Archive for January, 2014:

myRA new type of retirement account launching

Written on January 31st, 2014 by Jamesno shouts

In the state of the union the President announced a new type of Retirement Account for people without access to an employer sponsored retirement plan.  The “myRA” works similar to a Roth IRA, but with higher contribution limits.  Only catch is there is just one investment option, Government Bonds.

Read More:

Filed under Investing, Personal Finance Tags:

Medicare rates increasing?

Written on January 30th, 2014 by Jamesno shouts

Medicare premiums have been based on a sliding scale related to household income since 2007.  There has been some chatter that the current 4 means tested brackets aren’t cutting it as far as meeting the programs needs.  This Marketwatch article discusses some potential changes to increase the number of brackets and possibly raise rates across the board.

While keeping an eye on this, as you can see from the breakdown you would have to be a high earner or quite a nice retirement income to pay more than $146/month in Part B premiums.  Currently this isn’t a huge concern, but something to keep on the radar in case of changes in Washington:

end of Social Security benefit taxation?

Written on January 23rd, 2014 by Jamesno shouts

If you are presently receiving or at some point in the future intend to claim social security benefits you need to be aware of how those benefits are taxed.  Below is simply some early education for younger readers but important info for those collecting benefits already:

The first thing you need to do is add up the income formula to determine your Social Security tax base:

take your Modified Adjusted Gross Income (MAGI) + 1/2 of your social security benefits + tax free income from muni- bonds (yep you have to add this in even though no income taxes on it) and this will (=) equal your social security benefit tax base.

If you are Married Filing Jointly (MFJ) and this number is less than $32,000 your social security benefit is not taxed.  If you are between $32,000 and $44,000 then 50% of your SS benefit is subject to income taxes and over $44,000 then 85% of your social security benefit is subject to taxes.

With that said, a bill was announced this week in Congress to end the taxation of social security benefits.  Click here to read more:

Kareem Abdul Jabbar’s take on retirement

Written on January 21st, 2014 by Jamesno shouts

I work with a lot of folks in the transition to retirement.  The easy part if figuring out the numbers part of the equation, the more difficult part is what those clients intend to do in the next chapter of their lives.  I came across this article with Kareem Abdul Jabbar in this month’s Rotarian magazine and felt it was worthy of sharing.  This guy really has a great perspective that we could all learn from, hope you enjoy:

Filed under General, Personal Finance Tags:

why claiming strategies matter – Social Security part 2

Written on January 16th, 2014 by Jamesno shouts

Last week I admitted that I had finally seen the light and realized that taking social security as soon as you qualify might not be the best decision.  This week we will look at a case study and explore a bit further.

First things first, let’s go through some basic SS terminology:

  • FRA: full retirement age:  for many retiring in the next few years this is 66
  • PIA:  primary insurance amount – this is your benefit at FRA derived off your AIME (avg indexed monthly earnings over 35 years)
  • Delayed Retirement Credits:  the amount your PIA increases by delaying benefits past 66 (FRA)

As a rule of thumb your benefits are 75% of your PIA at age 62 and they are 132% of your PIA at age 70.  So now that we have the basics out of the way let’s look at a case study with Bob and Betty:

Bob’s PIA at 66 is $2000 and Betty’s PIA at 66 is $800.  We will assume their life expectancy is 85 and 90 respectively (this is important)

  1. If both were to file this year (bob is 63 and betty is 62) and reach their life expectancies the total cumulative benefits will be $758,863.
  2. If both wait until FRA (66) then the total cumulative benefits would be $831,000.
  3. If both wait until age 70 then the total cumulative benefits would be $865,392.
  4. However, if they optimized a strategy where Betty claimed at 64 on her record only and Bob takes spousal benefits, then they switch to Bob’s benefits at age 70 the total cumulative benefits would be $913,765!

Did I make a believer out of you?  $150,000+ more in social security benefits over the course of their retirement by working on an optimization strategy.  There are a number of factors to consider in these strategies such as life spans and figuring out what the ultimate objectives are:  maximum cumulative benefits or maximum longevity risk against depleting financial assets.  One factor many overlook is what happens when the higher earning spouse dies?  In this case if Bob dies then we have to be concerned with maximizing Betty’s survivor benefit, this could have a huge impact in cumulative benefits if Betty were to live to 95.

Next week we will jump into some other factors to consider and maybe another case study.


why my thinking was wrong: Social Security part 1

Written on January 9th, 2014 by Jamesno shouts

As financial planners, in the course of our certification classes we are required to learn and know the workings of social security so that we can guide clients through the process.  With that said, what we learn are the basic rules of the system like when you can claim benefits, reductions if you take them early or increases if you delay, how much you can earn and collect benefits, tax rules, etc.  More of a factual type underlayment of the system.

Over the past few months I have taken a keen interest in going further into the strategies that surround social security and how best to guide clients in optimizing those benefits.  As I have been reading as much material as I could find on the topic it led me to a nifty software package that allows me to build specific strategies for each client so they can get a visual of how the different claiming strategies add up over time, but moreso I have come to the realization that I had some ingrained biases that I needed to lose in order to guide clients more effectively when it comes to social security.

The main bias is that like you, I hear the statistics that Social Security system is “going broke” and will run out of money in roughly 20 years.  So naturally, my nature is take what you can get as soon as you can get it.  (ie. take benefits as soon as you retire).  It also meant that when I plan for younger clients I don’t include social security in their analysis as we generally agree that we can’t count on it being there.  While the assumption for younger clients may have some validity, most likely it is false and the assumption for retiring clients is absolutely false.

Why the change in thinking, you ask?  Quite simply it came to me over the past couple of weeks as I was pondering the question of why hasn’t the governments QE program of printing $85 billion per month in stimulus not caused inflation?  Actually the two topics are quite different but it goes back to the almighty power of government and the US dollar.  Social Security will never go broke because with the stroke of a keyboard the Federal Reserve can fill the coffers of the US Treasury and social security checks will continue. 

So with that general realization that Social Security will not disappear (yes, they can change retirement ages, etc) I am doing a much more strategic analysis of how to claim benefits for clients and will begin to share some strategies in a multi-part blog process over the next few weeks.  To bring you up to speed on the particulars of different strategies there is a great research website dedicated to social security.  It is by the Center for Retirement Research at Boston College.  They have published an E-Book, PDF Guide and downloadable brochure that will give you all the basics (it is directed toward the public, so don’t worry about high level details).  Here is the link to begin your journey of learning more about social security: Center for Retirement Research

If you are close to retirement or have a family member that is, go ahead and read up with those guides.  I’ll do some brief case studies in the weeks ahead to highlight how some claiming strategies can differ by over $200,000 in cumulative benefits and why you need to know the options.

knock out resolution #1

Written on January 2nd, 2014 by Jamesno shouts

We all know that personal finance rates right up there with going to the gym as one of the top New Years Resolution’s.  So I’ve decided to make it easy for you this year.  Here is a completely free tool that you can use to test your “Retirement Readiness”.  It’s confidential and you don’t even have to enter any personal info.  No one will call you.  I won’t solicit you.  Yada Yada….

To try it out, just click on this link and then click again on the button that is right center of the webpage, that’s about as easy as I can make it:

If that gets you pumped, then consider a few of the calculators that I have on the website:


Now the official disclosure:  these are calculators.  Results are not guaranteed.