social Security with clients, there is one area receiving increased attention - Survivor Benefits.

And with good reason: statistics indicate that the poverty rate for elderly widows is three to four times higher than that of their married counterparts.  Without a doubt, widowhood typically causes a decline in economic well-being for the surviving spouse.

Monday, October 21, 2013

Social Security Spousal Benefits Part 3: Restrict the Scope Strategy

As we continue our series on Social Security, we'll next look at a strategy referred to as "Restrict the Scope."  It is recommended you first read our posts on Social Security, Spousal Benefits and File and Suspend before continuing.

As with File and Suspend, Restrict the Scope refers to a filing strategy used by married couples to maximize their Social Security benefits.  It is often mentioned when both spouses have similar earnings records, but has many more practical applications.  In fact, Restrict the Scope is generally much more utilized than File and Suspend.

To review, briefly, everyone is entitled to a Social Security benefit based on their own earnings record.  As a spouse, you are also entitled to benefits based on your partner's earnings record equal to a maximum of 50% of their Primary Insurance Amount (PIA).  Simply put, you receive the greater of your benefit or the Spousal Benefit, but not both.  Your spouse must file for Social Security themselves in order for you to receive Spousal Benefits.

Monday, October 14, 2013

Social Security Spousal Benefits Part 2: File & Suspend Strategy

In our recent posts, we've provided some basics on Social Security and Spousal Benefits.  Armed with that information, let's start taking a simple look at some strategies that may allow married couples to more effectively maximize their lifetime Social Security benefits.  We'll begin with a strategy often called "File and Suspend." (If you haven't read the previous posts, you are encouraged to do so first before reading on.)

As we’ve already noted, you are always entitled to a Social Security benefit based on your own earnings record. As a spouse, you are also entitled to a benefit based on your partner’s earnings record, up to half of their Primary Insurance Amount (PIA), called a Spousal Benefit. (You receive the greater of your own benefit or half of your spouse’s, but not both.) However, in order for you to receive a Spousal Benefit, your spouse must have filed for Social Security benefits themselves. (Note: This is not the case when claiming on an ex-Spouse, but that’s a topic for another post.)

Tuesday, September 17, 2013

Credit Reports and Credit Scores – What You Need to Know

We all know the importance of a good credit score.  Many people consider their credit report to be their financial report card.  Whether you’re buying a new car, sending your child to college or applying for a credit card, your lender has a responsibility to evaluate the risk they’re taking by lending to you.  But what exactly does that mean and how can you find your credit report and credit score? 

Your credit report is a detailed description of how you have managed your credit in the past 7-10 years.  The better your credit report, the more likely your credit requests will be approved and you’ll receive lower interest rates.  Organizations known as credit bureaus or credit agencies, gather information from employers, landlords, public records and creditors in order to generate these reports.  The major credit bureaus in the U.S. include
Equifax, Experian and TransUnion.  After compiling this information, these credit bureaus then sell your credit information to anyone who has a legitimate need to access the information (prospective creditor, landlord, employer, insurer, etc.).

Tuesday, August 6, 2013

Social Security Spousal Benefits - Part 1

The more frequently we discuss Social Security with our clients - which is often - the more we realize just how complicated Social Security can be.  In particular, we have found that Spousal Benefits can be among the most confusing provisions in the Social Security system.

While you should not expect to understand Spousal Benefits fully after only a short reading, we do hope to shed at least a little more light on the topic.  First, let's see how the Social Security Administration explains it:

"Even if you have never worked under Social Security, you may be able to get spouse's retirement benefits if you are at least 62 years of age and your spouse or ex-spouse is receiving or eligible for retirement or disability benefits.

If you begin receiving benefits at your full retirement age, your benefit can be equal to one-half of your spouse's full retirement amount."

Monday, June 24, 2013

Joint Tenants with Rights of Survivorship vs. Tenants in Common

There’s a common saying that it’s the little things that make the biggest difference. That is clearly illustrated in this discussion of “tenants in common” and “joint tenants with rights of survivorship.”

What are tenants in common (TIC) and joint tenants with rights of survivorship (JTWROS), and when do they apply?

When two or more people own a property or asset, such as a stock, each individual owns a share (or interest) of the whole, either as joint tenants or tenants in common. 

Monday, June 17, 2013

Insurance Company Ratings

Lately, it seems that the headlines are filled with natural disasters – tornadoes in the Midwest, wildfires in the West and hurricanes in the Southeast and Mid-Atlantic are some of the most recent examples. We’ll leave the debate as to whether these events are happening in increasing frequency to others, but one fact that is not debatable is the destruction that these disasters leave behind. The aftermath can be devastating and, as always, our thoughts and prayers go out to those impacted.

From a financial planning perspective, we often hear a common question posed in light of these events: Is the insurance industry financially sound? The simple answer is yes. Overall, the insurance industry is on solid financial ground and has survived wars and conflicts, natural disasters and financial crises (including the Great Depression and the Great Recession). In an article from 2011 discussing the possible impact of a US Treasury ratings downgrade, the Insurance Information Institute stated insurance companies could not only meet their obligations, but had a cushion of $500 billion, sufficient to cover 12 Hurricane Katrinas – the costliest natural disaster in US history1.

Wednesday, May 22, 2013

Special Needs Trust Part 2: Trustee Appointment

The following is Part 2 of last week's post titled Special Needs Trust Part 1: Planning Ahead.

