What Impact Does Working Have on My Social Security Benefits?
There is a lot of confusion about the impact of working on those who are taking their Social Security benefits. Here are a few things to know.
· If you are drawing a benefit and you are younger than your full retirement age or FRA (66 for those born prior to 1960) your benefit will be reduced by $1 for every $2 in earned income over $15,720 in 2016.
· This drops to $1 for every $3 in earned income over $41,880 in the year in which you reach your FRA.
· Once you reach your FRA there will be no reduction in benefits no matter how much earned income that you have.
· Earned income is defined as income from work or self-employment and includes such things as your salary, any bonus or your net self-employment income.
· Any benefits that are reduced due to too much earned income are not truly lost, they will be added to your benefit once you reach your FRA.
In addition, your benefit could be subject to taxes if your combined income exceeds certain thresholds. Combined income is your adjusted gross income plus one-half of your Social Security benefit plus any income earned from tax-exempt investments like muni bonds. There is no age limit here and this includes income from all sources, earned or unearned.
Social Security can be confusing and if you have any questions regarding your benefits, including when to claim them, contact your local Social Security Administration office a call to schedule a meeting.
When Your Nest Egg Looks Scrambled
Approaching age 50 with no nest egg, or a small one can create a feeling of panic. Some people have a number in mind, such as 1 million, and set that as a savings goal even though they have barely started saving. Is that a realistic retirement savings number and what should you do to try to reach it?
Start Saving and Investing- A good place to start is to double what you should have started to save twenty years ago which is now close to 30%! If that doesn’t seem possible, take a look at what you are currently saving and investing and increase it as much as possible.
Work Longer- The traditional retirement age of 68 maybe needs to be pushed out to age 70 or 72 for you. The longer you work, the more you will accumulate in retirement savings and social security.
Consider Selling Your House- If your house is more than 60% paid off, consider selling and purchasing a smaller home (with cash, no loan), and investing the excess. Take note of property taxes, repairs needed, and if downsizing will benefit you. Factor in the area you’re living in to determine if you should move to a more affordable area of the country.
Have a Financial Plan Done Each Year- Keeping current on your saving progress, evaluating and adjusting your portfolio are very important to your success. Even if you feel you aren’t making much progress, it’s important to meet and keep you working towards your goal.
Not having enough retirement savings is a serious thing and I want to help you as much as possible. Making informed decisions by evaluating your progress will help you ‘unscramble’ a future retirement mess.
Letting Go Of a Losing Investment
Letting go is never easy, especially when you have to change your thoughts to what things really are, not what they once were. Sometimes people use irrelevant information they have from the past as a reference point to help them decide something now, even if that information has no bearing today. For example, deciding to buy a new construction house now, thinking that it should cost the same as the one you bought 20 years ago! This use of irrelevant information to make decisions now is called “Anchoring” by psychologists.
When it comes to investments, the same “Anchoring” can happen. Investors will hold onto an investment while waiting to break even with what they paid instead of selling it to realize a loss. Investors can take on an even greater risk while they wait hoping it will go back to its purchase price.
By meeting regularly to review your investments, together we can determine if there are some “anchors” that are causing rough sailing in your investment plan.
What the New Fiduciary Rules Mean for You
In early April the Department of Labor released the final version of their fiduciary rules. These rules apply to financial advisors who provide advice on retirement accounts such as an IRA or a 401(k). The rules state that the advisor must act as a fiduciary, in other words that we must provide advice that is in your best interests. For most financial advisors this is nothing new, though based upon the manner in which they are compensated or the financial products recommended, additional disclosures might be required.
Most notably financial products where commissions are involved will require the execution of a disclosure document called the Best Interests Contract Exemption or BICE. The DOL spells out a number of situations where this disclosure is required, both for advisors who earn compensation via commissions and fee-only advisors.
The DOL listened to the financial services industry and the final rules were modified to be more workable for financial advisors while still providing the disclosure and protections that clients and investors like you deserve.
Depending upon your financial advisor’s business model you may see some changes in the way they do business, or in some of the products and services offered to you.
If you have any questions about these new rules and how they impact you, please contact our office to set up a meeting. Our mission has always been to do what is best for our valued clients and that remains unchanged.