In addition to the Special Needs Trust, there are other financial and legal considerations to be made concerning people with disabilities. As with any trust, a trustee must be appointed to oversee the assets held in trust. Often this is a parent of the individual with the disability. However, a growing concern for many is that the individual with the disability may outlive their parents thanks to improvements in treatment and care. So, decisions should be made as to who will serve as trustee in that scenario. 

Monday, May 20, 2013

Special Needs Trust Part 1: Planning Ahead

The following article is written in two parts – the first focused on the properties of a Special Needs Trust. Catch our blog next week for Part 2: Trustee Appointment.

Did you know that the largest minority group in the United States is people with disabilities?

For families affected by disability, especially physical and developmental disabilities, the care needed can be daunting – physically, emotionally and financially. While many government programs exist to aid these individuals, they still fall short in most cases and, in the current economic environment, face budget cuts.

Friday, April 19, 2013

Tax Brackets and Tax Rates

Do you know what your tax rate is? 

That’s a trick question as you really have two tax rates:  1) your Marginal Tax Rate and 2) your Effective Tax Rate.

To understand each, you need to understand our tax system. The U.S. tax system is not based on a single tax rate, but rather a series of tax rates known as tax brackets based on your amount of taxable income. Everyone pays the same tax rates at each income level, and the more taxable income you have, the higher your tax rate.

Wednesday, March 13, 2013

Life Insurance - Perceptions vs. Reality

Life insurance is often misunderstood by many retirees. In my many years as a financial planner, I have learned that most people (myself included) have some type of bias they bring to any situation, including their finances. It’s very challenging to step back, remove the emotion of these misconceptions and objectively evaluate a situation, especially when it comes to life insurance.

Recently, I had a client who was dissatisfied with their life insurance agent. Because of their bad experience with that individual, they had developed a negative bias towards life insurance in general. After much discussion, the client explained that one of their major concerns was that if either spouse passed away, the surviving spouse would only receive one of their two current Social Security checks. Their previous life insurance agent had attempted to take advantage of this concern for the surviving spouse by “selling a product” and it had left a bad taste in their mouths.

Friday, February 22, 2013

Life & Retirement Planning - The Big IF in Life

I usually tell people that there’s a big IF right in the middle of life. Just as you never know what may happen in the game of Life, there are many “what ifs” when retirees begin to plan for their retirement. For retirees and soon to be retirees, there are many ifs running through their minds.  One of the biggest retirement planning concerns is if they will outlive their income.  The good news is that there are products, processes and plans available to help mitigate longevity risk (outliving one’s income).

We typically address 3 core retirement planning scenarios with our clients:

Tuesday, February 12, 2013

The Handy Adder – A Blast from the Past

In the Kemp household, whenever we have a lively dinner table conversation, inevitably, my work as a financial planner comes into play. Recently, my son asked me about these red mechanisms with buttons he’s been observing at his job at the local grocery store. After some discussion, we determined that it was a Handy Adder - a true blast from the past.

After that, everyone was very interested in what the Handy Adder is and why my son was seeing people use it.  The Handy Adder is a small handheld adding machine.  I explained that it wasn't long ago that people used cash or personal checks at the grocery store instead of credit cards.  They had to make sure they had enough cash in their wallet or money in their checking account to cover the bill, so every dollar and cent mattered.  The Handy Adder is an effective way to track each item you plan on purchasing to keep your budget under control.

Friday, February 1, 2013

Mortality Credits and Period Certain

Mortality credits and period certain are two important concepts not to overlook when discussing the features of a life annuity product.  Many people aren’t familiar with these essential terms.   

Consider this: Doug and Helen walk into a bank. Doug is 20 years old and Helen is 70 years old. They both tell the bank officer that they have $100,000 to invest and want to take the most interest they can get for the rest of their lifetimes.

Because of her age, Helen has a distinct advantage in her number of choices.  Helen could simply put $100,000 in a bank CD and take the current interest rate of 2% on a five-year CD.

Wednesday, January 16, 2013

Social Security Benefits - When to Begin Collecting Them

As with most financial planning topics, this question, although seemingly straightforward, is actually rather complicated. As a result, when it comes to retirement planning, there are few issues that raise as much interest right now as Social Security.

Although it’s been around since 1935, most people today still admit knowing very little about Social Security and how it works. Yet, it is an important aspect of any retirement plan. Consider the following statistics:
  • Nine out of ten individuals age 65 and older receive Social Security benefits.1
  • Social Security benefits represent about 39% of the income of the elderly. 1
  • Social Security provides more than half of the income for nearly two-thirds (65%) of elderly beneficiaries.2
  • For almost four out of ten elderly recipients (36%), Social Security provides more than 90% of their income.
According to the Social Security Administration, the average monthly benefit being paid to current retirees is $1,234 per month. For a 66-year-old man with an average life expectancy of 82, this represents total payments of well over $200,000 in today’s dollars.
With so much at stake, the decision to begin Social Security benefits becomes a critical one. Let’s review the basics, setting aside for the moment the rules of eligibility.

Tuesday, January 8, 2013

Prisoner of Wealth

Very rarely would someone ask: are you or have you ever been a POW (“Prisoner of War”).  If you were asked that question, you might ask what in the world they are talking about or jokingly respond that you are indeed a prisoner – a prisoner of work.  But certainly, no one would admit to or even consider being a “Prisoner of Wealth."

The primary step to financial freedom is to free yourself from all the things that make you a Prisoner of Wealth. What do I mean by Prisoner of Wealth? The story of the Monkey Trap is a great way to illustrate this theory.